Politicians, evangelists, market analysts, and haters are waiting to see what this week’s PayPal launch means for the legitimacy of cryptocurrency.
Key Details
- On Monday, PayPal announced the launch of its Stablecoin exchange, allowing crypto investors to exchange cash for crypto quickly and easily, 1:1 for U.S. dollars.
- PayPal USD (PYUSD) is a new currency native to the exchange that allows users to transfer, send, purchase, or convert treasury funds or dollar deposits within the exchange and with compatible external wallets.
- PYUSD, pegged to the value of the U.S. dollar, was issued by brokerage partner Paxos Trust Company, although details of the partnership are unclear.
- PayPal sees stablecoin as a means of generating long-term optionality for new revenue streams, even if stablecoins are not widely embraced by the crypto economy.
- PayPal’s stocks are momentarily down 1.5% from Monday morning.
Why It’s News
The launch marks one of the largest incursions into the crypto space by a mainstream global payments firm and could stand to legitimize the crypto market by providing safe and stable backing for crypto trading online. PayPal says it sees “emerging potential” to “transform payments in Web3 and digitally native environments.”
“The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar,” says PayPal CEO Dan Schulman.
Critics see the launch as being less impressive. As Quartz reports, the PYUSD launch was likely more of a market stunt or a branding gimmick—a means of garnering a quick profit from energy in the crypto space. PayPal’s partnership with Paxos limits its exposure to bank runs and market volatility. The stablecoin’s legitimacy as a currency remains unclear.
Paxos faced scrutiny from the U.S. Securities and Exchange Commission earlier this year over allegations of securities fraud and was ordered by the New York Department of Financial Services to stop printing new BUSD stablecoins.
Notable Quote
“The difference [between us and other stablecoins] is significant because we have a prudential regulator. In our case, you have a regulator overseeing every activity involved in the issuance, including reserve management. It means no matter where you are in the world, anybody who has this token is protected by the oversight and the rules that are set for us by New York,” Paxos strategist Walter Hessert tells CoinDesk, who calls the launch a “watershed” moment for crypto.
“This suggests that Paxos may not be doing the due diligence on its partners it should,” says The Dig editor Francine McKenna.