Paypal's Stablecoin (PYUSD) will finally bring mainstream adoption to crypto, or will it?
Article by CryptoJelleNL
After PayPal announced its own stablecoin PayPal USD, it's clear that Bitcoin Spot ETFs are not the only institutional race for a piece of the crypto-pie. In today's article, I dive into what PayPal USD is, why it exists, and why I believe it will significantly boost the adoption of cryptocurrency as a whole. Let's dive in!
What is PayPalUSD?
Similar to USDT, USDC, and TUSD, Paypal USD (PYUSD) is a dollar-denominated stablecoin designed for online payments and use in the world of cryptocurrency. PayPal USD is fully backed by deposits in U.S. dollars, short-term U.S. treasuries, and similar cash equivalents – which means that all PayPal USD can be quickly redeemed for fiat currency through the PayPal platform and/or app.
In the statement announcing their stablecoin, PayPal explains the primary purpose of PYUSD is to enable frictionless virtual payments within the crypto ecosystem. One of the biggest benefits of PayPal's stablecoin – while only being available to U.S. customers at the moment – is that it can be easily converted into fiat currency on the PayPal platform.
PayPalUSD's regulatory edge over crypto-native stablecoins
It's not all similarities to the existing suite of stablecoins though, as PayPal has a clear advantage over its existing competition when it comes to regulatory compliance. PayPalUSD is issued by Paxos, which is overseen by the New York State Department of Financial Services (NYDFS), which means that in the event of financial trouble, the NYDFS would ensure that investors still get their money back – an assurance you would not get when holding USDT, for example. Moreover, PayPal holds a coveted BitLicense, a permit that allows businesses to engage in cryptocurrency related operations, in the state of New York.
While Paxos recently halted the issuance of BUSD over concerns of BUSD being an unregistered security, it is expected that the PayPal-backed stablecoin will face less regulatory scrutiny – especially considering that Paxos has started to publish monthly reserve reports for PYUSD – transparently showing the stablecoin's reserves. These reports will be validated by an external accounting firm, in accordance with the standards defined by the American Institute of Certified Public Accountants.
All in all, it looks like PayPal has a clear competitive advantage over the stablecoins we've grown accustomed to more regulatory clarity.
Why did PayPal launch a stablecoin?
PayPal has long wanted to position itself in the crypto markets. After launching a product allowing the buying and selling of a small number of cryptocurrencies in 2020, a service that allowed customers to pay businesses in crypto in 2021, and the option to withdraw cryptocurrencies held in the PayPal platform to external wallets in 2022, offering a stablecoin is just another step in PayPal's long-term scheme to establish itself as a major player in crypto.
The timing of this stablecoin launch comes as no surprise, as the US House Financial Services Committee recently advanced a bill to establish regulatory frameworks for stablecoins. The bill passed a day after the committee passed another crypto-related bill, aiming to develop a regulatory framework for cryptocurrency as a whole and to clarify when a token is a security, and when it is a commodity.
All in all, it is clear that regulation is coming to crypto, and this gives PayPal a clear advantage. They launched a stablecoin because they expect to be able to take market share away from the likes of Tether and Circle. While PayPal themselves expect that PYUSD will at first be primarily used by seasoned crypto heads, they expect a wider user base to be reached in due time.
Why PayPal's stablecoin will boost adoption
The previous paragraph outlines precisely why I like the PayPal developments – it will likely onboard new users into crypto, users that are skeptical of cryptocurrency as it is – but have used PayPal (and its subsidiaries, such as Venmo) a lot in recent years. Essentially, a PayPal-branded stablecoin could be seen as a "stamp of approval" from a reputable name in personal finance.
A large share of the American demographic has not once wanted to touch crypto, saying that the industry was riddled with scams and that it lacked reliable names to count on. Say no more, PayPal is here to hold your hand on the journey into crypto-land.
Jokes aside, I genuinely believe companies like PayPal are making it easier for non-crypto natives to be onboarded, especially when we consider that PayPal has hinted that its stablecoin will eventually be available on Venmo. The link between a reputable name like PayPal, and the unknown industry of crypto will significantly boost crypto's name, and help say goodbye to it's bad reputation.
So long, decentralization?
Some worry that the onboarding of new users in this form will come at the cost of decentralization. There is a clear conflict of interest between PayPal's mission to amass market share, and crypto's mission to be as decentralized as it can be, and to promote the values of financial freedom, without interference from a third party.
While PayPal's stablecoin is permissionless, in the sense that it does not need PayPal to approve or deny a transaction, PayPal will likely be able to freeze certain wallets or block certain transactions.
With PayPal's reputation for blocking transactions and freezing accounts of activists, protestors, and white supremacist groups, it makes sense that the crypto-community is worried about what will happen if PayPal does manage to attain a sizeable market share.
However, this trend is not unique to PayPal, and I don't think PYUSD will gobble up established parties like Tether or Circle anytime soon. In my opinion, the threat to decentralization is far inferior to the opportunity for PYUSD to onboard swaths of new people into this industry, and finally push the entire industry into mainstream adoption.
Conclusion
We're witnessing crypto mature in front of our very eyes. Spot ETFs are - in my opinion – a matter of time, PayPal wants to bring stablecoins to its 430 million users, and the U.S. government is actively trying to wrap its head around things like staking and yield farming.
All of these institutions want a piece of the pie. And why this can be scary, I think we're best off embracing it. Hold on tight, enjoy the ride, and we'll soon be coasting in a new bull market.
Good luck.
Author's Disclaimer: This article is based on my limited knowledge and experience. It has been written for informational purposes only. It should not be construed as trading or investment advice in any shape or form.
Editor's note: CryptoJelleNL provides insights into the cryptocurrency industry. He has been actively participating in financial markets for over 5 years, primarily focusing on long-term investments in both the stock market and crypto. While he watches the returns of those investments roll in, he writes articles for multiple platforms. From now on, he will be contributing his insights for WOO as well.
Check out his twitter: twitter.com/cryptojellenl
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