Online payment processing giant PayPal has finally announced the launch of its long-awaited dollar-denominated stablecoin in an Aug 7 press release. The PayPal USD (PYUSD) token will be issued in partnership with Paxos on the Ethereum blockchain, and will be fully backed by U.S. dollar deposits, short-term U.S. treasuries and similar cash equivalents.
First reported by Bloomberg back in January 2022, the stablecoin launch was initially expected around six months ago, but was delayed after the U.S. Securities and Exchange Commission (SEC) issued a Wells Notice against issuing partner Paxos. While the Wells Notice was related to the sale of Paxos’ own BUSD, and not the PayPal venture, it did convince PayPal to put its own plans on pause, as we Observed back in February.
PayPal USD can be bought and sold through the PayPal app or website at 1:1 parity with the U.S. dollar. It can be sent to friends and family via the PayPal platform with no transaction fees, and used to fund online and Web3 purchases by selecting the PYUSD balance at checkout.
The stablecoin can be exchanged for any of the other cryptocurrencies supported by PayPal (currently Bitcoin, Bitcoin Cash, Ethereum and Litecoin), but fees will apply to such transactions. As an ERC-20 token, it can also be sent to any external Ethereum wallet, although this will naturally incur network gas fees.
Rollout of PayPal USD functionality has already begun and the company plans to cover the entire United States with the exception of Hawaii in the coming weeks. There are also plans to make PYUSD available in the Venmo mobile payments platform, which has been owned by PayPal since 2013.
Speaking to CoinDesk, Paxos has called the launch a ‘watershed moment’, as unlike current stablecoins such as tether and USDC, the PYUSD issuer is a trust company regulated by the New York Department of Financial Services (NYDFS). This means that every stage of the issuance is overseen by the regulator, and token holders anywhere in the world are protected by the rules of the regulator.
Key among these is the removal of the risk of bankruptcy of the issuing company, as Paxos head of strategy, Walter Hessert explained:
“Customers' assets are protected, including if Paxos were to go bankrupt – a situation we now see with a bunch of companies in crypto. If you can end up sitting in line as a general creditor of a private company that issued you a stablecoin, that’s not as good as a physical dollar.”
If Paxos were to face bankruptcy, the NYDFS would hold PayPal USD out of the bankruptcy proceedings, and funds would be returned to all token holders.
Both Tether and Circle have played down concerns of PayPal eating away at their market share, but with such a major payment industry player now issuing its own stablecoin, it will be interesting to Observe which way the market goes next.