In early August, 2023, PayPal (PYPL) announced the launch of their own USD stablecoin called PayPal USD (PYUSD). Though it’s nothing novel, there is something to be said about a major traditional finance company now wanting to offer a stablecoin for digital asset markets.
Is it the boon crypto regulation needs, or just another attempt by a company to get a piece of the pie? Let’s first explain PYUSD before delving into what it means for crypto.
PayPal USD (PYUSD) Explained
PayPal USD is a new stablecoin that’s fully backed by US dollar deposits, US treasuries, and similar cash equivalents. You can buy and sell 1 PYUSD for 1 USD on PayPal and it’s issued by Paxos, who have their own stablecoin Pax Dollar (USDP).
PYUSD is an ERC-20 token, meaning it can be used on the Ethereum blockchain network iwhen PayPal rolls out the infrastructure for you to withdraw PYUSD to an external wallet such as MetaMask. There is little to no difference between PYUSD, Tether USD (USDT), USD Coin (USDC), USDP, and any other ERC-20 based stablecoin. All of the ones mentioned are backed in the same way the PYUSD is, meaning none of them are any safer than the others.
PYUSD will only be available to US customers and will have the following features as announced by PayPal:
- Transfer PayPal USD between PayPal and compatible external wallets
- Send person-to-person payments using PYUSD
- Fund purchases with PayPal USD by selecting it at checkout
- Convert any of PayPal’s supported cryptocurrencies to and from PayPal USD
Fine Print in PYUSD’s Code
One contentious issue regarding PYUSD has already popped up in the cryptocurrency community, and is something that hasn’t in any way been disclosed by PayPal yet. Like Tether (USDT), PYUSD has code built into it that allows it to be frozen. Users’ wallets can be frozen and Paxos can withhold users’ funds and assets, as well as wipe the account clean if the law requires it.
This means that you could potentially wake up to an empty account without having any say in it, or you could find yourself unable to move your own money. Something to keep in mind if you’re interested in PYUSD.
PYUSD’s Impact on Crypto
There is likely to be a minimal effect on the overall crypto community because of PYUSD. It may help crypto be adopted by those that are less confident in it, but it’s not like the stablecoin is a new concept. Nor can it really be used for much more than any other stablecoin that’s already on the market.
The convenience of being able to connect it to your bank account may be one good benefit of PayPal and PYUSD, however, that depends on how much control you want to give to corporations over your funds.
PayPal’s Real Objective
The reality is that PayPal wants to make more money, and that most money on PayPal gets withdrawn to bank accounts rather than being held on the platform. This is because you can’t earn interest on PayPal balances. However, if you hold PYUSD, PayPal can themselves.
It’s likely that PayPal is hoping that if PYUSD can be used at a variety of merchants globally, people are more likely to convert funds into PYUSD and then hold them on the platform. This then allows PayPal to make money on your deposits because they hold real USD and stuff like short-term treasuries issued by the US which are offering interest rates of 5%. PayPal keeps all of that extra interest, increasing their overall profitability. They have in no way alluded to users being able to earn interest on their PYUSD holdings.
Closing Thoughts: There Are Less Centralized Options
PayPal’s new stablecoin may end up being a good thing for cryptocurrency regulation, especially if people start swapping it for assets like Bitcoin. However, there’s no real difference between it and the other stablecoins on the market, and you can’t earn interest on it like you would fiat in a bank account.
You also won’t be able to put it in a liquidity pool on a decentralized exchange like other stablecoins such as USDC and USDT to earn interest, as PayPal wouldn’t allow it (and could wipe the pool of PYUSD). Overall, there aren’t necessarily “better” options, but there are less centralized ones, and you should keep that in mind when dealing with stablecoins.
