PayPal (NASDAQ: PYPL) users will have a new way to send money now that the company has launched its own stablecoin called PayPal USD (PYUSD).
The company announced on Monday that the stablecoin is completed backed by U.S. Dollar deposits, as well as short term U.S. Treasuries and other cash equivalents, and can be redeemed 1:1 for U.S. dollars.
Customers in the United States can trade and transfer PayPal USD between accounts and compatible external wallets. Additionally, they can initiate person-to-person payments using PYUSD. When making purchases, they have the flexibility to fund transactions with PayPal USD by selecting it at checkout.
Additionally, the update gives users the ability to seamlessly convert any of PayPal’s supported cryptocurrencies to and from PayPal USD, making the platform even more versatile for cryptocurrency enthusiasts.
“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,” said Dan Schulman, president and CEO, PayPal.
“Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.”
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PayPal’s stablecoin seamlessly connects to most exchanges
Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to an underlying asset, which is often a fiat currency like the U.S. dollar. However, some stablecoins may also be tied to commodities or other financial assets to ensure their price stability. The aim is to offer the benefits of digital currencies while minimizing the price volatility commonly associated with other cryptocurrencies like Bitcoin and Ethereum.
PayPal USD is an ERC-20 token, which is minted off of the Ethereum blockchain’s coin-creating mechanism, making it available to an large and growing community of developers, wallets and other web3 applications. Being a native ethereum token also makes it compatible with most exchanges, and therefore, serves adequately as a bridge between the cryptocurrency and PayPal ecosystems.
The new stablecoin will make paying for things in virtual worlds like The Sandbox and Decentraland easier and smoother. It’s also handy for developers and creators to receive payments directly.
It’s also issued by Paxos Trust Company, which is fully licensed and regulated by the New York State Department of Financial Services. To ensure the stability of PayPal USD, the reserves backing it consist of U.S. dollar deposits, U.S. Treasuries, and similar cash equivalents. This means that every unit of PayPal USD is backed by an equivalent value in real U.S. dollars and safe financial instruments.
Starting in September 2023, Paxos will release a monthly Reserve Report, accessible to the public, which will detail the specific assets making up the reserves. Additionally, an independent accounting firm, following the standards set by the American Institute of Certified Public Accountants (AICPA), will provide a third-party attestation of the value of the PayPal USD reserves. This commitment to transparency and external validation aims to assure users that PayPal USD is secure and trustworthy.
Apart from developing useful products and services related to digital currencies, PayPal is also dedicated to educating consumers and merchants about cryptocurrencies, stablecoins and central bank digital currencies (CBDCs).
As the industry evolves, PayPal actively collaborates with regulators to ensure compliance and foster responsible growth.
Additionally, customers can buy, hold, sell and transfer select cryptocurrencies through the platform. To help users make informed decisions, PayPal offers educational content that explains both the risks and opportunities associated with this technology. The company’s goal is to promote understanding and awareness while providing valuable services for digital currency users.
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A rough year for stablecoins
Stablecoins have been a subject of significant debate among crypto stakeholders in the US over the past year. Binance, the world’s largest crypto exchange, has raised concerns about Tether’s USDT, the largest stablecoin by market cap, due to its lack of transparency and audit reports.
Additionally, according to a study published by CCData in mid July, the stablecoin market cap decreased by 0.82 per cent from the beginning of the month, resulting in a market size of $127 billion.
During a Capitol hearing, Federal Reserve Chair Jerome Powell recognized stablecoins as a form of money and emphasized the importance of central bank credibility in the currency. However, the SEC Chairman Gary Gensler is actively seeking to shut down cryptocurrencies other than Bitcoin, Bitcoin Cash, Litecoin, or Ethereum, categorizing them as ‘securities.’
Paxos, the company responsible for issuing PayPal’s stablecoin, is currently facing a lawsuit filed by the SEC for alleged failure to register with the agency. This situation adds further complexity to the regulatory landscape surrounding stablecoins and digital assets.
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