The stablecoin landscape is stirring again: unveiling the new member PYUSD from payment giant Paypal

Author: Daniel Li, CoinVoice

In the wave of the digital age, traditional finance and cryptocurrency have become the focus of public attention. However, there seems to be an invisible divide between these two fields, making their connection appear vague and distant. Now, an emerging stablecoin called PYUSD is rapidly bridging this gap, becoming a solid bridge between traditional finance and cryptocurrency.

As the first compliant stablecoin issued by a "non-crypto" company, the emergence of PYUSD carries significant symbolic meaning. It represents the traditional financial industry's further exploration of cryptocurrency, while also indicating a notable shift in corporate attitudes towards stablecoins, a change that suggests a gradual increase in the acceptance of regulatory policies. In the future, this change will undoubtedly further promote the integration of Web3, traditional finance, and the real world. PYUSD will play an important role as a bridge connecting them.

PYUSD May Become America's "Digital Dollar"

Recently, the American version of "Alipay," PayPal, announced the launch of the PYUSD dollar stablecoin, marking it as the first mainstream financial services company to adopt cryptocurrency for payments and transfers. The value of PYUSD will be pegged to the US dollar, backed on a 1:1 basis by cash deposits, US short-term government bonds, and other equivalent cash reserves.

The goal of PYUSD is to allow for instant conversion to US dollars, while also being exchangeable for other cryptocurrencies offered on the PayPal network. To achieve this, PayPal plans to introduce PYUSD into its payment application Venmo, enabling users to freely send and receive tokens between PayPal and Venmo wallets. Additionally, as an ERC-20 token based on the Ethereum blockchain, PYUSD can also be transferred to third-party wallets compatible with PayPal, providing users with broader choices and flexibility.

To ensure the stability and functionality of PYUSD, PayPal will first conduct payment tests among institutions before quickly opening it up to US PayPal users. In the future, eligible US PayPal customers will enjoy the following benefits:

• Transfer PYUSD between PayPal and compatible external wallets.
• Use PYUSD for person-to-person payments.
• Choose to use PYUSD for purchases at checkout.
• Convert any cryptocurrency supported by PayPal with PYUSD.
• Buy, sell, hold PYUSD, or transfer PYUSD to eligible US PayPal balance accounts without incurring any fees.

Furthermore, to increase transparency and trust, PayPal stated that starting in September, Paxos plans to release a public monthly reserve report for PYUSD, detailing the assets that make up its reserves. Additionally, Paxos will commission an independent third-party accounting firm to publicly verify the value of PYUSD's reserve assets, following the verification standards set by the American Institute of Certified Public Accountants (AICPA) to ensure accuracy and reliability.

It is also worth noting that PYUSD and its reserve assets will be strictly regulated by the New York Department of Financial Services (NYDFS), meaning that even in the event of Paxos Trust's bankruptcy, customer assets will not be used to repay Paxos's liabilities. This alone puts PYUSD ahead of the vast majority of stablecoins currently available.

According to PayPal's future plans, PYUSD will first be launched on its payment application Venmo. This move is strategically significant, as PayPal has 430 million active users worldwide, and the launch of PYUSD on Venmo can quickly expand its user base in a short time. Moreover, PayPal's leading position in online payments globally provides a solid foundation for the global promotion of PYUSD. At the same time, PayPal's extensive commercial partnership network will bring PYUSD into more application scenarios, potentially making PYUSD a globally accepted "digital dollar" widely used in daily consumption through the PayPal payment network.

PayPal Launches PYUSD Stablecoin: Building the Future of Web3 Business Scenarios

PayPal's stablecoin plan has been in preparation for a long time, but progress has been slow due to regulatory policy impacts. According to the contract address for PYUSD released by Paxos, PYUSD was minted as early as November 2022, with 1.1 million coins created and several small transfer tests conducted. Subsequently, on February 1, 2023, another 26.4 million coins were minted. However, on February 23, the issuer of PYUSD, Paxos, destroyed 25.5 million PYUSD.

The incident was triggered by an investigation by the US Securities and Exchange Commission (SEC) into the stablecoin BUSD, which was issued in partnership with Binance. The SEC alleged that Paxos was involved in the unregistered issuance of securities. Following this, the New York State Department of Financial Services (NYDFS) supervised Paxos and required it to stop minting BUSD. This not only affected Binance and Paxos but also temporarily shelved PayPal's discussions with Paxos about issuing PYUSD. It wasn't until August 7 that PayPal announced the launch of the stablecoin PYUSD.

PayPal's timing for releasing the PYUSD stablecoin is very strategic. After regions like Singapore and Hong Kong actively embraced Web3 and reaped many benefits, the attitude of the US political sphere also shows signs of change, aiming to keep pace with the times and embrace digital assets. This trend can be seen from events such as BlackRock applying for a Bitcoin ETF and court rulings declaring XRP as non-security. Changes in the regulatory environment often determine the fate of an industry, and the compliant path of PYUSD highlights the shift in US regulatory policies regarding stablecoins.

It is worth mentioning that issuing stablecoins is not PayPal's first foray into the crypto space. As early as 2014, PayPal enabled Bitcoin payment functionality through partnerships with cryptocurrency exchanges. Over the years, PayPal has been continuously exploring the crypto industry. To date, PayPal has fully implemented functions supporting the purchase, holding, sale, and transfer of mainstream cryptocurrencies. In addition to creating products and services that enhance the utility of digital currencies, PayPal is also committed to improving consumer and merchant understanding of cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs), and helping users understand related knowledge and risks through educational content.

PayPal's actions clearly aim not just to issue a stablecoin; the stablecoin is merely the foundation for achieving a larger goal. As a compliant US dollar stablecoin, PYUSD possesses the dual advantages of online payment and on-chain support. Combined with PayPal's vast user base, market influence, and commercial partnership network, the use of PYUSD will extend beyond the traditional scope of stablecoins, encompassing a wider range of application scenarios. PayPal can transition some traditional online payment scenarios to on-chain, such as cross-border transactions and transfers. At the same time, leveraging the advantages of PYUSD in on-chain payments can reconstruct the business scenarios of the Web2 world on Web3 and create new advantages. It can be said that PYUSD will become an important tool for PayPal in building Web3 business scenarios in the future.

What Changes Will PYUSD Bring to the Crypto Industry

The launch of PYUSD not only plays an important role in PayPal's Web3 strategy but also has a profound impact on the entire crypto industry, mainly reflected in the following aspects:

Reigniting the Stablecoin War

In the stablecoin market, USDT and USDC have always dominated. According to data from DefiLlama, USDT currently ranks first with a market share of 67.2%, followed closely by USDC with a market share of 20.6%. The market share of BUSD, jointly issued by Paxos and Binance, is only 2.8%, ranking fourth. However, with the strong entry of PYUSD, the stablecoin market may welcome a new wave of competition.

Currently, BUSD faces the biggest challenge, as regulators have required it to suspend the minting of new coins. Since PYUSD and BUSD are issued by the same issuer, once PYUSD is successfully launched, it could quickly replace BUSD's position in the market. The second most affected is USDC, as PYUSD shares a similar customer base with USDC, and this group of customers is more inclined to use US-regulated stablecoins rather than offshore stablecoins. In contrast, USDT is currently the least affected. According to The Block, Tether's CTO Paolo Ardoino stated that the launch of PayPal's stablecoin will not impact Tether, as PYUSD only serves the US market, while Tether does not operate in the US.

However, for PYUSD to be competitive in the stablecoin market, the primary condition is that PYUSD must be listed on exchanges for trading to leverage its advantages. It has been confirmed that Huobi will be the first exchange to list the PYUSD stablecoin. Once liquidity and other conditions are met, Huobi will immediately open trading and notify users. Users need to be patient and closely monitor related announcements.

Triggering a Stablecoin Boom in Traditional Industries

PayPal's entry into the stablecoin market may have higher strategic goals, but making money is undoubtedly its primary consideration. So, does stablecoin have profitability? The answer is affirmative; in fact, it is very profitable. Stablecoin issuers have large cash reserves and do not need to pay interest to customers, allowing them to earn substantial profits simply through the issuance of stablecoins. Reports indicate that Tether, the leading stablecoin issuer, achieved a net profit of $1.48 billion in the first quarter of this year, despite having only about 50 employees.

In the past, issuing stablecoins may have faced regulatory pressures. However, the successful issuance of PYUSD undoubtedly allows more traditional financial institutions to see opportunities. The model of PayPal collaborating with Paxos to issue stablecoins represents an important step for mainstream finance toward cryptocurrency and blockchain technology. Reports suggest that institutions such as Visa, Mastercard, and Square are actively exploring the possibility of incorporating stablecoins into their product lines. If there are no significant opposing voices in the market, they will quickly enter this field, undoubtedly triggering a new wave of stablecoin enthusiasm.

Accelerating the Popularization of Cryptocurrency

PayPal's actions play an important role in promoting the popularization of cryptocurrency. By launching PYUSD on Venmo, PayPal opens up the possibility of using stablecoins for everyday transactions. This means that PayPal's 430 million users have the opportunity to choose PYUSD as their currency for daily settlements. They can enjoy the convenience of cross-border settlements and zero transaction fees. This is highly beneficial for PayPal users and also helps promote the development of cryptocurrency as a legitimate payment method, facilitating its wider acceptance.

In the past, the only way to obtain stablecoins was through crypto companies like Tether, Coinbase, or Gemini. However, with the entry of PYUSD into the market, millions of users can access the crypto world through one of the widely used payment platforms globally, namely PayPal. This will provide ordinary users with a more convenient and secure way to participate in the application and development of crypto technology.

PayPal's initiative not only opens a door for traditional financial institutions into the crypto space but also creates a more friendly and barrier-free entry path for ordinary users. By launching the PYUSD stablecoin and integrating it into the payment platform, PayPal provides strong support for the popularization and application of cryptocurrency. This initiative not only helps promote the development of crypto technology but also further advances the global acceptance of cryptocurrency.

Advancing the Formulation of Regulatory Policies

At the end of July 2023, the US House Financial Services Committee reviewed and passed the "Payment Stablecoin Clarity (Transparency) Act." The purpose of this bill is to provide a clear regulatory framework for stablecoins, establishing uniform standards to protect American investors and consumers. However, the bill has faced opposition from the Federal Reserve and the US Treasury. Democrat Maxine Waters believes the bill has serious issues and is detrimental to the US. As of now, Congress has not passed the stablecoin bill, and various institutions are still in negotiation.

Against this backdrop, the launch of PYUSD and the stablecoin boom it triggers may help push Congress to pass the stablecoin bill more quickly. The launch of PYUSD brings urgency to regulatory policies. As the largest payment platform in the US, the introduction of PYUSD by PayPal means that in the future, hundreds of millions of users may enter the crypto market through PayPal. The large user base may bring risks of money laundering and capital flight. In this case, the government and regulatory agencies will have to pay more attention to the stablecoin industry and quickly formulate corresponding regulatory policies to balance innovation and risk.