PayPal has launched its first stablecoin. To take advantage of the “emerging potential” of digital tokens fully backed by U.S. dollars for payments, PayPal USD is a stablecoin entirely supported by the United States dollar. The stablecoin was designed to reduce friction for payments made in virtual spaces and to offer quicker, less expensive international money transfers.
Overview of PayPal USD
As of launch time, the new token seems restricted to “web3” and crypto-related applications. PayPal, however, is banking at a time when the use of digital money is becoming more widespread, and retailers are starting to accept stablecoins as payment to save credit card processing fees. Like banks impose remittance fees, cryptocurrency owners can transmit money immediately across borders.
“The shift towards digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar,” stated PayPal CEO Dan Schulman. Since stablecoins are intended to maintain their value over time, as their name suggests, they are an essential tool for cryptocurrency traders because cryptocurrencies are typically volatile.
How PayPal USD Works
Most stablecoins are closely correlated to a precious metal like gold or typical fiat money like the U.S. dollar. Additionally, stablecoins serve as an on-ramp, facilitating the easier conversion of cryptocurrency assets into fiat currency for investors.
PayPal (PYPL) stablecoin will be “compatible with that ecosystem from day one,” according to the company. It will be accessible “soon” on Venmo, the well-known payment app that PayPal (PYPL) owns.
According to the firms, it is issued by Paxos Trust, a blockchain infrastructure company, and is fully backed by U.S. dollar deposits, Treasury bonds, and other cash equivalents.
Stablecoins are typically backed by a physical asset, such as commodities like gold or fiat currencies like the U.S. dollar, which helps the stablecoin maintain a relatively consistent price. This contrasts with other cryptocurrencies, which derive their value based on how much crypto traders are willing to pay. PayPal USD is “100% backed by U.S. dollar deposits, short-term U.S. Treasury securities, and comparable cash equivalents.
Is PayPal USD Legal?
Sometimes stablecoins aren’t as stable as they claim to be. The “algorithmic” stablecoin TerraUSD crashed in May 2022, along with the crypto token backing it, Luna. This spread panic throughout the industry, wiping the cryptocurrency market by around $40 billion.
Later, the Securities and Exchange Commission accused Do Kwon, the coin’s developer, of deceiving investors regarding the coin’s stability. In contrast to Terra, the value of PayPal USD, or PYUSD, is not determined by a challenging algorithm. PayPal USD reserves are completely guaranteed by U.S. dollar deposits, U.S. Treasuries, and similar cash equivalents, making it legal. PayPal USD can be purchased or sold through PayPal at a cost of $1 per PayPal USD.
Is Investing In PayPal USD Worth It?
Although the dollar backs the stablecoin offered by PayPal and is easy to transfer and exchange, it is important to remember that stablecoins, like other cryptocurrencies, are among the riskiest financial investments.
Stablecoins, like derivatives, draw their value from another financial asset, which typically introduces additional risk, complexity, and volatility. Given the shocking collapse of TerraUSD last year, even stablecoins backed by the U.S. dollar or Treasury bonds are not immune to volatility.
Any significant decline in the dollar’s value could also impact the coin’s value because PayPal USD is pegged to the U.S. dollar. In contrast, decentralized financial instruments and more flexible payment methods are provided to customers by stablecoins like PayPal USD.
PayPal’s primary source of income is the fee it levies on retailers in exchange for processing customer payments. PayPal, however, would be unable to levy those fees if the same clients and merchants started conducting their business using cryptocurrency on the Ethereum blockchain.
PayPal thinks public blockchains will have a significant impact on its current payments business in the future. It just aims to advance and keep up with modern technology.
Using stablecoins is no different than purchasing a gift card financially. Stablecoins can be bought with dollars and then used to buy other cryptocurrencies or to make other online purchases. It is worth noting that stablecoins aren’t always guaranteed.
Frequently Asked Questions
What is one PayPal USD price?
One PayPal USD can be redeemed for one U.S. dollar (1:1).
Which company issues PayPal USD?
PYUSD was built on the Ethereum blockchain and was issued by Paxos Trust Company.
Is Paxos Trust Company legal?
Yes. Paxos Trust Company is a licensed limited-purpose trust company regulated by the New York State Department of Financial Services.
Does the Dollar back PayPal USD?
Yes. PayPal USD is 100% backed by U.S. dollar deposits and short-term U.S. treasuries.
Is PayPal USD available for everyone?
PayPal USD is available to consumers, merchants, and developers to connect fiat and digital currencies seamlessly. However, PayPal USD is not available in Hawaii.
PayPal is proving the practical value of blockchain technology with the launch of PYUSD, and the new token is the most critical step forward for digital assets and the financial sector. However, it is advisable to be cautious regarding how much money you invest in it, as with everything related to cryptocurrencies.
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