The cryptocurrency market witnesses the influx of several new coins aiming to revolutionize the world of decentralized finance (DeFi). In light of this, the recent news of Paypal launching its own stablecoin has sent a ripple across the market. Paypal, one of the largest American financial technology companies, announced the launch of a new stablecoin, PayPal USD (PYUSD) on the 7th of August. This stablecoin is pegged to the US Dollar and is backed by the reserves of the US Dollar, short-term Treasurys, and other cash equivalents. PayPal’s initiative is a significant step in highlighting the broader adoption and acceptance of blockchain technology and cryptocurrencies in the fintech sectors.
What is Stablecoin?
Stablecoin has gathered quite an attention in the world of cryptocurrencies owing to its unique attributes which sets them apart from coins like Bitcoin and Ethereum. These major crypto coins experience high price volatility which might be good for the traders but it hinders their acceptance as a medium of exchange. To be used as a medium of exchange, the cryptocurrencies should remain relatively stable and this is where the stablecoins come in.
Stablecoins are nothing but cryptocurrencies whose value is tied or pegged to another currency, financial instrument, or commodity. These coins address the problem of price uncertainty by promising to hold the value of such cryptocurrencies steady in many ways. This feature makes it quite compelling for massive adoption as a means of payment especially in the digital payment sector.
PayPal’s Launch of Stablecoin
PayPal’s decision to launch its own stablecoin traces back to 2020 when the company introduced ways for making crypto payments on the platform. As a part of this initiative, the company permitted users in the UK and the US to trade cryptocurrencies like Bitcoin, Ether, Litecoin, and Bitcoin Cash also facilitating payment in assets. This led to a massive increase in its number of active users to over 350 million.
Following the launch of its stablecoin, PayPal USD (PYUSD), the firm confirmed that it will soon be made available to its US customers. Built on the Ethereum network, the stablecoin is designed for digital payments and Web3. As it is pegged to the USD, it is redeemable for US dollars at any time. Further, it can also be exchanged for other cryptocurrencies on PayPal and can be conveniently transferred between PayPal and Venmo.
The CEO of PayPal, Dan Schulman, aims to incorporate the new stablecoin as a part of the company’s payment infrastructure. The company had first announced its plan to launch a cryptocurrency in January 2022 with the vision of becoming the first major payment processor to have launched a stablecoin.
Impact on the Payment Ecosystem
PayPal, with its active user base of over 350 million getting accustomed to the use of stablecoin has the potential to trigger a massive acceptance of cryptocurrencies worldwide by individuals and businesses. It would streamline the process of cross-country transactions without the need for currency conversion. This will eventually expedite the process, reducing the transaction fees and time consumed.
Charles Cascarilla, CEO of Paxos, the company behind issuing PayPal’s stablecoin stated that the initiative taken by Paypal is a significant step for the digital asset and financial industry providing real-world value of the blockchain technology.
PayPal’s bold move to enter the world of cryptocurrencies with PYUSD highlights the willingness of the company to embrace innovation. Through its stablecoin which can be used for payments, the company addresses the growing concern of the cost and time involved in cross-border transactions. The path could be filled with regulatory challenges but it has the potential to reduce cryptocurrencies’ barrier to entry and lead to its large-scale adoption.
Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
