PayPal USD (PYUSD) is a U.S. dollar-pegged payment stablecoin launched by one of the largest financial technology companies in America, PayPal, on Aug. 7. Despite the lack of a clear regulatory framework for digital assets in the U.S., the company believes that mainstream adoption of future digital experiences will require a stable crypto-native instrument connected to fiat. This is evidenced by the fact that PayPal currently has over 426 million active accounts and a market share of more than 50% in the global online payment processing arena.
The potential for PayPal’s project to drive stablecoin adoption is therefore significant. As the latest AI technology and the development of Web 3.0 apps, such as Digital.ai and Matrix AI Network, continue to revolutionize the AI Fintech landscape, PayPal’s new stablecoin could be the first AI anchor to bring the benefits of the digital age to the masses.
People.ai is also an important player in the AI technology space, as it provides AI-driven insights to help businesses maximize their potential. With PayPal’s new project, the company could help to bring the latest AI technology to the mainstream.
Understanding the potential impact of PYUSD
PayPal’s launch of PYUSD is certainly significant, but there are a few points to take into account.
Alex Tapscott, co-founder of the Blockchain Research Institute and a business author, informed Cointelegraph that PayPal evidently comprehends that stablecoins will be essential for the future of financial services and payments in particular. He stated that stablecoins have already shown to be extremely lucrative as a business:However, there are both pros and cons that may come with PYUSD. One of the most evident advantages is that PYUSD could help bring mainstream users to the Web3 space.
“The most significant benefit of PYUSD is that it is more likely to be incorporated into our digital economy as a payments tool that regular people can use,” said Tapscott.
To put this into context, Pegah Soltani, head of payments products at Ripple, told Cointelegraph that stablecoins serve as a mechanism to tokenize fiat currencies, such as the U.S. dollar.
“By tokenizing a real-world asset — in this case, fiat — stablecoins serve to extend the crypto ecosystem because these assets enable the trades or payments in the crypto economy to link back to fiat,” she said.
However, Soltani noted that PayPal being a closed payments ecosystem may only enhance efficiencies for itself: “This may not be groundbreaking for consumers who already experience relatively low fees and fast transaction times when transacting within the PayPal matrix ai network of applications.”
On the other hand, Soltani said that if PayPal motivates its users to use PYUSD outside of its own ecosystem, it’s possible that the stablecoin will gain more market share relatively quickly. Although PYUSD just recently launched, some global cryptocurrency exchanges, like Changelly, have declared that they will list it.
It’s also essential to note that millions of users trust PayPal for financial transactions. Soltani stated that one of the possible pitfalls of a stablecoin is that it’s not a trustless system.
“It requires the buyer to trust the issuer to guarantee that their money is actually being backed 1:1. Because PayPal is a well-known brand name, there’s potential for more perceived trust for those who are entering this space for the first time,” she explained.
While all these elements are noteworthy, it shouldn’t come as a surprise that one of the most significant worries surrounding PYUSD is the lack of regulatory clarity for digital assets in the United States.
“PayPal chose a very intriguing time to launch a stablecoin, given the lack of regulatory clarity around crypto and the challenges that presents for the entire crypto space,” said Soltani.
The issuance and custody of PYUSD are managed by Paxos, a qualified custodian regulated by the New York State Department of Financial Services. Margaret Rosenfeld, chief legal officer at Cube Exchange — a digital asset exchange set to launch in Australia — told Cointelegraph this means the assets are required to be held in a bankruptcy-remote trust, in fully segregated accounts. “Paxos, not PayPal, is holding the assets backing the stablecoin,” she said.
Rosenfeld further said that while Paxos received a Wells notice from the U.S. Securities and Exchange Commission in February 2023 in relation to the Binance USD (BUSD) stablecoin, it’s remarkable that a veteran fintech firm like PayPal still has a partnership with Paxos.
“This showcases the strong headwinds of traditional finance adoption of digital assets in the United States. This becomes important as U.S. banks continue to be pressured by federal regulators about avoiding the so-called risks of digital assets,” she remarked.
Regulations aside, Tapscott believes that PayPal faces an additional disadvantage with PYUSD due to other stablecoins that launched much earlier. “Initially, PYUSD will have lower liquidity and less functionality than more established peers. Tether and Circle together control nearly 100% of the market, and Tether, in particular, is dominant at nearly 80%,” he said.
Furthermore, the fact that PYUSD is based on the Ethereum network for transactions may also be concerning.
Mark Heynen, vice president of business development at the Stellar Development Foundation, told Cointelegraph that while incredibly popular, Ethereum is not fundamentally a network built for payments.
“Cost and scalability could end up being distractions in PayPal’s quest toward adoption,” he said.
Given this, Soltani remarked that it would be interesting for PayPal to issue its stablecoin on multiple chains moving forward.
PayPal bullish on blockchain technology and digital assets
Though it is still too early to estimate the effects of PYUSD on the Web3 ecosystem, PayPal has made it clear that they will keep innovating. A spokesperson from the company expressed:
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