PayPal’s stablecoin, PYUSD, made its debut on August 7. Explore PYUSD, what it means for crypto, and how the community reacted.

The financial landscape, long accustomed to gradual evolution, witnessed a seismic shift on August 7 when PayPal, a vanguard of financial technology, introduced PYUSD, its US dollar-based stablecoin. 

Stablecoins have long been considered in the mainstream financial ecosystem but haven’t seen widespread adoption. With PYUSD, PayPal has positioned itself at the intersection of traditional and digital finance, suggesting a possible increased role for digital currency in everyday transactions.

What is PYUSD and who can use it?

PayPalUSD (PYUSD) is a stablecoin introduced by PayPal. Issued on the Ethereum (ETH) blockchain by Paxos Trust Company as an ERC-20 token, PYUSD is designed to align with wallets and web3 applications.

Set to be rolled out to PayPal Balance customers in the United States in the coming weeks, PYUSD will also soon be accessible via PayPal’s Venmo app. It is compatible with external developers, digital wallets, web3 applications, and exchanges.

Why PayPal launched PYUSD?

PayPal’s entry into the stablecoin market with PYUSD is a strategic response to several factors within the current financial landscape. 

At its core, PYUSD is an ERC-20 token, backed by the US dollar, short-term treasuries, and similar cash equivalents, aimed at integrating the vast potential of digital currencies with the trusted reputation of PayPal.

The stablecoin ecosystem, being largely dominated by Tether (USDT) and USD Coin (USDC), has been viewed skeptically after the recent depegging of TerraUSD (UST). This lack of investor confidence has created a gap in the market that PayPal seems poised to fill. 

Michael Wasyl, Co-Founder of Bracket Labs, in an exclusive conversation with crypto.news highlighted the importance of this decision:

“Introducing crypto’s ‘killer app’ (stablecoins) to an existing base of Web2 users is a winning bet. Crypto suffers from difficult on-boarding and needs help to obtain new users. Web2 payment platforms like Paypal have spent years perfecting onramps and online pay, they will be a gateway for users to explore crypto via stablecoin payments and remittance.”

With 431 million active accounts in the second quarter of 2023, PayPal already has a strong user base to leverage. Their established presence in the payment ecosystem may allow them to uniquely position PYUSD as an alternative to current stablecoins, connecting the digital and fiat realms seamlessly.

PYUSD and regulatory uncertainty

Regulatory scrutiny is a significant barrier to PayPal’s introduction of PYUSD stablecoin. The fintech giant had previously halted its stablecoin development in response to an uncertain and turbulent regulatory environment in the United States. This climate has only worsened in recent times.

Complicating matters further is PayPal’s partnership with Paxos, a company that has recently come into conflict with the Securities and Exchange Commission (SEC). 

The SEC threatened legal action against Paxos on the grounds that Binance USD, a product Paxos was involved with, was not registered security. This recent altercation highlights the increasingly complex and unpredictable nature of regulatory oversight in the crypto space.

With the regulatory landscape described as “progressing toward more clarity,” the current situation still seems far from stable. 

Many may argue that there could be no worse timing for PayPal’s venture into stablecoins. It raises questions regarding its underlying strategy and whether the company aims to navigate the regulatory landscape or sees potential in a market where a few major stablecoins currently prevail.

Meanwhile, representative Patrick McHenry, chair of the US House Financial Services Committee, endorsed PayPal’s stablecoin, PYUSD, highlighting its importance for modern payments. 

His support comes amid the committee’s push for the Clarity for Payment Stablecoins Act to recognize state-level crypto regulation. 

McHenry’s approval marks a crucial step towards stablecoins’ acceptance, potentially influencing the full House vote on related matters, and aligns with the broader call for comprehensive cryptocurrency regulation in the United States.

How did the community react?

Despite PayPal’s strategic positioning, the road ahead for PYUSD is fraught with challenges.

One of the most significant concerns is the centralized aspect of PayPal. Community members have raised alarms over PayPal’s history of putting customers’ payments on hold and demanding certain information in various instances. 

A sarcastic remark on PYUSD’s potential limitations in daily transfer sums up this fear: “You can only transfer $10 per day after you submit ten government ids and give them ten valid reasons why you want to transfer.”

Recently on Twitter, smart contract security expert Pashov pointed out that PYUSD’s contract features an ‘assetProtection’ role. This allows two actions: ‘freeze’ and, subsequently, ‘wipeFrozenAddress.’ Such capabilities heighten concerns because malicious actors can inflict more significant harm if they gain access.

PayPal’s PYUSD stablecoin, written in Solidity 0.4.24, has also ignited a mix of technical insights and opinions within the crypto community. 

Users delved into the contract’s specifics, highlighting its proxy nature and the ability to upgrade code logic while expressing concerns over its alignment with best practices, cost, and efficiency. 

Finally, challenging the dominance of major stablecoins like Tether’s USDT (67.18% market share) and Circle’s USDC (20.55%) will not be easy, especially given the not-so-warm reception of PYUSD from the crypto community. 

PayPal’s large number of users and possible fit with new rules might give it a boost. Time will show if PYUSD can challenge the big players like USDT and USDC in the stablecoin world.

The road ahead

As PayPal ventures into the stablecoin domain, navigating the complex regulatory landscape in the U.S. — where regulatory concerns are mounting — will be pivotal.

To move forward, the company will need to engage constructively with regulators. Building public trust is also key for PYUSD, and PayPal must address potential concerns about its centralized structure, its past payment practices, and the technical aspects of PYUSD.

Entering a market with prominent players like USDT and USDC means PayPal must strategically tap into its vast user base and expertise.

Continuous tech advancements are crucial, with the current compatibility of PYUSD with various platforms being an initial step.

Ultimately, only time will unveil whether PYUSD becomes a mainstay in stablecoin utility or serves as a case study in the intersection of technology, regulation, and market forces.