PayPal, the online payment giant, has announced the launch of its first stablecoin, a digital currency that is pegged to the US dollar and backed by US dollar deposits, Treasuries and cash equivalents. The stablecoin, named PayPal USD (PYUSD), is designed to reduce friction for payments within virtual spaces and provide faster, cheaper transfers of money across borders.
What is a stablecoin and why does PayPal need one?
A stablecoin is a type of cryptocurrency that aims to maintain a stable value relative to a less volatile asset, such as the US dollar or gold. Unlike other cryptocurrencies, such as bitcoin or ethereum, which can experience significant price fluctuations, stablecoins are supposed to offer more stability and predictability for users and merchants.
PayPal already offers its customers the ability to buy, sell, hold and use various cryptocurrencies on its platform, but PYUSD is the first stablecoin that PayPal has created and issued. According to PayPal CEO Dan Schulman, the launch of PYUSD is part of PayPal’s vision to “build the bridge between Fiat and Web3 for consumers.”
Web3 is a term that refers to the next generation of the internet, where decentralized applications and protocols run on public blockchains, such as Ethereum. Blockchains are distributed ledgers that record transactions and data in a secure and transparent way, without the need for intermediaries or central authorities.
By launching its own stablecoin, PayPal hopes to capture more of the growing market for crypto payments and remittances, as well as to enable its customers to access and use the innovative products and services that are being developed on Web3. For example, PYUSD can be used to send money instantly across borders without incurring high fees or delays, or to fund purchases on decentralized marketplaces or platforms that accept crypto.
How does PYUSD work and how can users get it?
PYUSD is issued by Paxos Trust Company, a regulated blockchain infrastructure provider that also issues other popular stablecoins, such as Paxos Standard (PAX) and Binance USD (BUSD). Paxos ensures that every PYUSD token is fully backed by US dollar deposits, Treasuries and cash equivalents, which are held in segregated accounts and audited regularly.
Users can get PYUSD by converting any of the supported cryptocurrencies on PayPal’s platform, such as bitcoin, ethereum or litecoin, to PYUSD at a 1:1 ratio. Users can also send and receive PYUSD as payment on PayPal to their friends or family members without paying any fees. Additionally, users can send PYUSD to any digital wallet address that supports Ethereum-based tokens (ERC-20), such as MetaMask or Coinbase Wallet.
PYUSD is compatible with the existing crypto ecosystem and can be used on various platforms and applications that support stablecoins. For instance, users can use PYUSD to access decentralized finance (DeFi) protocols that offer lending, borrowing, trading or investing opportunities using crypto. Users can also use PYUSD to participate in non-fungible token (NFT) markets that allow users to create, buy or sell digital collectibles or art.
What are the benefits and risks of using PYUSD?
One of the main benefits of using PYUSD is that it offers users more choice and flexibility in how they use their money online. Users can enjoy the advantages of both fiat currency and crypto currency with PYUSD, such as stability, convenience, speed, security and innovation. Users can also benefit from lower costs and higher returns compared to traditional payment methods or financial products.
However, there are also some risks involved in using PYUSD or any other stablecoin. For example, users need to trust that Paxos will maintain sufficient reserves to back up every PYUSD token and that PayPal will comply with all the relevant regulations and laws regarding crypto transactions. Users also need to be aware of the potential tax implications or legal liabilities that may arise from using crypto in certain jurisdictions or situations.
Furthermore, users need to be careful about the security and privacy of their digital wallets and accounts, as they may be vulnerable to hacking, phishing or fraud. Users should also do their own research and due diligence before using any crypto-related platform or service, as they may involve high risks or scams.
How does PYUSD compare to other stablecoins?
PYUSD is not the first nor the only stablecoin in the market. There are many other stablecoins that have different features, advantages and disadvantages. Some of the most popular stablecoins include:
- Tether (USDT): The largest and most widely used stablecoin in terms of market capitalization and trading volume. It claims to be backed by US dollars or other assets at a 1:1 ratio, but it has faced controversies and lawsuits over its lack of transparency and audits.
- USD Coin (USDC): A regulated and compliant stablecoin that is backed by US dollars held in reserve accounts by regulated financial institutions. It is issued by Circle and Coinbase, two leading crypto companies in the US.
- Dai (DAI): A decentralized and algorithmic stablecoin that is backed by a basket of crypto assets, such as ethereum or other tokens. It is governed by a community of users and developers who vote on the parameters and policies of the system.
- TerraUSD (UST): A stablecoin that is backed by the native token of the Terra blockchain, Luna. It is designed to power a global payment network that integrates with various e-commerce platforms and merchants.
Each stablecoin has its own pros and cons, depending on the user’s preferences and needs. Users should compare and contrast the different options before choosing the best stablecoin for their purposes.