On August 7, PayPal, an American online payment provider, announced the launch of their branded stablecoin PayPal USD (PYUSD). It immediately grabbed the media and crypto world’s attention, raising a plethora of questions — but you must be here for answers. Well, we addressed these questions to our in-house expert on the industry and will share his insight with you.
What is Known about PYUSD
PayPal USD (ticker: PYUSD) is an Ethereum-based U.S. dollar-pegged stablecoin issued by Paxos Trust Co. It is tied to the price of the U.S. dollar on a 1:1 ratio, although it is not fully backed by cash alone. Other assets that back the value of PYUSD tokens are short-term treasuries and cash equivalents. Either way, PayPal claims the stablecoins will be redeemable for fiat anytime, on a 1:1 basis as well.
PayPal USD will be transferable between internal and external wallets, available as a payment option on checkout, and convertible to and from other cryptocurrencies in a PayPal account. The fintech giant has been introducing crypto-related features since at least 2020 but this development is seen as a breakthrough in the adoption of cryptocurrencies regardless.
For Paxos Trust, it would not be the first branded stablecoin on record. Prior to that, they were the issuers of Binance USD (BUSD), another Ethereum-based dollar-pegged stablecoin, provided to, as the name implies, the Binance exchange. Regarding that stablecoin, in February they received orders from NYDFS, ending up being forced to stop minting BUSD and break ties with Binance. Their own stablecoins Pax Dollar (USDP) and Pax Gold (PAXG) remain unaffected.
Expert Intro: Alex, CMO
For some insights into the meaning of this announcement, we addressed the burning questions to ChangeHero’s CMO Alex. His career in digital marketing exceeds a decade and spans multiple fields. For the last few years, he has been focusing on finance and cryptocurrency. Now, Alex is the head of the marketing department at ChangeHero. But more importantly, he is an experienced crypto trader who loves to research the market for new gems.
PYUSD vs. USDT & USDC
Q. Do you think more crypto companies would turn towards PYUSD over other non-regulated stablecoins and even market leaders like USDT and USDC?
Alex: It’s too early to judge what PYUSD will turn out like yet. As of now, it is not traded anywhere but there are already a few glaring issues with it:
- PayPal will offer users to buy and sell $PYUSD on its platform, but it will not be the issuer;
- That would be Paxos Trust Co. So, if you use the new stablecoin, you will have to agree to the terms of Paxos, not PayPal. The same Paxos behind the Binance USD stablecoin, which was suspended by the NYDFS and considered a security by the SEC;
- Not your keys = not your crypto. With PayPal’s crypto services, the client may own the monetary value of the assets, but not the cryptocurrency itself or the private keys;
- PayPal has the right to withdraw a cryptocurrency transaction even after it’s been completed. Cryptocurrencies displayed in the PayPal account are not sovereignly owned by the user. PayPal reserves the right to suspend or even completely withdraw access to its crypto services at any time;
- PayPal imposes restrictions on how much a user can buy or transfer with its crypto services: $100 thousand per week for purchases and $10 thousand per week for transfers.
Q. Do you think PayPal’s decision to enter the stablecoin market might prompt other payment processors like Visa and Mastercard towards more niche crypto payment solutions?
Alex: There are already various local solutions for crypto trading that use VISA payments. In practice, though, centralized solutions usually do not find mass adoption. Banks are held back by regulatory restrictions, so I don’t believe we will see a decentralized or centralized solution from them, one that would cover major crypto assets, of the same level as Binance, in the next five years. A service that in my opinion is still undervalued and can become a possible alternative to the banking system is the TON chain.
Q. What are your thoughts on some early code vulnerabilities and centralization concerns around the stablecoin with some suggesting PayPal can wipe out customer balance in just two commands?
Alex: What I said before. PYUSD already has a lot of issues at the start and for the first two years, I would refrain from pouring funds into it until the code is debugged and obvious vulnerabilities are fixed.
For now, PayPal USD does not seem to be any different from the rest of the regulated stablecoins. Both PayPal and Paxos can freeze your funds, but so can Circle and Tether. At least, Paxos has the licenses and can prove the reserves, but then again, it did not help BUSD very much.
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