What are the potential implications for the world of cryptocurrency following PayPal’s launch of its US dollar stablecoin PYUSD? Ross Henry Law, senior reporter at FStech, reports.

Against a backdrop of conflicting levels of confidence in cryptocurrency in a post-FTX world, August saw the launch of leading payments processor PayPay’s own US dollar stablecoin, PYUSD.

Initial signs for PYUSD, issued by New York-based blockchain and digital asset provider Paxos, appear positive. In a report published in September, Paxos claims that, in its debut month, the total token’s outstanding stood at over $44 million.

Also providing confidence is the reveal that PYUSD is majority-backed by US treasury collateralised reverse repurchase agreements. This, combined with the nature of the stablecoin being tied in value to US fiat currency, makes PYUSD one of the more viable forms of cryptocurrency according to its operators.

Announcing the release of PYUSD, Paxos said that it and PayPal are “proving the real-world value of blockchain technology,” describing it as “the most significant leap forward for digital assets and the financial industry.”

In terms of its functionality, PYUSD is designed to maintain a stable $1 USD value and is compatible with widely used exchanges, Web3 apps, and digital wallets, including Venmo. PYUSD isn’t bound to PayPal either, with users to transfer their holdings to external wallets outside of PayPal’s own architecture, transfer funds to other people, pay for purchases and convert PayPal USD to and from supported cryptocurrencies.

New coin on the block

Adam Smith, owner of cryptocurrency consultancy The Crypto Adviser, believes that the launch of PYUSD could be seen as an “affirmation that blockchain technology and crypto are here to stay”.

“It could open the floodgates to more widespread adoption in the TradFi space,” he tells FStech. “PayPal is a decades old company that has more than 430 million users globally and is embedded in many people’s subconscious as one of the go-to brands when it comes to online payments.”

Smith goes on to note that the launch of PYUSD effectively “bridges the gap between the cryptosphere and traditional finance” and paves the way for a cheaper and more efficient payment system for its users.

Sharing his thoughts on what PayPal’s entry into the space could mean, the crypto expert says it could “spark an upsurge” in crypto adoption in general, lead to widespread stablecoin usage and greater acceptance of cryptocurrency as a form of payment among those who are “otherwise cynical about the technology and who harbour a distrust of crypto exchanges in general, especially in light of events such as the high-profile collapse of FTX and the ongoing legal proceedings”.

“As long as they know their money is safe and secure and can be used whenever they need it without restriction, I believe even crypto sceptics will largely accept PYUSD especially as we move ever closer to a cashless society,” he adds.

Smith doubles down on his belief that PYUSD can be a “watershed moment” in terms of truly taking crypto mainstream. He explains that while attempts by legislators to “formulate a consistent policy on how crypto and stablecoins should be regulated… is creating a considerable amount of nervousness in the crypto markets,” the entry of PayPal into the space “could be the spark that reignites TradFi interest in crypto which in turn could lead to bullish price action.”

Potential sticking points

Despite his optimism, Smith points to several aspects which could potentially thwart PYUSD becoming a widely accepted form of payment.

“PayPal has a somewhat checkered history when it comes to making arbitrary decisions about people’s access to their money, including blocking accounts, and this could make people nervous about fully trusting PYUSD,” he warns.

He adds that some critics have voiced concerns about the potential for central bank digital currencies (CBDCs) to be used to “surveil users and ultimately control their spending habits,” and noted that these detractors often reference China’s social credit system in support of this argument.

Fabio Panetta, the chief executive of the European Central Bank (ECB), recently delivered remarks on the path towards a digital euro and voiced criticism over private providers rising to dominate the digital asset class, though Smith feels these concerns are “overblown”.
With the ECB exploring plans to enact is own central bank digital currency (CBDC), Smith feels that Panetta’s remarks are “perhaps borne out of a desire to see a digital euro as the predominant stablecoin used by its citizens rather than one that it has little control over”.

He notes that “governments and central banks around the globe recognise the importance of blockchain technology and cryptocurrencies” as evidenced by a worldwide race to create and implement CBDCs, but “concerns about the ‘Big Brother’ nature of a centralised, state controlled digital currencies will likely persist and I would question the need for CBDCs when stablecoins like PYUSD exist and money is effectively digital anyway.”

Conclusion

The original Bitcoin Whitepaper, published in October 2008 by Satoshi Nakamoto, opined that the advent of cryptocurrency and Bitcoin would lead to a fully decentralised and democratised version of currency where all transactions would be secure and traceable.
While the levels of commitment to the traceable and secure aspects of that vision vary from party to party, the core idea of decentralised and democratised finance appear to have largely fallen by the wayside.

The biggest advocates for crypto in 2023 range from beneficiaries of the existing economic hegemony – whether that is institutionalised powers like the ECB, financial powerhouses like PayPal or FinTech upstarts backed by venture capital – or overt grifters riding the uniquely profitable wave of cultural enthusiasm for an ‘outsider’ financial proposition combined with good old-fashioned snake oil.

(Is it any surprise that that some 95 per cent of non-fungible tokens (NFTs) – a short-lived hype bubble involving the sale of receipts for crudely drawn images of apes for eye-watering sums – now are literally worthless?)

Whether PayPal’s entry into the space will usher in this promised age of legitimate, stable digital currencies remains to be seen. Certainly, there is confidence in PYUSD as evidenced by its strong initial uptake, but only time will tell if those undesirable elements that fundamentally undermine any serious viability can be eradicated. That is a job, one suspects, which will require more than just a company which once ousted its former CEO because he was stubbornly obsessed with the letter X.

That said, PYUSD’s backing by US Treasury reverse repurchase agreements suggests the US government – which still is in charge of the world reserve currency – is keen for the asset to succeed. Whether this is merely an appealing trial by fire of the first stablecoin for the country, also remains to be seen.

PayPal’s offering, which it could be argued serves as a privatised US CBDC, should prove a good litmus test for CBDC’s in general as many institutions around the world look to roll out their own equivalents in the future.

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