Stablecoins emerged over the years as a stable method to pay with cryptocurrencies, and many stablecoins have been founded to provide similar features of fiat money and cryptocurrency.
PayPal has created its own stablecoin to engage in web3 and decentralised transactions, which shook the current market of stablecoins, including USDT and USDC.
This introduction turned many heads and made crypto enthusiasts wonder whether the new PayPal crypto coin will compete with the stablecoins that have been around for years. Read through this article to learn more about PayPal’s PYUSD and what it will bring to the market.
Understanding Stablecoins
Stablecoins are cryptocurrencies that provide stability and regularity, unlike most cryptocurrencies that fluctuate multiple times every day.
Stablecoins are cryptocurrencies tied to a collateral that prevents it from fluctuating like many cryptos, especially Bitcoin and Ethereum, which swings significantly over a day, a week, and a month. These coins are usually pegged against fiat money, like the US Dollars or Euros, or other collaterals like metals, algorithms, and other cryptocurrencies.
When a stablecoin is tied with fiat money like the US Dollar, it becomes stable and provides price security for those transacting with cryptocurrencies.
For example, if a service provider receives their fees in cryptocurrencies, the odds are that the money value will massively fluctuate when receiving Ethereum or Bitcoin. However, receiving payments in stables like USDT, USDC, or PYUSD preserves the money value.
Despite being relatively more stable than major cryptocurrencies, we have witnessed a few events when a stablecoin crashes and loses its value.
TerraUSD is a stablecoin that crashed from almost $1 to $0.13 in one day on May 2022 and later sunk to $0.06. TerraUSD crashed because of its algorithmic stablecoin pegging, which was pegged to the same blockchain as LUNA, which crashed alongside TerraUSD.
What is PayPal?
PayPal is an online payment system established in 1998 to provide alternative payment methods to usual credit/debit cards and online bank transfers. Despite a struggling start, PayPal services have been booming recently, onboarding more users and wallets.
It is considered safer than conventional payment options because users do not disclose or share their personal information and safeguard their funds and bank accounts. PayPal also deploys a top-notch security protocol identifying scam transactions or fraudulent payment requests.
PayPal Users can top up their digital wallet using a credit card and then pay online using PayPal. Online purchases can be for e-commerce sites, online shops, payments of services, and personal transfers to family and friends.
Alternatively, PayPal users can pay with credit/debit cards without topping up the digital wallet. In this case, the user will link their card to the wallet, and PayPal will act as an intermediary between the bank and the merchant.
However, these transactions come with different fees. PayPal charges different processing fees for sending money. Transaction fees vary widely depending on the sender’s credit card, issuing bank, reason for payment, and geo-location, ranging from 3-5%.
Introducing PYUSD Token
In light of the massive shift of every exchange and FinTech to cryptocurrencies and decentralisation, PayPal was relatively late in its Web 3.0 investments, starting its first crypto discovery in 2020.
In 2020, the company launched its first cryptocurrency service, enabling US users to buy, sell, and store Bitcoin directly from the website or mobile application. Users could buy Bitcoins using their PayPal funds or the linked credit card or sell Bitcoin to another user on their crypto address.
Later, in 2022, after getting a fully approved Bitlicense from the New York Department of Financial Services, the company added more cryptocurrencies to its offerings. The update included Bitcoin, Bitcoin Cash, Ethereum and Litecoin, as the company said that this was the most demanded service since they started their crypto investments.
The company had plans to release its native in 2020, but they retracted their plans in light of the lost confidence in stablecoins after the LUNA crash and the FTX collapse that shook the cryptocurrency market. PayPal has reportedly postponed its stablecoin launch to ensure it gains investors’ confidence and to have the odds by their side.
In August 2023, PayPal released its first stablecoin, PYUSD, and as PayPal's statement says, the PYUSD stablecoin is backed by USD deposits, short-term U.S. treasuries and similar cash equivalents to ensure its stability regardless of fluctuations of other cryptocurrencies.
PYUSD will hold a 1:1 value to the USD, exchangeable through the PayPal ecosystem, including the native website and mobile application. This introduction sets the ground for PayPal for potential Web 3.0 advancements and explorations, given the use cases for the newly launched PayPal USD coin.
PayPal’s stablecoin is created on the Ethereum blockchain, following the ERC-20 protocol, and governed by multiple security layers, including those of the ETH blockchain and PayPal’s security system.
PayPal USD coin will power Web3 transactions, encouraging seamless payments for personal or commercial purposes in a fast and reliable way. PayPal’s stablecoin will be supported by multiple exchanges and major crypto wallets.
What Does It Mean For The Current Stablecoin Market?
This introduction will definitely disrupt the market of stablecoins, where a few currencies are mostly used to transact in safe currencies without risking any volatility issues.
However, given the robust financial system that PayPal runs and the expertise in this field, it is expected that PYUSD will hold some ground and earn its place among the existing USDT and USDC, besides the increasing popularity of DAI and Binance’s BUSD.
Let’s take a look at current leading stablecoins and put PYUSD vs USDT and USDC head to head and discover what we can expect.
USDT
The USDT, or Tether, launched in Hong Kong in 2014 and quickly became the world’s first stablecoin. Tether is widely used on the majority of exchanges, Web3 applications, and decentralised projects.
USDT is pegged with a 1:1 basis to a fiat currency, the US Dollar. The amount of Tether coins is said to be equal to the fiat money the users pay as transaction feel, stabilising the value of the Tether.
USD Tether is supported on multiple blockchains, such as Ethereum, Tron, Avalanche, Solana, and more, increasing its market capitalisation to $83 billion and making it the third largest cryptocurrency by market cap.
USDC
USD Coin is a stablecoin established in 2014 and is tied to the USD on highly liquid cash reserves that hold the stablecoin’s value. This coin was established by Circle, the company that launched the recent EUROC, another currency in the stablecoin ecosystem based on the Euro.
USD Coin was created on the Ethereum blockchain and minted with the ERC-20 standard. However, it can be accessed via many blockchains like Polygon, Avalanche, Stellar, and Tron with various use cases.
USDC enjoys a market cap of $26 billion, ranking fifth in the cryptocurrencies and second in stablecoins after USDT.
Current Market Dynamics of Stablecoins
Despite the stability that most stables provide, they are still part of the crypto industry, which is characterised by high volatility. The introduction of PayPal USD will certainly change the market dynamics, especially when the other two stablecoins have been facing some troubles.
USDT was allegedly practising predatory conduct against its competitor, USDC. Tether was said to have purchased USDC in bulk, swapped the coins for fiat currency, and then used that money to mint new USDTs. Eventually, they dried Circle’s reserve and caused the USDC price to plunge and USDT’s price to rise.
Additionally, when the police questioned the Huobi exchange executives, Binance sold many USDT coins, and some suggested that Tether was somehow associated with Huobi.
Eventually, some lost confidence in Tether’s actual backing assets, leading to a reduced value of the stablecoin. Therefore, this uncertainty in the stablecoin market needed a new coin to emerge and grab the attention of crypto enthusiasts.
PayPal USD Use Cases
The PYUSD stablecoin disrupts the stablecoin market with several use cases, including those originating from the PayPal ecosystem and the new discoveries in Web3.
PYUSD coin can be used as a payment medium for decentralised applications and web 3.0 transactions. Especially if PayPal rolls out its stablecoin across more blockchains and the crypto market.
PayPal customers will continue using online payments for e-commerce and personal online purchases, in addition to paying if the receiver only deals with cryptocurrencies. PayPal USD transactions are fast and seamless and can be conducted from the PayPal platform or when checking out from any online store.
PayPal USD PYUSD coin can be used for gaming, as the company is pursuing to support millions of games in the industry and not just web3 gaming platforms. PYUSD stablecoin for gaming is convenient since settlements are handled faster than traditional payment methods.
Also, PayPal USD coins can be used for sending remittances across borders, with lower fees. Remittances are one of PayPal’s selling points, but many customers complain about the extreme fees for exchanging currencies between different countries and locations.
PayPal USD is a quick option to send settlements in a business-to-business world when merchants want to avoid hefty exchange rates.
Will PayPal Coin Succeed?
PayPal is betting its success on the reputation and expertise the company has built over the years. Probably, the delayed PayPal’s stablecoin launch allowed the company to learn lessons from the events that happened in the crypto market over the years.
PayPal news came timely in light of the shaken stablecoin market dynamics, and the company can easily succeed if it capitalises on these criteria:
- Trustworthiness: PayPal has 25 years of experience in this field and has built enough trust among its users, clients, and merchants. PayPal USD PYUSD offers more trust and reliability than its competitors, like USDC and USDT.
- Scalability: The company adapted to technological and financial changes over the years, and the new stablecoin has a great scalability potential across multiple platforms and exchanges and can take over the market share of its counterparts.
- Strategic growth: PayPal developed sustainable partnerships with a variety of financial firms, centralised and decentralised. These strategic partnerships give PayPal’s crypto advantage over competitors, building confidence in PayPal customers.
Challenges for PYUSD
Despite the huge potential of the PayPal USD stablecoin, there are some hurdles the company needs to overcome that will critically shape its success.
- The new stablecoin PYUSD is solely available for US citizens at the moment. Even The previous feature of buying and selling cryptocurrencies launched last year is still only available for US users, which can massively affect the project’s growth.
- PayPal has always acted as a centralised financial institution, and it needs some time to gain confidence in crypto.
- Security and trust issues arise from the new PayPal USD coin’s structure, where some features allow the network to freeze accounts and confiscate its assets or burn its cryptos. This is a major concern for the crypto community.
- Few scam tokens have emerged on the premise of PayPal USD, which the company has not responded to and did not attempt to combat any fraudulent tokens or projects carrying its names. Even some of these fraud projects gained some traction.
Transparency is one of the notions of decentralisation, and PayPal has a long way to go, given its history of freezing accounts, being lenient with scam accounts, and not coming clean about its procedures and actions.
Only once these challenges are overcome can PYUSD see its full potential and grow as one of the potentially leading stablecoins.
Conclusion
PayPal aims to disrupt the stablecoins market with its newly launched PYUSD, especially when the current main stablecoins face scrutiny from the crypto community. USDT and USDC are currently the most used stablecoins, backed by USD Dollars and promoting crypto stability.
PYUSD is fully backed by US Dollars, cash equivalents, and short-term treasuries, ensuring a stable pegging system and long-term price stability.
PayPal can use its vast experience and capabilities to grow more in the crypto space and seek further developments of its stablecoin in Web3 applications and assets. However, before reaching its full potential, there are some challenges the company needs to overcome to gain user’s confidence and incur significant changes in the stablecoin market.
