What is PYUSD and what are PayPal’s plans for its stablecoin?

PayPal launched a Dollar-pegged stablecoin, PYUSD, aimed at the US market in August this year, the first successful launch of a stablecoin by a traditional firm. Why would PayPal enter a market where crypto natives like USDC and USDT already own a huge slice of market share? And does the industry really need another Dollar-pegged stablecoin? 

PayPal says the reach of the PayPal ecosystem is a differentiator, and so too is the extent to which Paxos Trust, the issuer of PYUSD is regulated. 

Others argue that PYUSD is just a cryptocurrency version of what PayPal is already offering, “a digital representation of a reserve of money held by the company,” and, so, what’s the point? A senior analyst at Mizuho Bank, Dan Dolev, commented to Reuters, “It’s positive noise”. 

Let’s look at the what and the why behind PYUSD, and what the company says about its new crypto offering. 

Why PYUSD? 

Stablecoins are the “killer application for blockchains right now,” José Fernández da Ponte, PayPal’s GM of Blockchain, Crypto and Digital Currencies, said on the Unchained podcast. He also noted: “We are a payments company and we really care about that application.”

Speaking to Laura Shin, the host of Unchained, Da Ponte explained that while many crypto pundits focus on the relatively cheaper costs of blockchain transactions versus traditional payment settlements, the “ultimate application” is around faster settlements. “Faster is cheaper,” he said. And while domestic e-commerce uses are a few years away, he admitted that for now PayPal will focus on a few applications such as remittances and in-game retail, goods sold in online games, where this fast settlement time really shines.

Backup reserves and regulation

PYUSD is backed by reserves held in US Dollar deposits, US treasuries and cash equivalents, similar to USDC and USDT, although Tether, the issuer of USDT, also holds crypto and other unspecified assets. 

Paxos Trust is the issuer of PYUSD, and the company is regulated by the New York Department of Financial Services (NYDFS), which also means its investors are protected should Paxos ever file for bankruptcy. 

Circle, the company behind USDC, claims its USDC reserves are “bankruptcy remote”. This means the reserves are held separately from Circle’s operating funds, and “they are afforded protections under US laws and would not form part of the creditor’s estate in the unlikely event of a Circle bankruptcy.” Tether claims it holds billions of Dollars in excess reserves, which is essentially company profits kept on top of the 100% reserves. 

On which blockchain is PYUSD issued?

Similar to USDC and USDT, PYUSD is issued on the Ethereum blockchain as an ERC-20 token. ERC-20 is a standard which basically means that the cryptocurrencies issued on Ethereum must adhere to the same set of rules. “It was a very clear decision to go to Ethereum, seeing as the developer community was already there.” Da Ponte told Shin.  

What does PayPal have planned for PYUSD?

“The vision for PayPal has always been to be the conduit between fiat and Web3 and we can bring a mainstream adoption to the system,” Da Ponte, told Shin of the Unchained podcast. 

PYUSD will be rolled out through Venmo, a payments company owned by PayPal and only available to US customers. But using Venmo, PayPal says customers can do the following: 

• Transfer PYUSD between PayPal and compatible external wallets 
  
  
• Send person-to-person payments
  
  
• Fund purchases with PYUSD
  
  
• Convert any of PayPal’s supported cryptocurrencies to and from PYUSD
  

What is the competition saying? 

Da Ponte of PayPal says there’s enough to go around for all players in the stablecoin market, while Tether CTO Paolo Ardoino, says they don’t expect any impact on USDT as Tether’s stablecoin isn’t aimed at the US market. 

Circle’s CEO, Jeremy Allaire, tweeted his congratulations to PayPal. “This is what happens when we start to get regulatory clarity, and with the Payment Stablecoin Act, this can open up a free and competitive market for dollar stablecoin issuers with strong supervision, allowing the US to compete with digital dollars that are uniformly safe, transparent, liquid and supervised to Fed-standards,” he wrote in the tweet.

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