PayPal Enters the Stablecoin Game with PayPal USD (PYUSD)

PayPal has just announced that it is launching a stablecoin called PayPal USD (PYUSD).  The stablecoin is set to be issued by Paxos Trust and will be pegged to the US Dollar.

The company states that, as it rolls out this offering in the coming weeks, eligible customers will be able to:

• Transfer PayPal USD between PayPal and compatible external wallets
• Send person-to-person payments using PYUSD
• Fund purchases with PayPal USD by selecting it at checkout²
• Convert any of PayPal's supported cryptocurrencies to and from PayPal USD

PayPal Holdings Inc. (NASDAQ: PYPL)

PayPal is a global financial services company that enables digital and mobile payments on behalf of consumers and merchants. It allows users to make payments and money transfers securely online without sharing financial information, using either a credit card, debit card, or bank account. PayPal operates in more than 200 countries and supports various currencies, making it a popular choice for international transactions. It also owns the mobile payment service Venmo.

Market Cap: $70.14B

Price to Earnings Ratio (P/E): 17.78

Earnings Per Share (EPS): $3.58

At the time of writing, PayPal (PYPL) boasted the above metrics and is listed as a ‘Strong Buy' among most major investment firms.

What is a Stablecoin

A stablecoin is an asset that is structured to provide its holder with a digital value that is pegged/tethered to another asset – typically USD.  This is achieved either through use of asset-backings, or through the use of algorithms that manipulate circulating supplies.

These assets are particularly useful, as they provide investors and traders with a reprieve from more volatile digital assets, without needing to ‘cash out' and incur capital gains/losses.  In addition to this, stablecoins function like most other digital assets, in that they do not recognize borders.  This means that they are transmissible on a global scale, facilitating cheap value transfer anywhere, and at any time.

Why Now?

While AI may currently be garnering the most attention of any game-changing technology, this does not diminish the potential for digital assets to upend the way we transact value in the coming years.  PayPal has recognized this and indicates that it designed PYUSD to support ‘digital payments and Web3', marking a continued foray by the company into the digital asset sector after launching support for assets like Bitcoin and Ethereum in 2020.

“The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar…Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.” –Dan Schulman, president and CEO, PayPal

How Will PayPal USD (PYUSD) Work?

PayPal indicates that PYUSD is built atop the Ethereum network, and is the only asset of its kind to be supported by the payment processor.  The company's decision to build its stablecoin atop Ethereum means that it can be seamlessly integrated and supposed by existing exchanges and custodial options that support digital assets.

Diving deeper, PayPal has opted to structure PYUSD as an ‘asset-backed' stablecoin – meaning that its value and stability will be derived back a basket of underlying assets.  PayPal states that these will be comprised of “…U.S. dollar deposits, short-term U.S Treasuries and similar cash equivalents”.  With this being the case, each PYUSD token is redeemable at any time on a 1:1 basis with the USD.

Top Options

As it stands, the stablecoin market is dominated by Tether (USDT) and USD Coin (USDC).  While this may be the case, there is a lingering distrust of these assets among digital asset enthusiasts that stems from opaque offshore operations, and potential counterparty risks.

Even though it is entering the race years later, PayPal and its PYUSD offering may soon prove to be a formidable opponent for existing stablecoin options, as the company is able to leverage its strong reputation and standing as a trusted payment processor boasting widespread integration among online merchants.