PayPal, a major player in the world of online payments, made a big announcement. They’ve introduced a stablecoin linked to the U.S. dollar, which makes them the first significant financial technology company to adopt digital currencies for payments and transfers.
This move by PayPal caused its shares to rise by 2.66% on the same day. This demonstrates a strong show of confidence in the cryptocurrency industry, which has faced a lot of challenges in the past year due to regulatory issues and a series of high-profile failures.
Stablecoins, which are cryptocurrencies that are tied to stable assets to avoid extreme price swings, have been around for a while. However, they haven’t really become popular for everyday consumer transactions. Instead, people mostly use stablecoins to trade other cryptocurrencies like bitcoin and ether. The largest stablecoin is Tether, followed by USD Coin, issued by Circle, a cryptocurrency provider.
Previous attempts by major mainstream companies to launch stablecoins have faced opposition from financial regulators and policymakers. For instance, Meta, formerly known as Facebook, had plans to launch a stablecoin called Libra in 2019, but these plans were halted by concerns from regulators about its impact on global financial stability.
Several major economies, including the UK and the European Union, have now put in place regulations to oversee stablecoins. The EU’s rules will take effect in June 2024.
Ian Katz, the managing director of Capital Alpha Partners, noted that while PayPal might not be as controversial as Facebook, it’s still a well-known name that will draw attention from policymakers and regulatory bodies.
Just last month, the U.S. House Financial Services Committee took a step forward in creating rules for stablecoins, focusing on the registration and approval process for stablecoin issuers.
In a statement, Representative Patrick McHenry, the Republican chair of the committee, mentioned that PayPal’s move signifies that stablecoins have potential as a fundamental part of our modern payment system. He emphasized the importance of keeping the U.S. at the forefront of digital asset innovation.
PayPal’s stablecoin, named PayPal USD, is backed by deposits in U.S. dollars and short-term U.S. Treasuries. It will be issued by Paxos Trust Co. and will gradually be accessible to PayPal customers in the United States.
This new token can be exchanged for U.S. dollars at any time and can also be used to purchase and sell other cryptocurrencies offered on PayPal’s platform, including bitcoin.
Paxos, the company issuing the stablecoin, stated that this development is a major milestone not just for them and PayPal, but for the entire financial industry.
In 2021, Visa also announced its plans to enable the use of cryptocurrencies for settling transactions on its payment network.
