The renowned payments giant PayPal announced on Monday that it has launched its very own U.S. dollar stablecoin. This significant step marks the first instance of a major financial technology firm embracing digital currencies for payment and transfer purposes.
The announcement from PayPal had an immediate positive impact on its market performance, with its shares surging by 2.66% on the same day.
PayPal’s USD stablecoin is built upon the foundation of U.S. dollar deposits and short-term U.S. Treasuries. The responsibility of issuing this stablecoin lies in the hands of Paxos Trust Co, a known player in the digital asset industry.
This decision from the company showcases a bold display of confidence in the otherwise troubled industry.
Over the past year, digital assets have faced significant challenges due to regulatory obstacles, further intensified by several prominent collapses in the sector.
Nevertheless, PayPal’s move indicates a willingness to explore and contribute to the potential of digital currencies for facilitating financial transactions.
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Stablecoins are digital token designed to maintain a steady value by being linked to stable assets. Despite their existence for several years, they have not yet achieved significant penetration into the mainstream consumer payments ecosystem.
Rather than being extensively adopted for consumer payments, stablecoins are primarily utilized by consumers as a tool for trading other digital assets such as bitcoin. Currently, Tether stands as the world’s largest stablecoin, with USD Coin, issued by Circle, trailing closely behind in terms of popularity and usage.
According to Paypal, the token is readily exchangeable for U.S. dollars at any given moment and can also serve as a means to trade other digital asstes available on PayPal’s platform, like bitcoin.
PayPal further adds that the token “can be transferred to Ethereum wallet addresses that accept PYUSD in just a few steps.”
Previous endeavors made by prominent mainstream companies to introduce stablecoins have encountered significant resistance from financial regulators and policymakers.
For instance, Meta (formerly known as Facebook) faced challenges with its 2019 proposal to launch a stablecoin named Libra. Regulators expressed concerns that such a digital currency could potentially disrupt global financial stability, which lead to the project being terminated.
In response to the growing interest in stablecoins, several major economies, including Britain and the European Union, have taken steps to establish regulatory frameworks for governing these digital assets.
The European Union, for instance, has set forth policies that are scheduled to come into effect in June 2024, aiming to provide a structured and controlled environment for stablecoin operations within the region.