What is PYUSD

What is PayPal USD (PYUSD) A stablecoin issued on the Ethereum network that is fully backed by U.S. dollar deposits, U.S. Treasury securities, and cash equivalents. According to the official introduction, the stablecoin was launched mainly to achieve smoother virtual payments.

On August 8, PayPal officially announced the launch of the stable currency PYUSD, making the payment giant the first large traditional American financial institution to issue a stable currency. According to the official website, PYUSD is issued by Paxos in cooperation with PayPal and can achieve a 1:1 anchor with the US dollar. To protect its solvency, PYUSD adopts a mechanism similar to Tether, fully collateralized by U.S. dollars, short-term U.S. Treasury bonds, cash and equivalents.

Paxos is an experienced company in the field of stablecoins. In addition to its independently released stablecoin Pax dollar (USDP), it has previously cooperated with Binance to launch Binance USD (BUSD). ).

According to official information, Paxos will publish a monthly report on PYUSD reserve assets starting from September 2023, and clearly disclose reserve-related information on a regular basis. Paxos will also entrust an independent third-party accounting firm to conduct public verification of the value of PYUSD reserve assets and perform regular inspections in accordance with the assurance standards set by the American Institute of Certified Public Accountants (AICPA) to ensure the safety and integrity of its assets.

Under PayPal’s future plans, PYUSD will first launch on its payments app Venmo. In addition, Paypal’s senior vice president of cryptocurrency business said in a recent interview that PYUSD plans to log on to major exchanges as soon as possible to expand the scope of liquidity so that it can eventually cover the traditional payment field. Currently, PYUSD has been listed on the centralized exchange BitMart and will be listed on the centralized exchange Kraken on August 21.

Application scenarios of PYUSD

Up to now, more than 26.9 million PYUSD have been minted, but they have not yet begun to circulate in large quantities. According to official information, the stablecoin is currently only available to eligible PayPal US customers and can be obtained by purchasing or redeeming from Paypal.

Of course, given that PYUSD is issued on the Ethereum blockchain, the currency is actually open to a wider range of Web 3.0 users.

The main application scenarios currently announced for this stable currency include:

• Buying and selling PYUSD in the PayPal application at a price of 1:1 with the US dollar and no handling fee, that is, every The price of one PYUSD is fixed at $1.
• Transfer PYUSD for free between PayPal accounts or between compatible external wallets like MetaMask.
• Pay for transactions using PYUSD.
  • During this process, the application will automatically perform two actions continuously: selling PYUSD in exchange for US dollars, and paying in US dollars.
  • If PYUSD is sold during the first stage of a transaction, but the subsequent purchase does not actually occur, the USD for which the tokens were sold will remain in the user's PayPal account.
• Buy, sell/exchange other cryptocurrencies (PYUSD must be included in the trading pair).
  • Similar to the payment function, this process also involves the execution of two actions: selling a cryptocurrency in exchange for US dollars, and then using the US dollars in the account to purchase the underlying cryptocurrency.
  • The implementation of this function requires payment of a certain fee. The current official rate standard is as shown in the table below.

In addition, PayPal Announcing the launch of the Cryptocurrencies Hub (hereinafter referred to as "Hub") functionality. The Hub is equivalent to the centralized wallet (or custodial wallet) provided by PayPal, that is, the balance of the wallet user in the Hub represents their ownership of the crypto assets, but does not hold the digital crypto assets themselves. Users can buy, sell, receive and send various crypto assets through the Hub. Per the terms, this feature is currently only available to U.S.-based personal PayPal accounts in good standing.

The significance and challenges of PayPal’s entry into stablecoins at this moment

PayPal’s development history in the crypto market

I don’t know much about Paypal. People may not know that as early as nearly 10 years ago, this FinTech giant began to pay attention to the encryption market.

• In 2013, David Marcus, then president of PayPal, publicly expressed his recognition of the huge potential of the encryption market. He believed that cryptocurrency would completely change the existing business model and economy. In addition, he also said that when the legal and policy aspects are clear enough, PayPal will take this step to enter the encryption market.

PayPal’s cooperation with the crypto market dates back to 2014.

• In September 2014, PayPal cooperated with several Bitcoin payment service providers, including BitPay, Coinbase and GoCoin. The cooperation content is to connect these three payment service providers to allow merchants to accept Bitcoin payments. . However, in September 2015, PayPal stopped supporting Bitcoin payments due to regulatory challenges and concerns.
• In 2018, PayPal submitted a patent application for an "accelerated virtual currency transaction system", proposing to reduce transaction times by creating secondary private keys (and "secondary wallets"). In the same year, Coinbase allowed American users to withdraw fiat currencies directly from Coinbase to their PayPal accounts for free. Within two months of its launch, the service was promoted to more than thirty European countries.

In 2020, PayPal officially entered the crypto market.

• In October 2020, PayPal enabled users to buy, sell, and hold cryptocurrencies such as Bitcoin, Ethereum, Bitcoin Cash, and Litecoin directly in their PayPal accounts. This is not only a milestone for PayPal itself, but also has great significance for the encryption market: the vast user group carried by the Web 2.0 payment giant can contact and trade encrypted assets through a platform they are more familiar with and trust. The application scenarios and market demands of assets have broader possibilities.

It can be said that the launch of PYUSD today is not PayPal’s short-term design, but a longer-term layout for the encryption market. The official launch of PYUSD also experienced some twists and turns.

• In January 2022, PayPal disclosed its research and development plan for stable currency due to an inadvertent discovery by a programmer.
• In February 2023, PayPal announced that it would suspend the development of its stablecoin project because its partner Paxos was being investigated by regulatory agencies. It is reported that PayPal had hoped to launch its stablecoin product in the next few weeks.

We can speculate: If there were no regulatory obstacles, PYUSD would most likely have been launched earlier. This also reflects PayPal's high hopes for this stablecoin product - So, what can PYUSD bring to the crypto market?

Possible positive impacts of PYUSD

Better integration of traditional finance and crypto markets

PayPal’s influence in the Web 2.0 field is self-evident. Its entry into the encryption field and the issuance of its own stable currency is a clear signal for the integration of traditional finance and the encryption market. This means that even consumers/merchants who have not been exposed to the crypto market before can easily obtain PYUSD and use it as a means of transaction - something that is difficult for other stablecoins currently on the market to do.

From this perspective, PYUSD can not only help popularize stablecoins and increase the recognition of the crypto market, but also help more traditional financial institutions and individual users switch to the crypto field, providing broader applications for crypto assets Scenarios (such as the payment scenario mentioned earlier) bring more opportunities and possibilities to the entire market. In the long term, this has very positive significance for the further integration of traditional finance and crypto markets.

In addition, given the role of stablecoins as a "bridge" between traditional finance and the crypto market, if the launch of PYUSD can set an example for the stablecoin field, or promote relevant regulations for such tokens The formulation will greatly promote the smooth integration of traditional finance and encryption markets, as well as the development of compliance supervision mechanisms for the encryption market.

Good for Ethereum

As an ERC20 token deployed on the Ethereum network, PYUSD holders can better participate in the ecology of the Ethereum chain. As the use and acceptance of PYUSD gradually increases, we can predict that this will bring more active users and higher transaction volume to the Ethereum ecosystem - therefore, this can be seen as a positive impact on the Ethereum ecosystem ( In other words, it is a benefit for the development of the DeFi field and the value of ETH.

Boost confidence in the stablecoin track

Stablecoins have played a bridge role in the crypto market. However, since the explosion of crypto-friendly banks such as SVB, the flow of U.S. dollars to the crypto market has The pipeline has been greatly narrowed, and the market downturn has also caused the total market value of stablecoins to continue to decline in the first half of this year. The emergence of a new player, PYUSD, and its status as a stablecoin endorsed by the well-known financial giant PayPal may bring more choices and confidence to the market. At the same time, as a platform that is familiar and trusted by more users, PayPal may also provide users with a more stable and reliable way to deposit and withdraw funds.

Problems PYUSD (and its holders) will face

Ambiguous compliance issues

Although according to the generally accepted view of the market, payment giant PayPal should have a closer and more tacit understanding with regulatory agencies, compliance issues are undoubtedly the sword of Damocles that will always hang over all stable coins.

In addition to the SEC, which is eyeing it, stablecoins have always been a topic that politicians from all parties are closely watching. Maxine Waters, the Democratic leader of the House Financial Services Committee, has publicly criticized PYUSD, saying that these so-called anchor assets are not subject to a federal framework for regulation, supervision and enforcement, and "if stablecoins are widely adopted, it will be more difficult to protect the economy from Inflation affects or supports maximum employment.”

Paxos, the issuer of PYUSD, has compliance qualifications and is regulated by the New York Department of Financial Services (NYDFS). This means that if Paxos goes bankrupt, NYDFS will step in to ensure investors get their money back. But even so, before clear regulatory rules are introduced, it is also issued by Paxos, it is also regulated by NYDFS, and it is also in the stablecoin track. Who can guarantee that what happened to BUSD will not happen in PYUSD What about a repeat here? Who dares to say whether the SEC, which has determined that BUSD is a security, will also put this hat on PYUSD tomorrow?

At present, Paxos still has not resolved the lawsuit with the SEC, and BUSD still cannot continue to mint.

Limited audience in the short term

As we introduced earlier, PYUSD is currently only available to users in the United States, which may limit the use of PYUSD to a certain extent. User growth and full use of application scenarios. There are also widely recognized stablecoins in the crypto market. Due to the ebb and flow of one another, the market demand for PYUSD may still be limited in the short term. Users have insufficient motivation to hold it, making it difficult to impact the existing stablecoin track. pattern.