American financial technology firm PayPal launched its new stablecoin called PayPal USD (PYUSD) on August 7. PayPal launched crypto payments in 2020 and has since been actively involved in the industry.
The U.S. dollar-pegged stablecoin will be offered by Paxos Trust Co. and wholly backed by U.S. dollar deposits, near-term Treasurys, and similar cash Equivalents. It is powered on Ethereum and “designed for digital payments and Web3,” with the company stating that it will soon be available to United States clients.
In that context, PYUSD will be exchangeable for U.S. dollars at all times and can be redeemed for other cryptos on PayPal. Furthermore, it will be transferable between Venmo and PayPal. The firm alleges that it will soon be available as a mode of payment for different purchases.
PayPal unveiling a stablecoin may accelerate its efforts to become a cryptocurrency payment giant, an initiative the firm started in 2020 after making way for cryptocurrency payments on the platform.
PayPal has more than 350 million active users and already allows users in the United States and the United Kingdom to buy, sell, and hold Bitcoin, Ether, Litecoin, and Bitcoin Cash while also supporting payments in the assets.
PayPal CEO Dan Schulman believes that the new PYUSD stablecoin will become a part of the general payments infrastructure. The firm first confirmed its plan to unveil a crypto stablecoin in January 2022, alleging that it would work closely with relevant regulatory bodies.
While there are many stablecoins available in the crypto market today, PayPal will be the first launched by a huge payment processor. Paxos CEO Charles Cascarilla said:
“With the launch of the first stablecoin by a leading financial institution, PayPal and Paxos are proving the real-world value of blockchain technology. PayPal USD is the most significant leap forward for digital assets and the financial industry, and Paxos is proud to enable this transformative product.”
The company alleged that the regulatory environment around stablecoins in the United States is slowly “progressing toward more clarity,” and therefore, there is demand for an alternate stablecoin than what is available in the current market.
In that context, the crypto stablecoin market has a $126 billion circulating supply, which is dominated by Tether-issued USDT (with a market cap of $86.5 billion) and followed by Circle-issued USD Coin USDC (with a market cap of $26 billion) and several others.
Nonetheless, most stablecoins have recently encountered regulatory challenges in the United States, where policymakers are now discussing a bipartisan stablecoin bill.
PayPal USD (PYUSD)) Favors Ethereum But Not Decentralization, Says Community
Proponents believe that PayPal’s PYUSD might see Ethereum become the money layer of the entire internet, while opponents insist that it will work as a poorly designed central bank digital currency (CBDC).
PayPal’s new Ethereum-based stablecoin has been considered bittersweet news for the cryptocurrency community. While it might help Ethereum to gain mainstream adoption, it might also spell doom for decentralization and personal control of assets, according to the community.
PayPal USD was launched on August 7 and is issued by the company behind Binance USD, Paxos Trust Co. It is built on Ethereum and “designed for digital payments and Web3,” with the company stating it will soon be available to U.S. customers.
The PYUSD launch has been seen as a boost for Ethereum adoption. Ethereum proponents Ryan Sean Adams and Anthony Sassano believe the ERC-20 stablecoin will push the blockchain closer to becoming the money layer of the entire internet.
This is the Ethereum contract address for PayPal's stablecoin.
I can't believe i get to tweet that.
We've come so far. pic.twitter.com/S6kSqcV4ut
— RYAN SΞAN ADAMS – rsa.eth (@RyanSAdams) August 7, 2023
On that note, the total number of daily active users on Ethereum now hovers between 300,000-400,000, according to Etherscan.
Nevertheless, Sean Adams said that 430 million accounts actively utilize PayPal, meaning that more than 5% of the world’s 8 billion people might theoretically be brought into the Ethereum market via PayPal’s new stablecoin.
The CEO and co-founder of Gnosis, Martin Koppelmann, added that by introducing the PayPal stablecoin on Ethereum’s base layer, Ethereum layer-2s can interact with PYUSD as well. Others, including legislators, have seen it as another instance of bigger institutions adopting crypto, breathing some new life into the traditional payments system.
In an official August 7 statement, the chair of the United States House Committee on Financial Services, Patrick McHenry, commented that stablecoins like PayPal’s PYUSD “hold promise as a pillar of our 21st century payments system.”
— Financial Services GOP (@FinancialCmte) August 7, 2023
Nevertheless, not everyone is excited about PayPal’s new stablecoin.
Many smart contract auditors said that PYUSD’s smart contract has “wipefrozenfunds” and “freezefunds” features, which they insist are usual examples of centralization attack vectors in Solidity smart contracts.
The new Paypal USD stablecoin has an "assetProtection" role which can wipe your balance in two transactions (first `freeze`, then `wipeFrozenAddress`)
In smart contract security we call this a "centralisation attack vector" pic.twitter.com/RsmqvsnKvi
— pashov (@pashovkrum) August 7, 2023
This worry was reiterated by crypto researcher Chris Blec, who thinks that PayPal will utilize the controversial features where needed.
On the other hand, digital asset lawyer Sarah Hodder thinks that many features of PayPal’s stablecoin resemble that of a censorship-enabled central bank digital currency. Furthermore, another smart contract auditor confirmed that PayPal stablecoin’s smart contract can be altered by PayPal at any time.
I just read the PayPal USD terms of service.
– full KYC
– custody by Paxos
– tied to your PayPal login
– PayPal can reverse any transaction
– claimed to be fully backed by actual USD
All the censorship capabilities of a CBDC, but launched by big tech instead of the gov't.
— Sasha Hodder (@sashahodler) August 7, 2023
In October 2022, PayPal was criticized for a controversial policy that might have seen users fined $2,500 for publishing “misinformation.” The company later retracted, alleging that the policy update was published erroneously.
In the meantime, Patrick Collins, a blockchain engineer, had a more neutral view, saying that PayPal’s PYUSD might have been ‘epic’ but thinks some of the engineering options were suboptimal – including selecting an old version of Solidity to program the contract, making the contract readily upgradable and not making it gas-efficient.
Yes, PayPal's stablecoin is centralized.
No, that doesn't make it any less cool that PayPal has a stablecoin.
Ethereum being a settlement layer for all types of value means that different types of assets will exist on the network & you get to choose which ones you want to use.
— sassal.eth 🦇🔊 (@sassal0x) August 8, 2023
In another post, Sassano also noted that while PayPal’s stablecoin is centralized, Ethereum users retain the autonomy to choose whether they want to utilize it or not. PayPal stated that PYUSD will be unleashed in the coming weeks.