The PYUSD, PayPal’s new dollar-backed stablecoin, has soared over 70% in the last 30 days, according to data from popular crypto information platform CoinMarketCap. The recent growth has catapulted its market cap to a little over $300 million, making it the 8th largest stablecoin on the market as of January 28, 2024, surging ahead of FRAX and USTC.
The rally came after a relatively unimpressive first few weeks for PYUSD that saw most crypto market players, especially those in the DeFi sector, avoid it. Somehow, the coin appears to be recovering so rapidly that its trading volume soared around 45% over the last 24 hours. The PYUSD is unlikely to compete against market players like the USDT or the USDC. Also, the new stablecoin is already performing above expectations, inching closer to Pax Dollar (USDP) by the hour.
The PYUSD Had a Slow Start
PayPal’s Ethereum-based stablecoin rolled out to mixed reactions from the cryptocurrency community. While some praised the initiative, many criticized its questionable design flaws, causing many neutral observers to (initially) ignore the stablecoin. PYUSD’s initial performance was underwhelming, a pretty surprising observation considering the size of the PayPal user base. Only a handful of wallets held over $3,000 in PYUSD tokens for over three weeks after launch. Additionally, the stablecoin barely cracked $10,000 in daily volume on most days.
Despite its lackluster performance, however, it is essential to note that the announcement correlated with a brief jump in PayPal stocks, probably due to investors overestimating the potential impact of the new stablecoin on the cryptocurrency market.
The Case Against PYUSD
PYUSD’s launch attracted criticism from the cryptocurrency community, primarily because it featured a mind-boggling level of centralization for a supposed crypto stablecoin. The stablecoin ran on an older version of the Solidity programming language that allows for the designation of an asset protector role that can freeze and unfreeze user accounts.
In simpler terms, PayPal technically built a backdoor to let them freeze, unfreeze, or even wipe user balances (at their discretion), negating the very idea of creating a stablecoin in the first place. Analysts have pointed to the regulatory uncertainty in the United States as a likely reason why PayPal used this design approach for its cryptocurrency. While PayPal would want regulatory approval from relevant regulators, no US regulatory agency would approve of a fully decentralized stablecoin with no controlling authority, hence the apparent backdoor.
The centralization argument is only one of the cases against PYUSD; many observers are also questioning the purpose of the stablecoin. With USDT, USDC, and DAI doing very well in the stablecoin markets, questioning the need for another stablecoin becomes more necessary by the day.
The Case in Support of the PYUSD
PayPal rolled out its stablecoin in August of last year, promising interoperability between its digital wallet and other external wallets compatible with Ethereum tokens. With the stablecoin launch, PayPal became the first conventional payment app to launch its stablecoin in the US market, marking a significant milestone.
The ability to instantly convert your PYUSD tokens to their equivalent dollar value right within the PayPal app is another convenient feature many non-crypto-savvy users would appreciate. Also, most observers believe having cryptocurrency available within the PayPal app introduces many otherwise disinterested users to the innovative payment technology, potentially winning more converts to cryptocurrency in the long run.
Ultimately, the PYUSD’s success lies in the non-technical crowd. A crypto jock after a stablecoin on a completely decentralized blockchain would probably prefer an alternative like USDT. However, the average Joe looking to hold a few bucks in crypto should not mind doing so through the stablecoin.
Is There Any Hope for the PYUSD?
While the reason for the PayPal stablecoin rally is unknown, the coin will likely become one of the biggest dollar-backed stablecoins on the market. A market capitalization of $300 million is a strong showing, and PayPal would be looking to capitalize on this organic growth to improve public perception of the PYUSD.
The centralization argument and stubborn crypto investors sticking to conventional stablecoins like USDT and USDC have not worked in favor of the PYUSD. We would have to wait and see what impact the ongoing rally will have on the stablecoin in the long run.