ALBAWABA – The world of crypto and digital currency is welcoming a new stablecoin backed by United States (US) dollar deposits, as PayPal launches US Dollar-backed stablecoin PayPal USD on Tuesday.
Issued by Paxos Trust Company, the digital currency will also be backed by other cash holdings, PayPal said in a press release.
PayPal USD will be used on the global company’s online payments platform, the statement said.
The launch of the new digital currency comes as the cryptocurrency industry is going through a rough patch with the collapse of FTX and legal cases against some of the sector’s biggest players, according to Agence France-Presse (AFP).
The company’s shares rose by 2.6 percent as PayPal launches US dollar-backed Stablecoin PayPal USD, Reuters reported.
"The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar," said PayPal chief executive Dan Schulman.
PayPal also plans to soon make the stablecoin available at Venmo, its peer-to-peer payment service, according to AFP.
Notably, stablecoins, which are crypto tokens whose monetary value is pegged to a stable asset to protect from wild volatility, have been around for years now. But they have yet to successfully make headway into the mainstream consumer payments ecosystem.
Instead, consumers mostly use stablecoins as a means to trade other cryptocurrencies, like bitcoin and ether, according to Reuters. The world's largest stablecoin is Tether, followed by USD Coin.
Other prior attempts by major companies to launch stablecoins have met fierce opposition from financial regulators and policymakers. Meta’s 2019 plans to launch a stablecoin, Libra, were foiled after regulators raised fears it could disrupt global financial stability.
Major economies, from Britain to the European Union, have since laid out rules to govern stablecoins, as reported by Reuters. The EU's policies will come into force in June 2024.
"PayPal isn’t quite as polarizing as Facebook, but it’s a high-profile name that will surely get attention on Capitol Hill, and from the [Federal Reserve] and [Securities and Exchange Commission]," said Ian Katz, managing director of Capital Alpha Partners, in a note, carried by Reuters.
