The PayPal crypto community is up. The company is creating a US-dollar-pegged stablecoin, expanding its digital asset business into a highly profitable field and making the payments corporation the latest mainstream financial company to push into an area long dominated by crypto natives.
PayPal (PYPL) said on Monday that its PayPal USD, or PYLUSD, will be redeemable in dollars and backed by cash deposits, short-term Treasuries, and other cash equivalents. The token will be issued by Paxos Trust Company, a company-sponsored by PayPal’s venture arm that also supports the Binance USD stablecoin, which is tied to the same-named crypto exchange behemoth.
Eligible PayPal crypto users in the United States can acquire the stablecoin beginning today as part of a scheme that will be carried out in the coming weeks. According to the organisation, PayPal USD may be moved between PayPal and compatible external wallets, sent person-to-person, converted to and from other cryptos supported by PayPal, and used to fund transactions.
“The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar,” Dan Schulman, PayPal’s CEO, said in a statement.
PayPal entered the cryptocurrency market in late 2020, offering clients the option to purchase, store, and trade a restricted number of cryptocurrencies, including Bitcoin. The organisation revealed it was working on a stablecoin in February when Bloomberg reported that it had suspended activities when the New York State Department of Financial Services ordered Paxos to cease releasing Binance USD.
Stablecoins are one of the most profitable areas of cryptocurrency, especially in the context of high-interest rates, when Treasuries, which form up a large portion of stablecoin reserve portfolios, may earn up to 5%. Tether, the largest stablecoin issuer, may profit $6 billion this year from a standard strategy of just owning Treasuries. To put it in context, FactSet expects financial behemoth BlackRock to earn a net income of $5.4 billion in 2023.
PayPal’s decision makes it the latest conventional financial business to expand further into digital assets in a direct challenge against crypto startups, many of which have been battered over the last year and a half by unpredictable markets and unforgiving regulators.
In June, BlackRock (BLK) revealed that it has applied for a spot Bitcoin exchange-traded fund (ETF), and crypto services from brokers like Fidelity and Robinhood Markets (HOOD) pose a challenge to Coinbase Global (COIN).
PayPal Crypto comes from a strong position as a big financial technology company with recognised crypto credentials. It will be a serious competitor to both the offshore colossus Tether and the USD Coin-issuing Circle, whose intentions to go public were put on hold in 2022.
With stablecoins still ripe for regulation — and one of Congress’ first areas of emphasis in crypto — PayPal’s credentials in the realm of traditional banking should not be overlooked. PayPal shares were up 1.7% on Monday, outperforming the S&P 500 SPX and NasdaqCOMP.