PayPal launches stablecoin, a compliant entry point for 430 million people into cryptocurrency

Written by: Jack, Cookie, Jaleel, BlockBeats

Edited by: Jack, BlockBeats

On the evening of August 7, Beijing time, PayPal, a payment company headquartered in San Jose, California, announced the launch of its stablecoin, PayPal USD (PYUSD). This stablecoin is issued by Paxos Trust (the former issuer of BUSD) and is fully backed by U.S. dollar deposits, short-term government bonds, and similar cash equivalents, and will gradually be made available to PayPal's customers in the U.S.

Although PayPal has ventured into the crypto space in recent years, the launch of its official stablecoin can still be considered a significant event in the development of cryptocurrency. As a convenient gateway to the crypto world, stablecoins are often seen as important tools for guiding crypto users. So far, this role has mainly been fulfilled by USDC and USDT, but due to a lack of applications in traditional finance and the real world, the primary users of these two stablecoins remain internal participants in the crypto industry.

On the other hand, stablecoins have faced severe regulatory pressure due to the development and promotion of CBDCs in various countries. The ambitious stablecoin project Libra by Facebook was ultimately announced as a failure under such pressure. Therefore, the launch of PayPal's stablecoin will play an important historical role in the process of cryptocurrency entering traditional finance and the real economy. It not only means that 430 million PayPal users will gain a more stable and convenient entry into crypto but will also further promote the gradually loosening crypto policies. Interestingly, for Musk and Twitter, the launch of PayPal's stablecoin adds a lot of imagination to his long-desired "X dream."

A Gateway for 430 Million People

In PayPal's announcement, the company stated: "PayPal USD aims to reduce friction in payments for inexperienced users in virtual environments, facilitate the rapid transfer of value to support friends and family, remittances, or international payments, enable direct flows to developers and creators, and promote the continuous expansion of digital assets by the world's largest brands. Currently, most stablecoins are used in web3-specific environments—PayPal USD will be compatible with this ecosystem from day one and will soon be available on Venmo."

PYUSD will be launched in the coming weeks, and eligible U.S. customers will be able to:

1) Transfer PYUSD between PayPal and compatible external wallets

2) Use PYUSD for person-to-person payments

3) Choose to use PYUSD for purchases at checkout

4) Convert any cryptocurrency supported by PayPal to and from PYUSD

5) Buy and sell PayPal USD at a price of $1 per PayPal USD

As the only supported stablecoin within the PayPal network, PayPal USD leverages PayPal's decades of experience in large-scale payments while combining the speed, cost, and programmability of blockchain protocols. As an ERC-20 token issued on the Ethereum blockchain, PayPal USD will be available for use by the already large and growing community of external developers, wallets, and Web3 applications, and can be easily adopted by exchanges.

As of now, PayPal has over 431 million active accounts globally, but as the surge in online payments during the pandemic has subsided, PayPal's stock price has fallen by more than 35% over the past 12 months. Additionally, as PayPal expanded its consumer and merchant services such as operating capital loans and remittances across its many platforms, the company stated last week that it had to set aside more funds in the second quarter to repay bad loans issued to merchants, which also led to a single-day stock price drop of 12%. Amidst these challenges, PayPal President and CEO Dan Schulman recently announced that he would resign in the coming months.

Thus, PayPal USD can be seen as Schulman's last significant project in his PayPal career. Previously, Schulman had always hoped that PayPal could establish a dominant position in the digital payments space through instant low-cost transfer technology without intermediaries. In an interview with Bloomberg, he stated: "The transition to digital currency requires a stable tool that is both digitally native and easy to connect with fiat currencies like the dollar… Over time, our vision is to be part of the entire payment infrastructure."

In addition to creating products and services that enhance the utility of digital currencies, PayPal is also committed to improving consumer and merchant understanding of cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs), while closely collaborating with regulators as the industry evolves. Besides offering PayPal USD to U.S. account holders, PayPal currently also provides customers with the ability to buy, hold, sell, and transfer selected cryptocurrencies, along with educational content to help account holders understand the risks and possibilities of the technology.

It is also worth noting that the company helping to issue PayPal USD is Paxos Trust, which previously collaborated with Binance to issue BUSD. Paxos is a fully licensed limited-purpose trust company regulated by the New York State Department of Financial Services. With its assistance, in June 2022, PayPal obtained a conditional BitLicense and subsequently received a BitLicense issued by NYDFS.

According to the official announcement, starting in September 2023, Paxos will release a public monthly reserve report for PayPal USD, outlining the tools that make up the reserves. Paxos will also publish a public third-party attestation of the value of PayPal USD reserve assets. The attestation will be provided by an independent third-party accounting firm and conducted in accordance with the attestation standards established by the American Institute of Certified Public Accountants (AICPA).

What Facebook Couldn’t Do, PayPal Did

In June 2019, after years of preparation, Facebook (now Meta) launched an ambitious project: a cryptocurrency called Libra. In Meta's plan, the project would be supported by an international consortium of companies aimed at providing financial services to the unbanked and expanding its mission as a social media platform to connect a broader world to the burgeoning digital currency market.

Facebook's cryptocurrency would be managed by the Libra Association, which included companies like Visa, Mastercard, and PayPal. Each member would have equal voting rights and would need to contribute $10 million to the reserve fund, ultimately integrating Libra into their services to bring digital currency to more consumers.

However, Libra soon faced immense regulatory pressure. In October 2019, PayPal announced its withdrawal from Libra. Shortly thereafter, members such as Visa, Mastercard, eBay, and Stripe also announced their exits. In May 2020, Facebook renamed its Calibra payment division to Novi. About six months later, the Libra Association rebranded to Diem, attempting to distance itself from the failure of Libra. In October, Facebook launched a pilot for the Novi digital wallet, but without Diem. Soon after, David Marcus, who led the Libra project, left Facebook.

The failure of Libra was not the only setback for PayPal on the road to digital currency payments. In May 2022, the historic collapse of TerraUSD led to over $40 billion in losses for investors, directly prompting regulators to pay more attention to cryptocurrencies, especially stablecoins.

In February 2023, PayPal announced it was pausing the development of PYUSD. The day before, its partner Paxos was investigated by the New York Department of Financial Services (NYDFS) and was instructed to stop issuing the stablecoin BUSD associated with Binance. NYDFS stated that its decision was the result of "several unresolved issues related to Paxos's oversight of its relationship with Binance."

PayPal's Crypto History

As early as 2016, PayPal established a long-term partnership with Coinbase. In 2018, Coinbase allowed U.S. customers to withdraw funds instantly via PayPal. Last year, Coinbase users in Europe could withdraw from their PayPal accounts, followed by users in Canada.

In early 2020, sources reported that following a brief collaboration with Facebook's Libra project the previous year, PayPal was now focused on expanding its payment capabilities. Subsequently, PayPal posted several job openings to expand its new blockchain research team. PayPal's CTO Sri Shivananda stated in an interview that the company wanted "to have its own perspective and views on blockchain technology and see how it can help us realize the idea of creating an open digital payment platform that serves everyone."

In June 2020, PayPal was reported to be planning to sell cryptocurrencies directly to its 325 million users. In October, Paxos co-founder and CEO Charles Cascarilla announced that Paxos would begin supporting PayPal's "new service," allowing U.S. users to buy, hold, and sell crypto assets directly from their PayPal e-wallets.

In December of the same year, a report from Japanese securities firm Mizuho Securities indicated that trading Bitcoin among PayPal users could benefit its stock price and projected a potential revenue increase of about 20% the following year. The report raised the company's stock target price from $270 to $290, while PayPal's stock price at the time was $218. Meanwhile, Paxos announced it had secured $142 million in Series C funding from companies including PayPal.

In February 2021, PayPal reported to investors that in the fourth quarter of 2020, it added 16 million active accounts and processed a total payment volume of $277 billion. Users who purchased cryptocurrencies through the platform logged in to PayPal twice as often as before buying crypto. This was the first profitable quarter for the payment giant since it launched its cryptocurrency purchase service at the end of the previous year, with PayPal's transaction revenue increasing by about 12% quarter-over-quarter to $5.7 billion in Q4 2020.

In March 2021, Reuters reported that PayPal would launch a cryptocurrency settlement service, allowing U.S. consumers to pay millions of online merchants worldwide using their held cryptocurrencies. The next day, PayPal CEO Schulman purchased a pair of cowboy boots using Bitcoin through PayPal and recorded the purchase process to share online. In April, Paxos announced it had completed a $300 million Series D funding round, with PayPal participating.

In May, The Block reported that PayPal was officially considering launching a stablecoin. Sources indicated that PayPal would be more inclined to collaborate with third parties for the issuance of a stablecoin and had discussed stablecoin issues with multiple teams, including the Avalanche team. Previously, Bloomberg developer Steve Moser discovered code related to PayPal exploring the construction of its own stablecoin in the PayPal iPhone app.

In April 2022, PayPal President and CEO Schulman emphasized during the company's quarterly earnings call that digital wallets would play a key role in PayPal's future growth, stating, "We need to double down on digital wallets; I believe this is the future of the industry and the core of PayPal."

Musk's "X Dream"

Musk founded X.com in 1999, aiming to become the online hub for various financial transactions. Later, X.com merged with Peter Thiel's Confinity, with Musk becoming the largest shareholder and CEO of the merged company. Musk insisted that the company's name should be X.com, with PayPal being just one of its subsidiary brands. However, Peter Thiel's team opposed this, and Thiel ultimately ousted Musk from PayPal.

According to Walter Isaacson, author of "Elon Musk," Musk stated: "If you just want to be a niche payment system, PayPal is better… But if you want to take over the world financial system, then X is a better name."

In 2017, Musk purchased the X.com domain from PayPal, with the specific amount undisclosed. Musk thanked PayPal on Twitter for allowing him to buy back the X.com domain, stating, "There are no plans right now, but it has great emotional value for me." Five years later, Musk acquired Twitter for $44 billion, officially merging his newly acquired social media company into an entity registered in Nevada called X Corp.

In October 2022, Musk stated, "Acquiring Twitter is an accelerant to creating X, the everything app." The Twitter CEO mentioned at a live forum, "If you're in China, you can live through WeChat; it can do everything. X is a bit like Twitter, plus PayPal, plus a whole bunch of other things, all integrated into one interface with an excellent user experience."

Thus, Musk's initial vision for Twitter included embedding a financial system. However, in August 2023, Twitter user @cb_doge tweeted to remind crypto players that Elon Musk and X (Twitter) had never issued any cryptocurrency, warning them to be cautious. Musk replied to the tweet, "We will never (issue cryptocurrency)."

However, Twitter, without an internal payment system, has indeed faced developmental limitations in many areas. Also in August 2023, Musk tweeted that he would talk to Apple CEO Tim Cook to see if the company would adjust its 30% commission on in-app purchases. Currently, Apple charges a 30% commission on all in-app purchases on iOS, including subscriptions sold by creators through Twitter. Musk expressed his desire to change this situation so that Apple would only charge a 30% commission on the portion of profits Twitter receives, maximizing creators' earnings on Twitter.

Musk added that Twitter is also changing the way it charges commissions from creators. He stated that Twitter only takes 10% of subscription revenue from creators after 12 months and is currently adjusting to take 10% when creators' income exceeds $100,000. Additionally, under this new model, Twitter will not take any fees from creators in the first 12 months.

On November 19 last year, Musk criticized Apple's 30% commission as the "hidden 30% tax on the internet." He also delayed the launch of Twitter Blue on iOS to avoid paying Apple's fees. However, after visiting Apple's headquarters to meet Cook, he stated that it was some sort of misunderstanding.

In February of this year, Musk promised that he would start paying creators a portion of Twitter's ad revenue. In June, he announced that the initial total amount for revenue sharing would be $5 million, which has been distributed to eligible creators in July. Twitter shares the ad revenue it earns from replies to users' tweets directly with users, so the more replies a user makes and the more people view the ads in those replies, the more revenue the creators can earn. Currently, to be eligible for payment, one must purchase the Twitter Blue service and have at least 5 million views on tweets each month.

Musk mentioned in the All-In Podcast regarding Twitter's potential that payments could become part of Twitter's product offerings, "whether it's cryptocurrency or fiat currency." In the past, Musk has also hinted at using Dogecoin as a payment option for Twitter and even changed Twitter's logo to that of Dogecoin. While no one knows if he is serious about Dogecoin as a payment option for Twitter, the launch of PYUSD may provide this crypto-savvy Twitter CEO with a new option.

Loosening Compliance Gaps, Intensifying Competition

Since the Hong Kong Web3 conference in April, the entire crypto world has felt that mainstream countries' crypto policies are gradually loosening, even in the face of the SEC's strong actions in recent months.

On June 16, one of the world's largest asset management groups, BlackRock, submitted a filing for a spot Bitcoin ETF to the U.S. SEC through its subsidiary iShares, attracting significant attention from both inside and outside the industry. For a long time, the SEC had exerted immense regulatory pressure, and multiple spot Bitcoin ETFs had not been approved, yet the world's largest asset management giant unexpectedly applied for a Bitcoin ETF. Following this, a new cryptocurrency trading platform, EDX Markets, supported by Citadel Securities, Fidelity Investments, and Charles Schwab, began executing trades.

On July 14, a U.S. court ruled that XRP is not a security, injecting a powerful boost into the industry. Subsequently, on July 21, Glenn "GT" Thompson, Chairman of the U.S. House Agriculture Committee and Republican Congressman from Pennsylvania, formally submitted a new digital asset regulatory bill in the House, aimed at establishing a regulatory framework to protect investors in the crypto industry. The bill, after revisions, excludes a series of traditional securities from the definition of "digital assets," such as stocks, bonds, "transferable shares," and "any equity or participation certificate in any profit-sharing agreement."

The arrival of PayPal's stablecoin marks another significant milestone in the compliance journey of the crypto industry, indicating that the cryptocurrency sector, starting from payments, has entered a new round of imaginative possibilities. However, for individual players in the industry, the launch of PayPal's stablecoin may not bring all good news.

After PayPal announced the launch of its payment stablecoin, Patrick McHenry (NC-10), Chairman of the U.S. House Financial Services Committee, stated: "This is interesting. A new stablecoin has emerged in the U.S. It may lead to a reduction in payment revenues primarily supporting Mastercard and Visa. At the same time, it will also help the industry further develop and promote reasonable regulatory policies."

The launch of PayPal's stablecoin will undoubtedly lead to a decline in the market share of USDT. According to CoinGecko, the circulating stablecoins are valued at approximately $126 billion, with Tether Holdings Ltd.'s USDT being the largest to date. Tether's stablecoin USDT currently holds a market share of 67.2%.

Market share of various stablecoins, data source: DefiLlama

Although Tether's CTO Paolo Ardoino stated that the launch of PayPal's stablecoin would not affect Tether, as the company does not serve U.S. users, shortly after the announcement of PayPal's stablecoin, official data from Curve indicated that USDT's share in the current 3pool had reached 68.82% (156,352,796 tokens), and USDT had slightly depegged, dropping to around $0.9979.

The compliance path of PYUSD also seems to highlight that regulatory policies in various countries and regions are loosening. After Singapore and Hong Kong embraced Web3 and reaped many benefits, various signs also indicate that the attitude of U.S. politicians is changing, aiming to keep pace with the times and embrace digital assets: BlackRock's application for a Bitcoin ETF, the court ruling that XRP is not a security, and now PayPal issuing the stablecoin PYUSD. Changes in the regulatory environment often determine the fate of an industry.

More importantly, the launch of PayPal's stablecoin PYUSD is undoubtedly a milestone event in the crypto space. This payment giant has finally completed its years of planning in the digital asset field, opening the door to the crypto world for 430 million users. Whether PYUSD can break the long-standing duopoly of USDT and USDC in the stablecoin market, and how PayPal will leverage PYUSD to reshape the payment ecosystem, remains to be seen. We also look forward to PYUSD opening the door to crypto compliance.