On Aug 07, 2023, PayPal announced the launch of its stablecoin PYUSD through a press release and various other social media platforms.
This marks the second most important event where a financial giant has pivoted towards Web3, after BlackRock and other Bitcoin ETFs.
The stablecoin will be issued by Paxos which also is a partner in Binance's BUSD. The stablecoin will first be issued on PayPal but will also be available in Venmo.
Stablecoins are the most secure assets in Web3 because of their stable price which neither depreciates or appreciate in value. However, they have a host of features that makes them significantly important in today's crypto world.
Firstly, Stablecoins are used as a store of value, especially when other cryptocurrencies are falling in price. For example, the last crypto winter of 2022 marked a distinct rise of USDT over all stablecoins.
Stablecoins also increase the utility of traditional currencies. Since stablecoins possess the same value as fiat USD or Euro, they can be exchanged and used for international payment settlements.
PayPal is one of the largest intermediaries of cross-country payments and has a yearly transactional volume of $1.36 Trillion (2022).
Currently, PayPal charges somewhere between 5-10% per transaction for smaller transfers and takes about 2-3 days for settlement.
With the arrival of its PYUSD stablecoin, the time frame per transaction will decrease to a few minutes (based on Ethereum). Further, the cost of each transaction will decrease to less than $5 per transaction, however small.
Both cost and speed increases the utility of PayPal which will now be able to settle transactions in a faster and cheaper way.
Finally, the freedom from fluctuating values of cryptocurrencies is necessary because paying an amount different than original transaction would only make its customers angry.
Normal cryptocurrencies like Bitcoin and Ethereum have high volatility associated with them which could cause significant cause difference in paid and received amount.
More institutional interest means a better future for Web3. It would also mean a higher price for noble cryptocurrencies like Bitcoin and Ethereum. Most importantly, growing usage of cryptocurrencies would make our financial system far more efficient.
However, for all of these to happen, we need a accountable and transparent system where PayPal seems to have disappointed many people.
The PayPal's PYUSD coin is not a decentralized asset, but that was BUSD too.
However, PayPal went a little further than BUSD.
It created a cryptocurrency that could be wiped out of your wallet. Pashkov, a smart contract auditor, revealed that the stablecoin contains a "centralization attack vector", a piece of code that could freeze your wallet and make funds disappear from it if PayPal wants so.
PayPal's stablecoin has a stringent KYC method. On reading its terms and conditions, Sasha Hodder found that it is way more centralized and appears like a CBDC but from a private organization.
Sasha criticized the terms of service in a tweet.
However, we also understand that PayPal's moves were also aimed at addressing global anti money laundering laws that could have posed a serious risk to its regulatory clearance.
Further, reversibility of transactions has been one of the core features of PayPal and it would surely be PayPal's decision to retain it in the stablecoin as well.
All of this marks a growing adoption for Web3 technologies but it also increases efforts towards centralization. In the past, we have witnessed how centralization in one of the biggest exchanges, FTX led to its catastrophic downfall.
Yet, we are also optimistic that PYUSD will give rise to cryptocurrencies that are institutional but also sufficiently decentralized for their own better survival.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information but will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.