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PayPal Holdings, Inc. (stock ticker: $PYUSD) has recently entered the world of decentralized finance with the announcement of their groundbreaking stablecoin, PYUSD.
Having revolutionized online payments in the late 1990s, the presently $57.77B market cap corporation which surpassed $308.5B market cap in July 2021, is no stranger to disruptive innovation. 25 years ago person-to-person digital payment transactions were virtually non-existent. One could pay a merchant with a credit card, but to send funds from person to person electronically was slow, cumbersome, and presented an uncertain security risk.
Delivering quick transactions via a simple and secure user -nterface, PayPal quickly filled a critical gap during the initial wave of e-commerce. Now with its own stablecoin, PayPal is poised to solve new challenges in emergent payment technology, this time at the forefront of the rapidly evolving DeFi landscape.
Today, we’re unveiling a new stablecoin, PayPal USD (PYUSD). It’s designed for payments and is backed by highly liquid and secure assets. Starting today and rolling out in the next few weeks, you’ll be able to buy, sell, hold and transfer PYUSD. Learn more https://t.co/53RRBhmNHx pic.twitter.com/53ur2KmjU7
— PayPal (@PayPal) August 7, 2023
PayPal Enters $200 Billion Stablecoin Market
In 2022, the stablecoin market cap approached an all-time high of $200B (Source: Statista). However, in May, the $40 billion collapse of TerraUSD highlighted the severe risks of stablecoin insolvency.
A 2023 study published in Ledger Journal, “The four types of stablecoins: A comparative analysis”, emphasized the necessity for improved stablecoin education and classification.
“…recent events such as the crash of TerraUSD and the de-pegging of USDC have raised questions about the stability of stablecoins. As a result, there is a growing need for a better understanding of how stable these coins actually are and the differences between various types of stablecoins.”
-Matthias Hafner, et al
PayPal, with its decades of institutional stability and credibility, is well-positioned to address these concerns and bring much-needed reliability to the innovative (and sometimes not so stable) stablecoin industry. Moreover, with 435 million active accounts as of 2023, and the addition of 8.6 million users in 2022, PayPal is capable of introducing DeFi to a user base larger than the entire population of the United States (Source: Demand Sage). Is PYUSD a key to unlocking mass adoption, or another stablecoin catastrophe?
Demystifying Stablecoins
Stablecoins are digital currencies tied to fiat currency values, often the USD. Imagine them as blockchain IOUs for US Dollars. Simplifying the process of converting fiat to crypto and vice versa is crucial for blockchain adoption and benefits cryptocurrency traders. The demand for blockchain-native USD settlements arose due to friction in traditional fiat banking systems.
Tether (USDT), the largest stablecoin with an $83B market cap, was launched in 2014, predating the Ethereum genesis block, and is available on 10 blockchains. Early Bitcoin adopters recognized the utility of tokenized US Dollars on the blockchain. Today, there are over 200 stablecoins on various blockchains, each with distinct risk profiles. Despite some failures, consumer demand for reliable stablecoins remains strong.
Unlocking the Potential of Stablecoins
Stablecoins empower the instant sending and receiving of USD-denominated payments. Cryptocurrency traders use stablecoins to enter and exit positions on-chain without the need to rely upon a centralized exchange or wait for regional banking hours. Banks and stock markets close on weekends and holidays, but cryptocurrency markets remain perpetually active. Stablecoins provide the functionality of US Dollars, but on the blockchain which never sleeps and does not close for any holiday.
In addition to enabling rapid on-chain settlement for payments and cryptocurrency speculators, stablecoins also facilitate a DeFi analog for any conventional banking service. Payments, loans, yield farming, offers, swaps, bonds, annuities, insurance products, etc., can all be transacted in USD denominations with stablecoins and smart contracts.
Stablecoins Empower the Unbanked
There is steady demand for stablecoins from the world’s 1.4B unbanked population. Accessing a smartphone and storing a seedphrase is often a more convenient and secure banking solution than any available alternative. Moreover, in circumstances of economic collapse and food insecurity, transacting with stablecoins is simply more practical and generally preferred over volatile cryptocurrencies like Bitcoin and Ethereum.
In the late 2010s, Venezuelan refugees turned to stablecoins to safeguard and transport their savings and assets amidst economic collapse. Unlike physical cash, which is vulnerable to seizure and poses logistical challenges, decentralized digital currencies provide a discreet and resistant means of protection in perilous situations.
Introducing PYUSD: The ERC-20 Token by PayPal
PayPal’s choice of Ethereum blockchain and ERC-20 for PYUSD ensures interoperability with the full Ethereum DeFi ecosystem. Despite most of the ~$109M PYUSD supply being on centralized exchanges, it’s already integrated into DeFi, boasting a $450k (>13%) trading volume on fully on-chain platforms, with $312k on Uniswap and $138k on Curve in the last 24 hours.
PayPal USD (PYUSD) Contract Address:
0x6c3ea9036406852006290770bedfcaba0e23a0e8
Deploying the PYUSD contract as an ERC-20 token on the Ethereum blockchain promises to introduce PayPal’s massive existing userbase to the building blocks of decentralized finance. Between the PayPal & Venmo apps, PayPal, Inc. supported over 500 million active user accounts in 2022 and processed over $1.5 trillion USD in annual transaction volume. The mass adoption potential cannot be ignored.
While concerns exist regarding PayPal enforcing KYC restrictions or the power to freeze or seize PYUSD funds, it remains uncertain how these actions could be executed within the current ERC-20 contract framework. Implementing a modified ERC-20 standard for KYC would essentially transform PYUSD into a Central Bank Digital Currency (CBDC). However, PYUSD seems to align more closely with the two largest stablecoins, USDT and USDC, and noteworthily, other stablecoin protocols like Dai and sUSD support decentralized collateral management.
Different Kinds of Stablecoins
Apart from KYC concerns, consumers also worry about experiencing another situation like Luna. Stablecoins, particularly algorithmic ones, remain relatively unfamiliar, posing challenges even for experienced cryptocurrency investors. A classification system for stablecoins, as proposed by Matthias Hafner, et al., would greatly assist in addressing these issues.
“Our categorization is based on two key dimensions, resulting in a 2 × 2 matrix that classifies stablecoins into four types.”
The first dimension assesses collateral origin, whether exogenous (like fiat and gold) or endogenous (like crypto assets). The second dimension evaluates centralized or decentralized collateral management, enabling user-controlled supply adjustments via mint/burn. PYUSD, similar to USDT and USDC, centrally manages exogenous collateral.
PayPal & ENS Protocol
The PYUSD stablecoin brings PayPal into DeFi, and it also brings PayPal into the world of Web3, NFTs, and interacting with other dApps and smart contracts. When interacting with dApps and smart, (for NFTs or DeFi), the “ENS naming protocol” assigns human-readability to the Web3 user experience.
It is worth noting that PayPal has secured a meaningful set of brand ENS (.eth) domain names.
In terms of unlocking mainstream adoption, it seems that PayPal believes that ENS and digital identity could play key role in their Web3 future.
PYUSD: A Promising Newcomer in the Stablecoin Market with PayPal Backing
WhaleChart recently observed the gradual emergence of PYUSD in the stablecoin landscape. Despite its modest $109 million market cap, PYUSD represents only 1/1000th of the combined market cap of USDC ($25.5 billion) and USDT ($83.5 billion), which together total $109 billion. Notably, PYUSD made its debut in August, and the involvement of PayPal is expected to bolster its supply by acquiring additional USD collateral.
This move may involve reinvesting crypto proceeds and expanding its stablecoin market share to meet rising demand. Moreover, PYUSD is gaining attention among centralized exchanges, including Crypto.com, Paxos, Coinbase, Bybit, Bitstamp, KuCoin, and Gate.io. Consequently, this ensures that users in the centralized financial sector (CeFi) will become more acquainted with PYUSD if they haven’t already. Additionally, decentralized finance (DeFi) protocols are also embracing PYUSD, as evidenced by the increasing liquidity pools on platforms like Uniswap and Curve, contributing significantly to its 24-hour trading volume.
Bitcoin and crypto exchanfe Bybit has listed the PYUSD stablecoin launched by PayPal in the spot trading.
Earlier, Coinbase Kraken Gate Cryptocom Huobi and others listed PYUSD.
Real-world adoption of PayPal’s stablecoin PYUSD has been sluggish with just $45M in reserves…
— Whale (@WhaleChart) September 20, 2023
Seeding PYUSD across CeFi exchanges and DeFi protocols, PayPal is introducing the whole cryptocurrency space to a new stablecoin, PYUSD. Investing $109M in liquid assets to rival USDC and USDT, PayPal has demonstrated a firm commitment as a Web2 industry leader and acknowledged the challenge of competing with top stablecoin issuers.
These substantial moves signal that PYUSD is more than a marketing stunt, possibly an indication of something larger in development. By powering services unique to the PayPal ecosystem and giving users a reason to use PayPal for blockchain payments, PYUSD could bolster stablecoin reliability and become a catalyst for mass adoption.
