- PayPal introduces stablecoin linked to US dollar for digital asset prominence.
- Stablecoin concerns prompt regulatory scrutiny; recommendations made for governance and bank issuance.
- Paxos, the issuer of Binance’s stablecoin, partners with PayPal; SEC legal concerns arise over securities classification.
PayPal, a prominent player in online payments, has introduced a fresh cryptocurrency linked to the worth of one U.S. dollar. This strategic move is aimed at solidifying its position within the digital asset landscape, reported The Washington Post.
This novel token is referred to as a stablecoin due to its objective of retaining a consistent value of $1. It stands out as the inaugural endeavor of its kind from a significant American financial entity. This development allows crypto enthusiasts to expedite trade transactions by converting tokens like Bitcoin and Ethereum into stablecoins, circumventing the conventional lengthy settlement periods often associated with traditional financial intermediaries.
However, the stablecoin sector, which holds an estimated value of around $120 billion as per CoinMarketCap, has triggered concerns within Washington and baffled policymakers. In November 2021, leading financial overseers led by the Treasury Department put forth recommendations for Congress to establish a framework governing these tokens and to restrict their issuance to banks. The reasoning behind this proposal was the perceived potential risk they pose to the wider financial system. Despite these concerns, lawmakers have yet to pass regulations concerning stablecoins.
Concurrently, Tether, a Hong Kong-based entity and issuer of the most extensively traded stablecoin worldwide, declared last year that it would not comply with sanctions imposed by the Treasury Department. These sanctions were aimed at a crypto service that enabled North Korean hackers and other entities to launder billions of dollars in stolen digital assets. The instability became evident in May 2022 when TerraUSD, another stablecoin, experienced a collapse that triggered a chain reaction of failures among various other crypto companies, resulting in severe repercussions for the industry.
PayPal presently enables users to purchase Bitcoin and several other cryptocurrencies, facilitating transactions involving these assets. The company anticipates that its stablecoin will find utility among customers for making payments within online games, as well as in other Web3 applications. Additionally, the stablecoin is envisaged as a means to facilitate international payments.
“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.”
PayPal CEO Dan Schulman
The newly introduced cryptocurrency, named PayPal USD, will be exchangeable for a value of $1. The company has assured that the stablecoin will be fully backed by assets including U.S. dollars, short-term government debt, and other assets with high liquidity.
To bring this token into circulation, PayPal collaborated with Paxos Trust, the same company responsible for issuing the stablecoin associated with the challenged cryptocurrency exchange, Binance. An earlier report by the Wall Street Journal in February indicated that the Securities and Exchange Commission (SEC) was planning legal action against Paxos, accusing the company of violating investor protection regulations in connection with the token’s sales. The SEC alleged that the token constituted an unregistered security. Subsequently, the New York Department of Financial Services directed Paxos to cease issuing the token.
When approached for a comment on the situation, PayPal deferred to a spokesperson from Paxos, who asserted that the company firmly believes its stablecoins do not fall under the category of securities.
“Blockchain is set to revolutionize financial services, and Paxos is poised to lead this revolution by furnishing worldwide enterprises with secure, compliant, and regulated infrastructure solutions.”
Paxos spokesperson Julia Horowitz
