PYUSD, also known as #paypal USD, is a stablecoin issued by the payment giant PayPal. The infrastructure company responsible for its issuance is Paxos, and the asset is regulated by the New York Department of Financial Services (NYDFS).
PYUSD is pegged to the US dollar at a 1:1 ratio and is built on the #ethereum blockchain following the ERC-20 standard. The smart contract of this coin allows for the freezing and burning of funds in the balance.
In February 2023, it was revealed that the development of #pyusd had been paused due to an investigation by NYDFS regarding Paxos, the issuer of other stablecoins such as #busd and USDP. However, later the company reported having a constructive dialogue with the U.S. Securities and Exchange Commission, which warned of potential legal action.
PYUSD was launched on August 7, 2023, and as of September 18, it ranks 414th according to CoinGecko, with a market supply of $44.3 million.
Why did PayPal need a stablecoin?
PayPal, the largest centralized platform for online transactions for individuals and businesses, revealed in its Q1 2023 earnings report that they hold approximately $1 billion in cryptocurrency for their customers. PayPal has over 350 million active users worldwide.
Rumors about the payment giant's intention to launch its own "stablecoin" emerged in May 2021, six months after PayPal opened access to cryptocurrencies for its customers. In April 2021, the company added support for Bitcoin, Ethereum, Litecoin, and Bitcoin Cash in its mobile payment service, Venmo.
The company's management believes that the creation of PYUSD will simplify the process of transfers and international payments while further integrating digital assets into everyday life.
According to experts at Bank of America (BoA), the launch of PayPal's stablecoin, PayPal USD, will enhance payment efficiency and improve customer service. However, the financial conglomerate experts express doubts regarding the long-term prospects of this payment instrument, predicting competition from central bank digital currencies and specialized stablecoins. BoA also acknowledges the presence of regulatory risks, especially if non-bank organizations are prohibited from issuing their own stablecoins.
What backs PayPal's stablecoin?
PayPal USD is fully backed by US dollars, treasury bills, and similar cash equivalents. According to the latest monthly report from Paxos, published since September 2023, the total amount of assets in PayPal's account matches or exceeds the balance of PYUSD tokens as of August 31st.
As of that date, the total circulating supply of PYUSD was $44.4 million. The assets held by Paxos, representing the interests of PayPal's stablecoin holders, are valued at $44.5 million at nominal value.
The reserves mainly consist of overnight repurchase agreements (REPO) backed by US government bonds, accounting for 97% or $43 million. Such transactions are conducted with reputable financial institutions. The remaining amount is placed in deposits at FDIC-insured institutions.
If the bank partner were to become insolvent, the company could face financial losses. It is worth noting that insurance does not provide full coverage for the deposited amount.
Where to buy PYUSD?
The first companies to announce the listing of the new asset were the centralized exchange HTX (formerly Huobi) and the largest American cryptocurrency company Coinbase. They took this step shortly after the launch of PYUSD.
Currently, PayPal's stablecoin is also available for trading on exchanges such as Kraken, BingX, Gate.io, Crypto.com, as well as on the decentralized exchange Uniswap.
Nansen analysts noted low demand for the stablecoin. Their report indicates that over 90% of the total supply of PYUSD is held by Paxos, the issuer of the stablecoin. Only 7% of this coin's supply is held in wallets associated with Kraken, Gate.io, and Crypto.com exchanges.
How regulators have perceived the emergence of PayPal's stablecoin?
The arguments made by American congressmen regarding the launch of PayPal's stablecoin have sparked various opinions. They have called for regulatory oversight in the realm of stablecoins.
Maxine Waters, a member of the US House of Representatives, expressed deep concerns about the introduction of PYUSD. She noted that such assets do not have sufficient regulatory framework.
Patrick McHenry, the Chair of the House Financial Services Committee, also emphasized the need for legislation on stablecoins.
How does the crypto community assess the prospects of PayPal's stablecoin?
The announcement of PayPal's stablecoin PYUSD has sparked disagreements among both regulators and the crypto community. Critics, including Blockware Solutions analyst Joe Burnett, claim that those supporting the launch of PYUSD have made a mistake.
Some smart contract auditors have noted the "freezing" and "burning" functions in the PYUSD code, which, in their opinion, could become targets for centralization and attacks in Solidity contracts.
Other auditors have pointed out that PayPal can make changes to the PYUSD smart contract at any time.
Blockchain engineer Patrick Collins called the choice of an outdated version of the Solidity programming language for the PYUSD smart contract suboptimal and highlighted the lack of gas-saving mechanisms in its execution.
Some members of the crypto community have expressed concerns about potentially high transaction fees due to the expensive Ethereum network and the lack of support for second-layer solutions.
However, supporters of PYUSD have positively assessed its impact on the Ethereum blockchain in the context of broader adoption. They see Ethereum's potential to become the "money layer of the internet."
Analyst Nickolas Panigirtzoglou of JPMorgan claims that PYUSD could contribute to an increase in the total value locked (TVL) in the Ethereum ecosystem. He also points out the potential increase in demand for PYUSD due to the reduction in the supply of the BUSD stablecoin from Binance.
🤔And what do you think about PYUSD from PayPal?
