PYUSD’s $44 million market cap suggests that initial adoption of stablecoins has been slow so far.

Image credit: Michael Vi/Shutterstock

When PayPal launched PYUSD last month, it highlighted the stablecoin’s potential for global payments. But the token’s first transparency report suggests that while PYUSD faces competitors with their own problems, its adoption still has a long way to go.

Paxos Trust, the company that issues PayPal’s stablecoin, said it held $45.3 million in assets backing PYUSD at the end of last month. The report, published last week, is the first public look at the assets associated with the $44.3 million.

While PYUSD has slightly more than $1.5 million in cash deposits, the majority of the currency’s reserves are in reverse repurchase agreements collateralized by U.S. Treasuries, valued at $43.8 million, the report said.

A reverse repurchase agreement is effectively a collateralized loan in which one institution sells securities to another with the expectation of buying them back at a certain price (usually higher) at a future date.

As Paxos notes, its protocol involves trading with “reputable financial institutions” with overnight maturities, which ultimately reduces the risk of loss to a level that is “not considered material.”

Stablecoins are digital assets pegged to the price of sovereign currencies such as the U.S. dollar. Moreover, some of the leading stablecoins are usually backed by a combination of liquid assets such as cash and government debt, with billions of dollars in assets behind them.

However, since the explosion of Terra’s UST stablecoin last spring, the overall market capitalization of stablecoins has steadily declined. According to Coingecko data, the total value of stablecoins has fallen from about $188 billion in May last year to $131 billion today.

The USD token of Circle, the second-largest stablecoin in crypto, has also been facing headwinds since it briefly lost its $1 value following the collapse of Silicon Valley Bank in March. Recently, analysts at research firm Kaiko expressed concerns about whether Tether can sustainably maintain the $1 level.

Terra’s UST is an algorithmic stablecoin. Trading incentives with another token, LUNA, help keep UST’s value stable until it’s no longer stable. The $60 billion plunge in the value of both cryptocurrencies has pushed crypto firmly into a bear market and sparked calls for stablecoin legislation in the United States.

Congressmen such as Maxine Waters (D-CA) have said PayPal should wait for legislation and a federal framework to be in place before launching PYUSD. However, with Paxos under the supervision of the New York State Department of Financial Services, PayPal continues to properly register its products in New York State.

As PayPal enters the stablecoin space, the payments company says its product will be built on a foundation of transparency and reputation. In the initial announcement of PYUSD, PayPal emphasized that reserve reporting will be the backbone of the product’s monthly cadence.

But despite its well-known brand and commitment to transparency, PYUSD’s current market cap of $43.4 million is a drop in the bucket compared to stablecoin leaders USD Coin (USDC) and Tether (USDT).

According to CoinGecko, USDC and USDT are valued at $83 billion and $26 billion, respectively, accounting for 90% of the stablecoin market. Meanwhile, PYUSD’s market cap accounts for only a few percent.

According to a recent report by Kaiko, while stablecoins are highlighted as useful for cross-border payments and remittances, the technology is also heavily used by those engaging in cryptocurrency transactions.

The report found that all but 26% of transactions on centralized cryptocurrency exchanges, whether Coinbase or Binance, do not use stablecoins. Kaiko analyst Dessislava Aubert told Decrypt that while PayPal published a transparency report on PYUSD several listings ago, its adoption has been tepid to date.

“PYUSD was listed on some centralized exchanges in late August, notably Coinbase and Kraken, but its daily trading volume has been volatile and quite low compared to other stablecoins,” she said. “Overall, this indicates weak demand.”

According to Coingecko, PYUSD has seen around $1.2 million in trading volume over the past day. For reference, $14 billion worth of Tether and $6 billion worth of USDC have traded over the past day as of this writing.

The majority of the token’s trading volume is concentrated on HTX (formerly Huobi), with $740,000 in volume across three trading pairs. On Coinbase and Kraken, PYUSD has trading volumes of $86,000 and $87,000, respectively.

In its initial research into PYUSD, PayPal acknowledged that the majority of the stablecoin’s volume comes from “network-specific environments” and said the token will be compatible with that ecosystem from day one. But in the chill of crypto winter, traders appear to be taking their time warming up to PYUSD. #PayPal  #PYUSD