The influence of banks and financial technology (fintech) companies over stablecoins seems to have taken a turn. Early this week on August 7, PayPal, a fintech company, launched its own set of US dollar-pegged stablecoins which’ll also be supported by short-term US treasuries, and circulated by Paxos Trust Company, a blockchain infrastructure. Cryptocurrency companies believe that this move is towards legitimisation of the industry which has been a long standing battle, as this should pave the way for adoption of in junction with traditional financial systems. “This move should allow PayPal users to transfer the stablecoin between various external wallets and PayPal, as well as utilise it for transactions,” Rajagopal Menon, vice-president, WazirX, a cryptocurrency exchange, told FE TransformX.
Market reports have shown that PayPal USD has potential to expand consumer bases pertaining to stablecoin market. According to American Banker, a banking-based information resource, being backed by Ethereum, PayPal USD can be transacted between PayPal and external wallets. The resource also stated that other PayPal USD-based benefits include support to peer-to-peer (P2P) payments, utilisation for purchase funds, and assurance of liquidity through the currency’s conversion. Being supported by US dollar’s 1:1 basis, PayPal USD can tackle market volatility implications.
“PayPal’s launch of stablecoins can bring legitimacy and recognition to cryptocurrencies, especially stablecoins, which are suitable for everyday transactions. This acceptance by a mainstream payment platform should encourage other financial institutions and businesses to consider integrating cryptocurrencies into their operations,” Sumit Ghosh, co-founder and CEO, Chingari, a Web3.0 video application, highlighted.
In terms of helping businesses, PayPal USD has been created to develop digital in-experience payment mechanisms. Moreover, other factors in which PayPal USD is expected to help are cross-border transactions, fund flows between developers and creators, and brands’ efforts to expand in the digital asset domain. In September, 2023, Paxos will launch a public monthly reserve report around PayPal USD’s reserves. The company will also launch a public third-party attestation around PayPal USD’s value, as per American Institute of Certified Public Accountants’ (AICPA) guidelines.
At the time of the roll-out, Dan Schulman, president and CEO, PayPal, stated that the shift towards digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar. Going by market experts, banks’ inculcation of stablecoins can be attributed to global economic catastrophes, market volatility around the US dollar, and use cases such as commerce, financial operations, payments, among others.
Circle, a fintech company, highlighted that since 2014, stablecoins have clocked $11.5 billion in circulation, with creation of over 50 stablecoins related to over six global currencies. Stablecoins’ market domination by Tether USD, USD Coin and Paxos Standard, which account for more than 90% of the market, show an upward trend in stablecoin-backed requirements since first quarter of 2019. “Stablecoins may see usage beyond purchase of cryptocurrencies. As stablecoins are based on real-world assets, their price is expected to remain stable. This launch by PayPal is a testament to the trust displayed by a TradFi player in the crypto ecosystem and shouldn’t have any influence over price of stablecoins,” Alankar Saxena, co-founder and CEO, Mudrex, a crypto-investing platform, explained. Insights from a research report by Bernstein, a private wealth management firm, showed that global stablecoin market will reach a $2.8 trillion valuation in upcoming five years, from its current market value worth $125 billion. Moreover, the report emphasised on importance of consumer platforms for driving stablecoins’ adoption in years to come.
Post the development, PayPal’s shares secured a three percent rise, despite its stock value reaching a six-year low on account of low consumer spending previously. Reportedly, PayPal’s shares were trading at above $64 which supposedly helped its improvement from a three-month low.
