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PayPal on Monday launched a US dollar-backed stablecoin to facilitate payments, the latest addition to its line of crypto services. This is the first such move by a major U.S. financial institution.
Called PayPal USD (PYUSD), this new asset was designed to address the “new possibilities” of “transforming payments in the Web3 and digital native environment.” The launch comes as market participants await a vote in Congress on a major stablecoin bill. The bill has just entered the House of Representatives for the first time, along with three other cryptocurrency bills.
PayPal said the function of the stablecoin is to reduce payment friction during experiences in virtual environments and allow a direct flow to developers. It is redeemable in dollars and is backed by dollar deposits, short-term US Treasuries, and similar cash equivalents.
PayPal President and CEO Dan Shulman said, “The transition to digital currencies requires a stable vehicle that is both digitally native and easily connected to fiat currencies like the US dollar.” said. “Our commitment to responsible innovation and compliance, and our track record of delivering new experiences for our customers, provide the foundation we need to contribute to the growth of digital payments through PayPal USD.”
Shares of PayPal jumped more than 2% on the news.
PayPal stablecoins are issued by Paxos, a veteran of the stablecoin space and an intermediary partner for PayPal’s cryptocurrency buying and selling services. Paxos also previously issued a dollar-pegged Binance-branded stablecoin, BUSD. An order from the New York State Department of Financial Services to stop issuing BUSD in February marked the beginning of the stablecoin market cap decline this year.
The market capitalization of USD Coin (USDC), the largest dollar-backed stablecoin issued by a US company, has fallen about 41% since Jan. 1, according to Cryptoquant. USDC is founded by the Circle and managed by a consortium called The Centre, which includes cryptocurrency exchanges. coin base.
A stablecoin is a cryptocurrency whose price is fixed to the underlying asset. While they are designed to be less volatile than most cryptocurrencies, they have not been immune to the regulatory crackdown on cryptocurrencies this year and the banking crisis earlier in the year.
They are often used to trade other crypto assets such as Bitcoin and Ether. By not entering the traditional financial system, traders can enter and exit positions faster and cheaper than when trading fiat currencies such as dollars.