No Fear: PayPal Doubles Down On Crypto With New Stablecoin

Hey LinkedIn,?

PayPal doubled down on crypto this week, launching its highly anticipated?stablecoin.?Here's why this is the year's biggest news. ???

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PayPal’s PYUSD stablecoin arrives

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This week, global payments giant PayPal launched PayPal USD (PYUSD), a stablecoin on Ethereum.

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Fully redeemable for U.S. dollars, PYUSD is backed by USD deposits, U.S. Treasury bonds and cash equivalents. Paxos will issue PYUSD and share monthly audited reports.

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Initially, only U.S. PayPal customers can access PYUSD, with functionality of the stablecoin being rather limited (e.g. PYUSD can only be transferred between PayPal and compatible external wallets).

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A massive signal of legitimacy

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The importance of PYUSD's launch cannot over overstated. PayPal is the first major U.S. TradFi company to launch a stablecoin.?

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PayPal is a financial services behemoth and an early internet payments pioneer. It is trusted by 420M active users and carries a strong brand reputation.

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This launch of PYUSD is massively legitimising for crypto. Large financial services institutions are building on public blockchains and signalling their belief in the viability of onchain commerce.

No fear

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This all comes months after PayPal paused its PYUSD project due to regulatory uncertainty.?By proceeding with the launch, PayPal appears comfortable enough with the regulatory landscape surrounding stablecoins.

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Not PayPal's first entry into crypto

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PayPal has been involved in crypto since 2014. Its biggest move came in 2020, when it allowed users to buy and sell certain cryptocurrencies directly.

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It has since allowed users to withdraw to self-custody wallets and buy directly via web wallets, as well as adding support for other non-Ethereum networks.

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Stablecoins are critically important

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Stablecoins are arguably the most successful application of blockchain technology to date. In many ways, they are the backbone of the broader crypto economy, by facilitating:

• everyday financial activities for retail users and institutions;
• transfers into and out of currencies via a web wallet; and
• low-cost and instant cross-border transfers.

Major software companies such as SAP, which powers many Fortune 500 companies, are?testing?cross-border payments with Coinbase and Circle’s?USDC?stablecoin.

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And they’re growing

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Stablecoins have?grown?considerably in recent years, from sub-$5M in 2018 to more than $100B today, per Coin Metrics. It's very possible that this number surpasses $1T in the coming years.

Will PYUSD ignite a stablecoin war?

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PayPal is disrupting USDT and USDC, the largest stablecoins by supply.

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With the potential for new U.S. laws that officially recognise stablecoins, could a wave of new stablecoins be on the way?

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Why the controversy may be an overreaction

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PYUSD's launch hasn't all been positive. Some are concerned that the centralisation risk threatens the core tenets that underpin the industry.

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These concerns, although valid, may be slightly misguided. The ability to freeze or transfer funds is a requirement for?all?central issuers. This?includes?the issuers of USDC and USDT.

Three main takeaways from PYUSD's launch

1. It’s another step towards legitimising crypto by one of the world's top fintech providers.
2. We could see a new stablecoin war as more financial services companies could follow.
3. Stablecoins are a growing use case, becoming significant demand drivers for public blockchains, which are the silent winners here.

We may soon be entering the golden age of stablecoins, where large amounts of capital move onchain and spurs sustainable blockchain adoption.

Click below for our weekly wrap-up (or?click here)! ??

Are Ethereum futures ETFs on the way?

What happened:?Six asset managers filed applications with the SEC to launch Ethereum futures ETFs.

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Why it matters:?This may signal changing attitudes and demand for regulated products that offer ETH exposure. The SEC's first response deadline is mid-October. In the unlikely event it is approved by then, it could lend greater legitimacy to ETH.

Growing solvency concerns related to Huobi exchange

What happened:?Huobi executives were reportedly arrested, causing increased fears over the exchanges liquidity and/or solvency. Huobi denied the reports. More than 30% of Huobi's stablecoins reserves were withdrawn by users this week.

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Why it matters:?It's another reminder of the risks of keeping material cryptocurrency holdings on exchanges. Notable crypto figure Justin Sun—who is currently being sued by the SEC—has a controlling stake in Huobi. It's fair to steer clear of Sun-related exchanges and cryptocurrencies.

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Fed starts new program to oversee crypto activity in U.S. banks

What happened:?The U.S. central bank is increasing its oversight of crypto activities of U.S.-regulated banks. The program will focus on "novel activities" such as custody, trading and DeFi, which may impact the broader financial system.

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Why it matters:?While nothing "new" was introduced, it aims to put guardrails around crypto activities. The jury's out on whether the program will (i) create an expedited path to crypto tokenisation or (ii) be used to choke the industry.

Thanks for reading the Weekly Shift. We hope you've enjoyed it, and look forward to seeing you next week!

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