Payments giant PayPal made a groundbreaking move on Monday by launching its very own stablecoin, becoming the first major fintech company to adopt digital currencies for payments and transfers.
While stablecoins, which are crypto tokens pegged to stable assets to avoid volatility, have been in existence for years, they have struggled to gain traction in the mainstream consumer payments ecosystem.
PayPal’s announcement, which caused its shares to rise by 2.5 percent in afternoon trading, demonstrates a vote of confidence in an industry that has faced challenges in recent times, with regulatory hurdles and high-profile failures causing disruptions.
Previous attempts by mainstream companies to launch stablecoins have faced strong opposition from financial regulators and policymakers. Facebook’s attempt to introduce Libra, a stablecoin, in 2019 was thwarted due to concerns from regulators over global financial stability.
Several major economies, including the United Kingdom and the European Union, have since introduced regulations to govern stablecoins. The EU’s rules will come into effect in June 2024.
Last month, the US House Financial Services Committee advanced a bill to establish a federal regulatory framework for stablecoins, focusing on registration and approval guidelines for stablecoin issuers.
PayPal’s stablecoin, called PayPal USD, is backed by US dollar deposits and short-term US Treasuries. It will be issued by Paxos Trust and gradually made available to PayPal customers in the United States.
According to Argus Research Corp analyst Stephen Biggar, while PayPal’s reputable brand adds significance to the stablecoin launch, it is not surprising as the company has had previous involvement in the crypto industry.
In another development, Visa announced in 2021 that it will enable the use of cryptocurrency for settlements on its payment network.
© Thomson Reuters 2023
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