Despite the already saturated market of stablecoins, PayPal is determined to make a move due to their extremely large base of users (435 million) and their knowledge of worldwide laws when it comes to financial transactions. In an interview with CNBC's MacKenzie Sigalos, PayPal's crypto chief Jose Fernandez da Ponte discussed the reasoning behind their decision, explaining that the benefits of stablecoins, such as quicker processing and programmability, are too good to pass up.
On Monday, PayPal became the first major U.S. fintech company to introduce its own crypto token, known as PayPal USD, which is pegged to the U.S. dollar. The company is entering a highly competitive market already dominated by stablecoins such as tether and USDC, at a time when the buzz around cryptocurrencies has died down and prices have been mostly stable since 2022. However, Jose Fernandez da Ponte, PayPal's senior vice president and general manager of blockchain, crypto, and digital currencies, is confident in its timing and unique advantage in the space. He stated “Stablecoins are the killer application for blockchains right now. There are inherent advantages in cost, programmability, settlement time." Da Ponte also asserted that the market is ready for entrants that are both fully-backed and regulated, thus the company cannot pass up the opportunity. He denied a Bloomberg article that the payments processor put a stop to its stablecoin development in February as a result of pressures from the SEC and New York's financial regulator.
In the last year and a half, a significant decrease in crypto liquidity occurred followed by the collapse of three crypto friendly banks Silvergate, Signature, and Silicon Valley Bank. This occurrence further complicated the movement of capital to the digital asset market. The total market cap of stablecoins plummeted 25% to $120 billion. The SEC's intensified regulation of the sector and the drawn-out bear market pricing has made the environment tough for crypto-oriented businesses. Nevertheless, da Ponte believes this is an ideal opportunity for PayPal to utilize its infrastructure and technology to succeed in the space. He noted “We are bringing to bear all the infrastructure that we have built over the years in terms of being regulated in multiple countries, in terms of risk management, in terms of compliance, and we think that that's a key asset that is a difference in the approach that we are taking."
Stablecoins are a subset of the crypto ecosystem that investors can typically rely on to maintain a set price, typically pegged to fiat currencies such as the U.S. dollar, or to a commodity like gold. Electronic U.S. dollars--that are partially backed by reserves under a system known as fractional-reserve banking--are currently situated in commercial bank accounts, making it subject to high transfer fees and slow transaction times when dealing with different banks or countries. To combat this, USD-pegged stablecoins, such as tether, USDC and PayPal's USD, or PYUSD, have been created. Although tether has come under scrutiny due to its reserves, it is still widely used. USDC, and PayPal USD are backed by fully reserved assets and fully regulated by consortiums, making them easily accessible, regardless of the user's location. Additionally, a digital version of the U.S. dollar, known as a CBDC, stands to offer a direct claim against the central bank, making it theoretically safer. However, many people utilizing stablecoins are not necessarily driven by safety, but rather faster ways of completing business transactions, regardless of their domestic or international nature. These tokens are being used to speed up payments and sometimes settle in seconds or minutes, compared to the three to five days it usually takes with traditional payment methods.
The sector of U.S. dollar-pegged stablecoins is flooded with a multitude of competitive offerings, but according to the chief crypto executive of PayPal, the payment processor's foray into the space is "all about increasing the size of the pie." He noted that the extensive network of over 435 million active accounts that PayPal holds is a distinct advantage. In terms of fiat connectivity, da Ponte said PayPal has the superior option, which is critical to the on-ramping process of fiat to crypto. Andy Bromberg, a veteran in the industry for over a decade, affirmed that PayPal can offer simple and inexpensive ways to bridge the two worlds, calling it a significant vote of confidence for the ecosystem. Da Ponte noted that the infrastructure to move PYUSD outside of PayPal's domain is in place, and people will be able to do so without incurring any fees from PayPal -- only the necessary blockchain/ethereum fees. Moreover, the crypto executive also spoke of the potential of PYUSD in the digital goods market and its impending integration with Venmo, being able to send value to friends on PayPal, as well as allow PayPal merchants to receive value from Venmo users.
PYUSD is beginning its roll-out with U.S. customers, who have been slower in adopting stablecoins than other parts of the world. da Ponte commented, "I don't think the revolution will happen overnight, and you won't be paying your local store with a stablecoin tomorrow." Jeremy Allaire, Circle's CEO, noted that only 30% of USDC adopters are from the U.S., yet went on to commend PayPal's launch of their stablecoin, calling it "incredibly exciting." Allaire believes that with the power of market-neutral public blockchains, digital dollar coins like USDC can form the basis of thousands of companies, neo-banks, capital markets, and financial institutions. He also pointed to PayPal's launch as an example of what can be accomplished when regulators provide crypto companies with clear guidelines. Nevertheless, regulation related to crypto in the U.S. is still uncertain.
The efforts of Meta (formerly known as Facebook) towards launching its own stablecoin came to nothing after it was met with disapprobation from practically everybody. Patrick McHenry, House Financial Services chairman from North Carolina, implored for legislation concerning crypto on the same day PayPal was releasing its PYUSD. He expressed the need for "clear regulations and robust consumer protections" in order for stablecoins to make the most of their potential.
da Ponte believes that PayPal's considerable experience in the business of payments, which has lasted for over two decades, gives them an advantage in the stablecoin market. According to him, "What we are doing is taking that value proposition that has been around for so long and making it available outside the PayPal ecosystem". Nonetheless, the industry is still severely hindered by scams, with many counterfeit PayPal tokens surging onto DeFi exchanges right after the stablecoin's launch. There were numerous tokens with huge gains that conflict with the value of a stablecoin, one of them reaching a 24-hour appreciation of 3000%, and a total trading volume of $47,000.
Wall Street's enthusiasm for crypto has been revitalized in recent weeks with an uptick in applications for spot bitcoin ETFs, which have been denied previously by the SEC. Nevertheless, the agency could become more amenable to approving them with the help of partnerships with Coinbase for market surveillance. da Ponte commented on the situation, "We see that there is institutional interest, demand for additional tokens in this space, and regulation that is progressing.... This made the present the perfect time to get involved."
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