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In today's dynamic digital finance environment, the demand for innovative solutions to enhance transaction speed and security has become essential.
These solutions include stablecoins, a type of cryptocurrency designed to have stable value by being linked to assets like the U.S. dollar. Online payments giant PayPal recently entered the fray with its own stablecoin: PayPal USD (PYUSD).
What is PayPal USD?
PayPal USD (PYUSD) is a stablecoin that is fully backed by U.S. dollar deposits, U.S. treasuries, and similar cash equivalents, ensuring its stability and redeemability at a 1:1 ratio with the U.S. dollar. It is built on the Ethereum blockchain, making it easy for users to swap, transact, or hold it with their existing wallets.
The PYUSD stablecoin is currently accessible through the PayPal platform for eligible U.S. users, which tens of millions of people already have an account with for day-to-day fiat transactions and online shopping.
Ultimately, PYUSD is designed to seamlessly integrate with PayPal’s massive online payment system, providing a stable and reliable medium for transactions.
How does PayPal USD work?
As an ERC-20 token, PYUSD is built on the well-established Ethereum smart contract blockchain, leveraging its technology for security and efficiency.
The stablecoin is designed to maintain a steady 1:1 peg to the U.S. dollar, backed by a pool of highly liquid assets. This guarantees that any PYUSD can be exchanged for real greenbacks at a 1:1 ratio.
As of December 2023, Paxos Trust, the issuer of PayPal USD, held $270.7 million in assets backing PYUSD—a significant increase from the $45.3 million stated in Paxos’ first monthly report in September.
Those looking to obtain PYUSD can buy or sell it using PayPal's app or website. Additionally, the stablecoin is available at Venmo, a popular mobile payments app owned by PayPal, and several other compatible external wallets.
Users can then spend PYUSD at online stores that accept PayPal, just as they would with regular fiat currency, or send it to cryptocurrency wallets that support PYUSD, such as MetaMask—giving them even more ways to use the stablecoin.
PayPal USD doesn't stop there. You can also send PYUSD to friends or family through PayPal without any fees, or exchange it for other cryptocurrencies supported by PayPal, including(BTC) and (ETH). Bear in mind that fees may apply if you're converting between PYUSD and other cryptocurrencies.
PayPal USD: what's the big deal?
The launch of PYUSD forms part of PayPal’s wider push into the Web3 and cryptocurrency space, as the finance giant aims to bridge the gap between traditional finance and blockchain technology.
Leveraging PayPal's reputation and user base, PYUSD aims to bring together the emerging world of decentralized digital finance with the trust and easy access users expect from established player in the fintech ecosystem.
While it's a bold move, it's not without its challenges. Right now, PayPal USD is only available to clients in the U.S., while there are trade-offs in terms of centralization. PayPal’s ability to freeze PYUSD funds ensures that it remains compliant with regulators and law enforcement, and can’t be used by criminals—but it also marks a shift away from the decentralized, permissionless ethos of cryptocurrency pioneers.
In a nutshell, PayPal USD is innovating by trying to combine the best of both worlds: the reliability of PayPal with the flexibility of digital currencies. With PayPal’s backing and reach, it has the potential to reach a much wider audience than other stablecoins, and could have a wide-ranging impact in terms of how mainstream consumers think about and use digital money.