Discover more from SO WHAT? A Web3 Digest for Executives
PayPal's stablecoin isn’t true crypto... but that’s okay
There's a lot to fix in the world of payments and this is a bold effort
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This week’s topic was a no-brainer after PayPal, the once-pioneering fintech firm, jumped deeper into Web3 with the launch of its own US Dollar-backed stablecoin.
Paypal set the tone for digital payments over a decade ago but for many it has become obsolete, or at least lost its cutting-edge. Operating a stablecoin is bold and ambitious—perhaps a reflection of PayPal’s desire to regain its lost momentum.
The announcement certainly came under a lot of criticism, primarily because it is not a pure crypto play and it includes some facets that should concern users. But, as we argue today, that’s not necessarily an issue if it can improve the very broken user experience of cross-border payments. There’s potential to do more, too.
We’ll see you again next Friday,
What’s going on?
Payment giant PayPal announced it will soon offer its own stablecoin—PayPal USD (PYUSD)—which will be backed by the US Dollar and used to settle payments on its service via the Ethereum network.
Stablecoins are a keystone in decentralized finance as they allow crypto-owners to leave and exchange funds in a stable asset that’s pegged to fiat currencies and backed by collateral. They have huge potential because they massively reduce cross-border payment transfer fees, whilst providing greater transparency and speed.
PayPal is the first major ‘Web1’ fintech to dive into stablecoins, but it isn’t doing this alone. PYUSD will be run in partnership with Paxos Trust, a US-based Web3 company that specializes in stablecoin issuance and has previously worked with exchange giant Binance.
1. This is adoption
PayPal’s stablecoin is a watershed moment for crypto. This is one of the most established fintech firms to offer a digital dollar and it is one with over 430 million users worldwide—that’s more than the total online reach of all US banks put together. It also plans to make PYUSD available for Venmo, its sister payment service with over 70 million users.
Most crypto innovation has, to date, been for crypto users but PayPal entering the ring could bring hundreds of millions of new people in touch with blockchain technology because of a superior user experience alone. And potentially without knowing they’re using a Web3 product.
It will undoubtedly take time but the idea is that you will be able to pay merchants across the world for items using PYUSD through transactions that are faster than through the traditional banking system and with lower fees for both the buyer and the seller. You could even potentially use it when traveling overseas, travelers checks and middleman currency exchanges be gone!
2. A better experience but also a gateway
Cross-border payments today are messy. The internet and services like WhatsApp, Facebook, TikTok and others have brought culture and communications together beyond borders, but money remains analog, with cost and pain to bear when it comes to moving it internationally.
Beyond simply making payment easier, PayPal could serve as a gateway to opening its near-500 million users up to more digital services.
We know stablecoins can be a major earner (we wrote in last week’s issue that top stablecoin issuer Tether is supremely profitable) but if PayPal can get its users comfortable with PYUSD, they could go from being ‘accounts that use stablecoins’ to ‘Web3 wallets’ that could purchase NFTs, ticketed NFTs, DeFi products, airdops from musicians and other mainstream services that we can’t yet conceive today.
In the short-term, PayPal’s involvement gives regulators another big reason to look at stablecoins, which are already the subject of draft legislation from the US government, and that’s certainly a good thing as the CEO of Circle—another major stablecoin issuer—noted.
3. It isn’t true crypto... but that’s okay
There has to be a but, of course (you knew that), and that’s that this isn’t Web3 in the purest sense.
PayPal has been criticized for retaining centralized control of PYUSD, since it can pause transfers and freeze accounts. It also requires a user to provide their social security number. That may be necessary in a country like the US, where regulation is key as mentioned above, but it could impact utility and adoption in markets with concerns over government intervention—destinations where newer alternatives are much sought-after.
PayPal is also using the Ethereum blockchain itself rather than layer-two options which are optimized for speed of transfer and lower gas fees to make payments.
None of this is a huge surprise, however. The onus will be on PayPal to show it can run PYUSD responsibly (sidestepping concerns on centralization) but the broader goal isn’t about fitting in with the crypto—it’s the total opposite. PYUSD is aimed at bringing a better user experience to non-Web3 users not appeasing the existing community, and that’s fine. That’s progress.
“Before they were afraid to be first, now they’re afraid to be left behind,” said Paxos CEO Chad Cascarilla.
That bodes well for the future of online payments, not just Web3.
PayPal’s stablecoin announcement was denounced as deeply concerning by a Democrat Congresswoman because it has arrived before federal legislation around stablecoins
But it could be a money spinner because, in more proof stablecoins can be profitable, the aforementioned Circle says it made adjusted earnings of $219M on revenue of $779M in the first half of this year—that beats its figures for 2022
The SEC is (unsurprisingly) appealing a recent federal judge ruling that Ripple’s sale of its XRP tokens to retail users did not violate securities law
Binance is still chasing licensing despite its US troubles—it just became the first fully-licensed crypto exchange in El Salvador, which became the first country to recognize Bitcoin as legal tender in 2021
Standards are being upped among crypto exchanges: Kucoin, an exchange popular for listing a broad selection of tokens and requiring limited user verification, is increasing its requirements for KYC (know your customer) for traders
That’s all for this week!
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