PayPal’s stablecoin: Is it feasible after the capitulation of Meta with Diem?

Paypal Stablecoin

Meta (Facebook) has been one of the protagonists of the past days. Mark Zuckerberg’s company has lost 200,000 million dollars of market capitalization after presenting disappointing results and, in the midst of all the smoke that its accounts have raised last quarter, it has decided to sell its stable currency, Diem, to the Silvergate Capital Corporation. The fiasco of the giant of social networks with the so-called ‘stablecoins’ is projected on other companies that are developing similar plans, among which PayPal stands out.

Also read: Facebook Stablecoin Diem Going To The End

American fintech giant PayPal Holdings confirmed in early January its intention to launch its own stablecoin called PayPal Coin. These plans have not been altered despite Meta’s decision and “will have multiple effects on payments and our lives,” says Adam Nasli, chief analyst at BrokerChooser.

Stablecoins are cryptocurrencies that peg their value to an external asset. While the price of most tokens is indeed volatile, stablecoins could provide more price stability by pegging their value to an asset or using methods to control the coin supply. They are cryptocurrencies whose price is designed to be pegged to other ‘crypto’, fiat money, or publicly traded commodities (such as precious or industrial metals).

It may also be the case that stablecoins are not backed by any assets, but instead use methods to control the supply of the stablecoin.

Paypal Coin

Currently, this segment of the crypto industry has a value of 141,000 million dollars and its quarterly transaction volume has exceeded 1,000 million dollars in 2021. Among the main electronic currencies of this class are the USDT, the USD Coin or the Binance USD.

The most popular is the first of them all, the Tether currency, which is in the top positions by market capitalization, a short distance from ethereum or bitcoin itself. It is linked to the dollar with a one-to-one exchange rate and causes headaches for the US monetary authorities, who fear a bankruptcy of this cryptocurrency that will put the entire financial system in check, since “the growth potential of stablecoins creates a risk systemic”, affirm from BofA.

As for corporate stablecoins, Zuckerberg’s project, which was born under the name of Libra in 2019, caused great speculation about which other company would be next. Names like Amazon, Walmart or some big banks were considered. However, the harassment and demolition of the US regulators to the then Facebook around its stablecoin, which was considered a threat to the sovereignty of fiat currencies and central banks, stopped the aspirations of other companies.

PayPal, in fact, was one of the first to leave the Libra project, followed by eBay, Stripe, MasterCard and Visa resigning as founding members, following the example of the payments company. Facebook was the only one to stick around, renaming the project Diem and downgrading ambitions from a dollar rival to a dollar-based stablecoin. Now, not even Facebook is in on the project.

Other spin-offs from Facebook’s attempt to launch a global currency are efforts by central banks to digitize sovereign currencies. Currently, more than 80% of them are working on a CBDC (Central Bank Digital Currency) and it is estimated that a digital euro or dollar will be seen in the middle of this decade. The e-yuan, meanwhile, yta is a reality.

“The launch of a stablecoin by a technology company, such as PayPal, would have multiple effects on payments and on our lives,” Nasli says. Among which, “the reduction of transaction costs and accessibility by a large number of users are undoubtedly the greatest benefits.” Likewise, “it would create fierce competition between technology companies and banks, encouraging the latter to devote more efforts to the development of digital currency,” she adds.

Stablecoins launched by private companies, as seen in its time with Libra/Diem, raise many regulatory questions. For example, “there should be proper risk management behind stablecoins to ensure there are sufficient reserves. It could also limit the effect of monetary policy if such a stablecoin were to be widely used in an economy,” adds the analyst at BrokerChooser.

The Paypal coin

PayPal allowed US customers to pay with cryptocurrency and increased its cryptocurrency purchase limit over the past year. And among its future plans is to offer its own stable currency, as confirmed by the same company.

“We are exploring a stablecoin; if we look to move forward, we will of course work closely with the relevant regulators,” Jose Fernandez da Ponte, PayPal’s senior vice president of cryptocurrencies and digital currencies, confirmed to Bloomberg News.

Although PayPal’s digital asset is in the process of being created, the name, logo, and characteristics of the internal token are subject to change prior to launch. In support of the ongoing development, PayPal has previously released new features that allow users to buy, hold and pay with digital currencies.