10 things to know about PayPal’s digital currency (PYUSD)

Paypal PYUSD
  • PayPal introduced its new stablecoin: PayPal USD (PYUSD)
  • It is a digital asset linked to the US dollar
  • It is based on the Ethereum blockchain and is issued by Paxos
  • Being centralized, PayPal has the ability to freeze your funds
  • Here are the details you should know about PYUSD

This week, payment giant PayPal dove into the cryptocurrency space with the launch of its own stablecoin digital currency PayPal USD (PYUSD).

The initiative, which had only been hinted at by the company in early 2022, caused quite a stir within the industry, especially since the company is the first big-name financial institution to launch its own stablecoinPayPal had already incorporated cryptocurrency into its merchant platform, but had maintained a cautious approach until now.

PayPal‘s new digital currency is denominated in US dollars and is designed to maintain parity with the US currency at all times. In addition, it has been designed to facilitate payments and transactions, both national and international, for users, opening a new financial alternative to hundreds of global customers.

But this is not all. PayPal‘s new product brings with it a number of features and concepts that are worth learning about. Below we have collected 10 important facts about the PYUSD stablecoin.

1. It is a centralized stablecoin

Being issued by a private company, PYUSD falls under the definition of a centralized stablecoin.

Stablecoins are Blockchain-based digital assets that, unlike cryptocurrencies like Bitcoin, are designed to hold a fixed or stable value, away from volatility. They are often backed by real-world assets like fiat currencies. In this case, PayPal‘s stablecoin is pegged to the US dollar, so the company takes care to ensure both parity and 1:1 redemption with that currency at all times.

2. It is backed by cash dollars

PayPal USD is fully backed by US dollar deposits, short-term US Treasury bonds and similar cash equivalents, the company said. In this way, the company seeks to guarantee that the stablecoin maintains a price of USD $1 at all times. In this sense it is also a version of digital dollar.

Additionally, in an effort to drive transparency, PayPal has committed to publishing a monthly report detailing the assets and instruments that make up the PYUSD reserves. These reports will be issued by an independent external accounting firm, which will be in charge of certifying the proof of reserves. The first will be published in September 2023.

3. It is built on Ethereum

PYUSD is an ERC-20 token built on the Ethereum blockchain, which means that it will take advantage of the technological benefits of said Blockchain platform, such as the speed, costs and scalability of transactions, as well as the ability to program smart contracts.

4. Paxos collaborates with the broadcast

PayPal‘s new stablecoin was launched in collaboration with Paxos Trust Company, a New York-based company that provides regulated blockchain infrastructure to clients. Specifically, Paxos is in charge of issuing PYUSD tokens. The company previously handled the issuance of BUSD, the Binance stablecoin. Although he stopped supporting the project in February 2023 after being ordered by regulators to stop issuing that token.

5. PayPal can block your funds

PYUSD has some notable features such as functions to freeze, pause, or clear funds. Some independent smart contract auditors noted the stablecoin‘s design features, which would allow PayPal to block or remove user PYUSD funds. This is because, being a centralized stablecoin, the company has the power and control of the tokens it issues.

These particularities, while they may raise concerns about project centralization, should come as no surprise, as other stablecoins like USDT and USDC also have similar functions. These are created with the intention of protecting and providing security and are used, for example, to block a hacker in case of theft.

PayPal already implements a similar policy for its users’ accounts in case of violations of their service agreements or blocking requests from government authorities.

6. She’s not the only one of her kind

It is worth noting that PayPal USD is not the only one of its kind. While it is the first digital currency issued by a reputable financial institution, it joins a vast and growing stablecoin market currently dominated by USDT, the Tether-issued stablecoin that is also pegged to the US dollar.

Currently, the global stablecoin market is worth over $125 billion USD. USDT takes up much of that space, with a capitalization of more than $83.5 billion. It is followed by Circle‘s USDC with a market cap of $26 billion and DAI, a decentralized stablecoin, with nearly $5 billion.

7. It will work for payments, remittances, Web3 and more

According to official information from PayPal, users will be able to use PYUSD to make person-to-person payments, finance purchases, send remittances or international payments, and more. The new stablecoin will be available for purchase, sale, and custody in PayPal‘s digital wallet, as well as sister app Venmo very soon. 

Customers will also be able to exchange their PYUSD funds for any of the cryptocurrencies available in the app, including Bitcoin (BTC) and Ether (ETH). Furthermore, the token will be compatible with Web3 environments and will be available in external decentralized applications and wallets. PayPal has not indicated whether its stablecoin will list on platforms like Binance,  Coinbase, or decentralized exchanges, although some have already expressed interest in doing so.

8. Users in the US will have access first

The stablecoin is already gradually rolling out to US clients, which suggests that PYUSD will be available to US users at first. PayPal has not provided a precise launch schedule, nor has it disclosed details such as the next deployment countries for its new product.

The payment giant has 435 million active users globally.

9. It was originally released in 2022

Despite the fact that the stablecoin was officially introduced to the public on August 7, 2023, PayPal began issuing its token more than eight months ago. As revealed by Etherscan data, PYUSD was originally launched on the Ethereum network in November 2022. A company spokesperson confirmed the smart contract address to Decrypt.

10. Debuts amid regulatory crackdown in the US 

The arrival of PayPal‘s digital currency comes at a time of uncertainty and heightened regulatory pressure in the US. Federal regulators have filed lawsuits this year against big industry players like Coinbase and Binance, and one might wonder why PayPal has decided just this moment to launch its cryptocurrency.

The issuance of stablecoins and digital assets in general is currently unregulated in the country and is a big topic of debate among legislators. PayPal is a big enough company to influence this area, and its latest effort may be a lucky statement to challenge regulators. In any case, it signals a sign of growing interest among players in the traditional financial industry to explore the new asset class.

Beware of imitators

The debut of PayPal‘s stablecoin has generated great excitement, but it has also opened the door for scammers, who are rushing to take advantage of the brand’s success to create copycat tokens. In the first 24 hours of launch, more than 70 tokens named “PYUSD” have appeared on EthereumBNB Chain, and other chains.