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    PayPal’s new stablecoin, dubbed PayPal USD (PYUSD), is more likely to capitalize on the crypto hype than a program to power blockchain-based payment services, according to some analysts. It is a marketing strategy aimed at

    The company announced its dollar-pegged stablecoin on August 7, becoming one of the first major fintech companies to adopt crypto for payments and transfers. PayPal USD is backed by US dollar deposits and short-term US Treasuries. It is issued by the cryptocurrency company Paxos Trust.

    Not a true stablecoin

    But there are pitfalls. The PayPal-Paxos partnership did not promise to allow stablecoins to be used as direct payments for goods and services. Instead, Quartz analysts say it plans to convert PayPal’s USD transactions into real dollars before it settles with merchants. report.

    In that sense, PayPal USD (PYUSD) is not a true stablecoin but a “marketing gimmick,” the report said. It also added that “stablecoins are not widely used by merchants,” suggesting that stablecoins are not yet a viable option for everyday payments.

    PayPal’s stablecoin appears to be a way for California-based payments giant PayPal to capitalize on the crypto hype, according to Todd Phillips, a former FDIC attorney and current assistant professor at Georgia State University. .

    “It appears to be issued by Paxos and is just PayPal branding,” Phillips told Quartz.

    The report warns that PayPal USD may be prone to bank runs. This is similar to what happened with the USDC stablecoin in March, when it lost its dollar peg following a large sale by holders. This was after USDC’s parent company Circle revealed it held $3.3 billion in the failed Silicon Valley bank.

    Analysts say that if PayPal’s stablecoin receives billions of dollars in deposits, up to $250,000 per customer, the amount covered by the Federal Deposit Insurance Corporation (FDIC) at traditional banks. He says he can’t guarantee everything.

    Phillips said PayPal’s “only risk in that scenario would be reputational damage.” As Paxos is the company that issues the stablecoin, PayPal is not responsible for the legal risks of issuing its tokens. considered securities It may be regulated by US regulators in the future. There are risks for Paxos, he added.

    What is PayPal USD?

    write On X, formerly known as Twitter, Paxos described PayPal USD as “the first of its kind, representing the next stage of USD on the blockchain.”

    “This is a landmark moment not just for Paxos and PayPal, but for the financial industry as a whole,” the company claimed.

    PayPal said the stablecoin will be gradually available to US customers. according to According to Reuters, PYUSD can be redeemed for dollars at any time and can also be used to buy and sell other digital assets such as Bitcoin offered by PayPal on its platform.

    Paxos is the owner of a BitLicense issued by the New York Department of Financial Services (NYDFS). The license reportedly “requires a rigorous state approval process.”

    However, the NYDFS has ordered Paxos to stop minting the BUSD stablecoin, presumably due to an ongoing legal battle between the SEC and the issuer of BUSD, Binance Exchange.

    “This suggests that Paxos may not be doing the due diligence it should be doing with its partners,” said Francine McKenna, a former accounting lecturer at the Wharton School of the University of Pennsylvania, as reported by Quartz. Stated.

    Also read: Lightning Labs Enables ChatGPT-Like AI Bitcoin Payments

    On the other hand, the Federal Reserve System, the central bank of the United States, Said On Aug. 8, the State Bank will “obtain written supervisory objections before issuing, holding, or trading dollar tokens used to facilitate payments,” such as stablecoins. said it should.

    The Fed also announced that it would increase its oversight of bank activities involved in cryptocurrency, blockchain and technology-based non-bank partnerships. The announcement is seen as a response to the PayPal and Paxos stablecoin partnership.

    Impact of PayPal Stablecoin on Africa

    PYUSD is a boon in disguise for cryptocurrency users in Africa, where millions of people use PayPal, according to Nathaniel Luz, CEO of an Africa-focused cryptocurrency platform. flin cap. This will make cross-border payments and transfers much easier, he says.

    “The PayPal stablecoin may serve as just a brand for the West, but the stablecoin opens new doors for people in Africa,” Luz told Metanews.

    “Thanks to the stablecoin, Africans who have had limited use of PayPal will now enjoy greater access to the platform. For Nigerians who can only send and receive money through PayPal. , this intervention … means a stress-free and safe transformation flow for those who do business with the outside world.”


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