Unlike other cryptocurrencies, which derive their value based on how much crypto traders are willing to pay at the time, stablecoins are typically derived from physical assets such as commodities such as gold or fiat currencies such as the US dollar. These support stablecoins. Maintain relatively stable prices.
According to Monday's press release, PayPal USD is “100% backed by U.S. dollar deposits, short-term U.S. Treasury securities, and similar cash equivalents.” Additionally, PayPal's stablecoins are redeemable for USD on a 1:1 basis. This means that you can exchange 1 PayPal USD for 1 USD and vice versa.
PYUSD resides on the Ethereum blockchain and is issued by Paxos Trust Company, a financial technology company that specializes in blockchain and provides cryptocurrency intermediary services. Notably, Paxos was ordered by the New York State Department of Financial Services in February to stop issuing Binance's dollar-pegged stablecoin BUSD.
This is not PayPal's first foray into cryptocurrency. Last year, the company started allowing users to transfer, send and receive a number of popular digital tokens, including Bitcoin and Ether.
Starting Monday and over the next few weeks, PayPal customers who purchase PayPal USD will be able to transfer it to a compatible external crypto wallet, make peer-to-peer payments, pay for the purchase, and convert it to any PayPal-supported cryptocurrency. It will be available for use.
“The transition to digital currencies requires a stable instrument that is digitally native and easily connects to fiat currencies like the U.S. dollar,” PayPal CEO Dan Schulman said in a press release. Stated.
Issuing a stablecoin may be more in line with PayPal's core business model than people initially think, says John, an adjunct professor at Columbia Business School and author of Rebuilding Trust: History Omid Malekan, author of “The Curse, Money, and Cryptotherapy for the Market.'' , and platform. ”
PayPal primarily makes money by charging merchants fees to facilitate payments for their customers. But once these customers and sellers start trading cryptocurrencies on the Ethereum blockchain, PayPal will no longer be able to charge those fees, Malekan told CNBC Make It.
“One way to look at all of this is that PayPal believes public blockchain will play a big role in its traditional payments business in the future. “I'm just trying to do it,” he says.
From an economic perspective, using stablecoins is not that different from using gift cards, Malekan says. He can use dollars to buy a stablecoin and use that stablecoin to buy another cryptocurrency or make other online purchases.
However, despite their name, stablecoins are not necessarily foolproof.
Last May, investors lost tens of billions of dollars due to the collapse of the terraUSD (UST) stablecoin. However, unlike PayPal's stablecoin, UST relied on an algorithm to maintain its peg to the US dollar rather than cash reserves.
If you're interested in using stablecoins, make sure you only buy from reputable and regulated issuers, Malekan says.
According to Decrypt, several fake crypto tokens using the PYUSD name have already appeared on decentralized exchange Uniswap in an attempt to capitalize on the hype surrounding PayPal's new stablecoin. It is said that there is.
So far, PayPal has stated that the only way to purchase stablecoins is through the company itself. There are no plans to make it available on third-party cryptocurrency exchanges.
And as with cryptocurrencies in general, Malekan says you need to be careful about how much money you put into them. Only play with amounts you are willing to potentially lose if something goes wrong.
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