PayPal, one of the largest digital payment processors globally by number of accounts, which currently stands at 430 million, made forays into the cryptocurrency realm once again. Last year, the giant announced it would enable eligible account owners to make transactions with cryptocurrencies to improve global monetary freedom. As part of the same set of goals, on the 7th of August, the company announced it would release a U.S. dollar-pegged stablecoin under the name of PYUSD, developed on the all-time-favourite blockchain platform for developers, namely Ethereum.
Ethereum, the second-biggest cryptocurrency by market capitalization, has been on a downward trajectory since the beginning of August. Ethereum traded for a little over $1,800 when the news broke, as cryptocurrency exchange platforms such as Binance displayed. Crypto platforms registered a slight uptick in the Ethereum price after the announcement, although it was bound to witness a similarly sudden decline in the following days. As of the moment of writing, Bitcoin’s competitor is struggling to surpass the $1,700 once again.
Overall, the cryptocurrency community responded favourably despite concerns about control and centralization. The new stablecoin backed by Ethereum that PayPal is launching may draw more attention to the asset and reiterate its potential as a transformative technology.
PYUSD’s value is pegged to that of the dollar
PayPal USD (PYUSD) is designed as an ERC-20 token developed on the Ethereum platform. Cryptocurrencies issued on the Ethereum blockchain were shortly introduced as ERC-20 tokens. These enable devs to build tokens backed by smart contracts that can be utilized with other services and products.
Issued by Paxos and built on Ethereum, it aims to facilitate digital payments and web3. The new stablecoin may ultimately be instrumental in the overall payment infrastructure. The new deployment is anticipated to function simultaneously with the other crypto solutions, enabling account owners to trade the stablecoin for other assets or cash on their accounts. Users can transfer stablecoin holdings between compatible digital wallets and PayPal, conduct person-to-person transfers, and change any cryptocurrency owned on the platform at vendor checkout points.
PYUSD’s value is tied to the U.S. dollar since this is the very definition of a stablecoin. It is wholly backed by short-term Treasuries, dollar deposits, and other equivalents for cash. The new asset has a 1:1 conversion rate, which can be exchanged for one dollar and vice versa.
Why Ethereum, though?
Opting for Ethereum as a foundational platform might be surprising for someone new to cryptocurrency. After all, Ethereum isn’t the cryptocurrency that boasts the highest recognition and widespread popularity. This distinction belongs to Bitcoin, the pioneering force that laid the foundation for all the subsequent cryptocurrency advancements after its inception. Bitcoin introduced the notion of blockchain and served as the inspiration behind Ethereum, Solana, Ripple, and the entire spectrum of decentralized ledgers that followed suit.
However, the company’s decision to opt for Ethereum is quite reasonable. Ethereum’s prowess far outshines that of Bitcoin, owing to its codebase’s great upgradeability and adaptability, as evidenced by the numerous and substantial updates it has undergone. Ethereum is the most mature, best-developed blockchain ecosystem, offering users the tools to tokenize assets, create NFT marketplaces, and build decentralized applications using smart contracts. The number of currently active users on the network varies between 300,000 and 400,000 daily, according to Etherscan, an analytics tool for Ethereum.
Ethereum has revolutionized blockchain technology through the developments it has deployed over time. However, there’s an aspect that’s received criticism from some experts, namely the high fees imposed by Ethereum. The gas fees incurred for using the new stablecoin will be high, potentially discouraging interested parties from using it.
Are investments in the new stablecoin worth it?
Emerging projects in the cryptocurrency realm inevitably attract a lot of attention. Those keeping up with the news and inclined to invest weigh in on the prospects of the newly released stablecoin to see high demand and a boom as it gains traction. However, it’s important to note that there are differences between altcoins like Ethereum and stablecoins. Ethereum’s price is influenced by the demand and supply in the market and impacted by numerous factors such as investor sentiment, global economic outlook, whale activity, and the list can go on.
On the flip side of the coin, stablecoins’ values are pegged to those of an underlying asset to secure a fixed value. PYUSD is tied to the U.S. dollar, and they are redeemable 1:1 for U.S. dollars, meaning you may as well store dollars. The financial provider also doesn’t pay any interest. If you have a large sum of money on hand that you want to invest to be paid interest, you may opt for a high-interest savings account.
Despite their suggestive name, stablecoins are not that stable and can fall abruptly without notice. Last May, billions of dollars were wiped off the crypto market after the TerraUSD crash and after the stablecoin sank to $0.30 despite sticking to one dollar. The collapse destabilized the whole cryptocurrency market and saw numerous investors drop their crypto holdings as a result.
Wrapping it up
Ethereum has attracted significant attention and generated substantial demand due to its inherent capabilities to enhance and drive the adoption of decentralized finance. While it has achieved recognition within the cryptocurrency sphere, Ethereum transcends being a mere payment mechanism or store of value – it is a global platform developers utilize to deploy all sorts of DeFi projects.
PayPal launched an Ethereum-based stablecoin, PYUSD, as an addition to the services offered to users. This isn’t the first time the multinational company has ventured into cryptocurrency. Starting with last year, users can conduct numerous transactions with cryptocurrencies like Ethereum and Bitcoin.
The introduction of PayPal’s stablecoin marks a pivotal moment that might turn cryptocurrencies from a captivating sideshow to a pivotal player in the financial system. What is certain so far is that the news may pave the way for increased adoption of Ethereum and spread a ripple effect across the whole crypto ecosystem. Other industry leaders may take inspiration from this and start exploring the world of stablecoin.
