PYUSD: Paypal's Impact on the Web2 and Web3 Paradigm
PYUSD ranks #10 among Stablecoins with $300M Marketcap since its launch last August
What is PYUSD
If you have made any online purchase, most likely you have used Paypal - an online payment system that allows payment transfers across the world.
Last year in August, Paypal became the first financial service company to issue its own Stablecoin - PYUSD. The Stablecoin is issued by Paypal in collaboration with Paxos, a blockchain company that is subject to regulatory oversight by NYDFS (New York State Department of Financial Services).
PYUSD is a USD backed Stablecoin issued on Ethereum, where users can redeem on a 1:1 basis through Paypal or Venmo (US based mobile payment service owned by Paypal). The Stablecoin is backed by USD deposits, Short term US treasuries and cash equivalents.
As of today, PYUSD ranks #10 among Stablecoins with a Marketcap of 303M and on-chain activity of around 400 transactions per day.
Usage and Distribution
Usage
Unlike USDT or USDC, since PYUSD is developed by Paypal, it has some unique advantages in use cases across Web2 and Web3, such as:
Transfer PYUSD between PayPal accounts and wallets
Person-to-person (P2P) transactions using PYUSD
Use PYUSD as payment option at checkout
Convert PYUSD to and from any of PayPal’s supported cryptocurrencies
Distribution
In terms of distribution, most PYUSD is now sitting on CEXs, for instance Coinbase accounts up to 40% share of PYUSD.
PYUSD in Defi
PYUSD had a significant highlight in Defi when FRAX/PYUSD pool went live on Curve in late December. It currently holds a TVL of 128M, which is not far from the popular 3 pool with a TVL of 193M.
Morpho Blue, a decentralised lending protocol, also recently announced a new vault supporting PYUSD.
PYUSD in Investment
Last month, Paypal Ventures (an investment arm of Paypal) has invested $6.5M (with $5M in PYUSD) to Mesh, a startup that is building a product for users to move crypto between financial accounts and wallets.
Criticism on Centralisation
As you would have guessed, the smart contract of PYUSD includes centralised functions of freezing and seizing, which means users assets can effectively be frozen or deleted with a press of a button.
While this may seem to be counterintuitive to the nature of blockchain, with Paypal being a well established and regulated company, it is understandable that it is structured to comply and operate within the regulatory framework. Paypal could leverage its existing customer support infrastructure which allows efficient customer assistance and dispute resolution. Centralised systems, especially when its offered by a well-known entity like Paypal, can provide a sense of familiarity and ease of use for users who are accustomed to traditional financial systems.
SEC Inquiry
In November last year, three months after the issuance of PYUSD, Paypal received a subpoena from the SEC in related to the Stablecoin which requests documents to be provided by Paypal.
The issuance of Stablecoin by Paypal has resemblance to a certain extent with Meta’s previous Stablecoin - Libra, which raised concerns to regulators as adoption to Stablecoin of a major financial platform may affect US’s financial stability.
By providing relevant documents, it helps SEC to further investigate whether there is any securities fraud or misconduct.
Final Thoughts
While most companies struggle in bear market, Tether (USDT) made over $2.85 billion in profit in the last quarter of 2023, which was even larger than Goldman Sachs’ $2.01 billion, proving that its a viable business.
With Paypal entering the Stablecoin market, it may induce other payment or financial companies such as Visa to also launch their own Stablecoin, potentially leading to a more competitive landscape.
After all, Paypal is one of the biggest payment companies with over 430 million users and 40% marketshare of the payment management market. If mass adoption is one of the goals, it is beneficial for Web2 giants like Paypal to participate in order to bring in real life use cases and onboard users, hence the emergence of PYUSD is probably a net positive for Web3.
PYUSD may also be more appealing to risk averse users with its centralised and regulated nature, which could serve as a bridge for users to reach more decentralised assets and decentralised finance overtime.
We eagerly await the development of PYUSD, whether it will change the payment ecosystem and onboard its large user base and challenge the long dominance of USDT and USDC.