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PayPal Introduces A Stablecoin Backed By Dollars

PayPal Introduces A Stablecoin Backed By Dollars
Payments behemoth PayPal has announced the creation of a U.S. dollar stablecoin, making it the first significant financial technology company to accept digital currencies for transfers and payments.
The news from PayPal, which increased its stock price by 2.66% on Monday, is a vote of confidence in the beleaguered cryptocurrency sector, which has struggled over the past year with regulatory challenges that were made worse by a succession of high-profile failures.
Stablecoins have been around for a while, but they haven't quite managed to break into the main stream ecosystem for consumer payments. Their value is anchored to a stable asset to defend against uncontrolled fluctuation.
Stablecoins are mostly used by users to exchange other cryptocurrencies like bitcoin and ether.
Tether, the second-largest stablecoin in the world, is followed by Circle's USD Coin.
Stablecoin launches by large, well-known corporations in the past have been faced with vehement hostility from financial regulators and legislators. Plans by Meta (META.O), previously Facebook, to introduce Libra as a stablecoin in 2019 were thwarted after regulators voiced concerns that it may upset the stability of the world's financial system.
Since then, a number of significant economies, including the European Union and Britain, have established regulations for stablecoins. The policies of the EU will take effect in June 2024.
"PayPal isn’t quite as polarizing as Facebook, but it’s a high-profile name that will surely get attention on Capitol Hill, and from the [Federal Reserve] and [Securities and Exchange Commission]," said Ian Katz, managing director of Capital Alpha Partners, in a note.
A plan to create a federal regulatory framework for stablecoins, which would put an emphasis on guidelines for the registration and licencing process for stablecoin issuers, was also advanced by the U.S. House Financial Services Committee last month.
The Republican chair of the committee, Representative Patrick McHenry, said in a statement on Monday that PayPal's move shows stablecoins "hold promise as a pillar of our 21st century payments system."
"We are currently at a crossroads to keep America at the forefront of digital asset innovation. Congress is making significant, bipartisan progress on legislation to ensure the U.S. leads the financial system of the future," he said.
The PayPal USD stablecoin, which will be issued by Paxos Trust Co., is backed by short-term U.S. Treasury bonds and deposits in dollars. American PayPal users will progressively be allowed to access it.
The token can be exchanged for dollars at any moment and is also usable to buy and sell bitcoin and the other cryptocurrencies that PayPal supports on its platform.
"PYUSD is the first of its kind, representing the next phase of U.S. dollars on the blockchain," Paxos posted on messaging platform X, formerly known as Twitter. "This is not just a milestone moment for Paxos & PayPal, but for the entire financial industry."
Additionally, Visa stated that starting in 2021, cryptocurrencies will be accepted as a form of payment on its payment network.

Christopher J. Mitchell

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