PayPal on Monday launched a US dollar-backed stablecoin to help facilitate payments as the latest addition to its suite of cryptocurrency services, and the first of its kind from a major US financial institution.
The electronic payments company stated that the new currency, called PayPal USD or PYUSD, was designed to address the “emerging potential” for “digitally transferring payments in (Web 3) and native environments.”
The launch of PYUSD comes as market participants await a congressional vote on a basic stablecoin bill, which was introduced in the House of Representatives along with three other cryptocurrency memos for the first time.
PayPal said the function of the stablecoin is to reduce dispute over payments in default settings and allow direct inflows for developers.
The currency is redeemable in dollars and is backed by dollar deposits, short-term US Treasury funds and cash equivalents.
“The shift towards digital currencies requires a stable instrument that is digitally authentic and easily connected to fiat currencies, such as the US dollar,” said Dan Schulman, President and CEO of PayPal.
“Our commitment to serious innovation and compliance, and our proven track record in delivering new experiences for our customers, provides the foundation to contribute to the growth of digital payments with PayPal USD,” added Schulman.
The new stablecoin will be issued by Paxos, a veteran of the stablecoin space and partner of PayPal for buying and selling cryptocurrency services.
Noting also that the company had previously issued BUSD, which is pegged to the dollar and is branded by the popular cryptocurrency exchange (Binance).
In February, the New York State Department of Financial Services ordered a halt to BUSD issuance, which marked the beginning of a decline in the stablecoin's market value this year.
The market capitalization of USDC, the largest dollar-backed stablecoin issued by a US company, has fallen by 41 percent since January 1, according to CryptoQuant.
Stablecoins are digital currencies whose prices are pegged to an underlying asset. Although designed to be less volatile than most virtual currencies, it hasn't been immune to this year's regulatory crackdown on cryptocurrencies and, earlier in the year, the banking crisis.
It is often used to trade in and out of other cryptocurrency assets, such as Bitcoin and Ether. Because they do not enter the traditional financial system, traders can enter and exit positions faster and cheaper than if they were dealing with fiat currencies, such as dollars.
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