PayPal is all set to launch a dollar pegged stable coin on Ethereum. The stable coin will be named as paypal USD.It will be used to make transactions between merchants and paypal users.PayPal is the latest major financial institution who adopted crypto currencies.It will help in legitimising the ethereum in the eyes of investors.
Now, the question arises, who will issue these stable coins and will there be any backup for issuance of these coins?
A financial technology company, named Paxos trust company, will be issuing the PayPal USD (PYUSD), It is a company that offers crypto brokerage service and it also specializes in blockchain technology. The PYUSD will be backed in the ratio of 1:1 by US dollar, which are to kept at U.S banks. It implies that there must be reserve 1 dollar for every PYUSD minted.
Read Also: PayPal’s PYUSD Now Available on Venmo
Will this coins be freely available globally?
No, Initially, these PYUSD will be available to PayPal users in U.S. only however PayPal is planning to expand its reach globally in near future. These will be used in transactions such as payment to merchant, who will be accepting PayPal payments.PYUSD will be freely transferable to and from the external wallet and between the PayPal users.
Why is the issuance of stable coins on Ethereum considered a milestone development?
It is the first time that such huge financial institution has launched its stable coin based on ethereum, this is crucial step for PayPal and ethereum system. There is chance that other big financial institution may as well follow the footsteps and launch their own coin, which will be very beneficial for ethereum ecosystem as it will legitimise the ethereum transaction in trade.
Launch of Dollar pegged stable coin will enable the PayPal users to buy and sell,the product and services using PYUSD in the wallet.It will help in growth of ethereum ecosystem by attracting new users and developers,and also it will further aid in adoption of ethereum in the mainstream financial system.
PayPal is one of the major financial institution in the country,hence it is considered that PayPal offering the platform to buy ethereum will be one of the easiest way to own the ethereum directly.People will have to open an account with the PayPal if they wished to purchase crypto and choose a crypto currency they wishes to buy.
PayPal may resort to one or combination of these measures to make money through PYUSD by the following measures:
i) By lending out PYUSD -PayPal will lend out the PYUSD to the borrowers who will have to pay interest for the loan.
ii) Charging transaction fees – PayPal will charge the users for trading in PYUSD such as buy,sell or transfer the stable coin.
iii) Charging fees from merchants – When the merchant will accept PYUSD as mode of payment,they may also be charged fees.
iv) Interest on reserved backed as security– PayPal will also earn interest on the equivalent amount reserved by the bank to issue PYUSD.
To channelise the potential of stable coins-stable coins are digital token pegged to US currency,hence they are much more stable than other cryptocurrencies which are relatively more volatile,It is believed that it has the potential to revolutionise the payment system by offering more convenient and safer way to transfer the money.
i) Although the company is planning to make it available on other exchanges in future, as of now investors can buy PYUSD from PayPal only.
ii) PayPal has to reserve 1 USD for 1 stable coin issued,so we can say that every amount PYUSD is backed by the same amount of USD reserved by PayPal,this ensures that PYUSD is always 1 USD
There is no track record to assess the performance of PYUSD as it will be a new asset and thus uncertainty will follow in its movement and also there is a possibility new regulations will come up following the issuance of PYUSD and that could make it difficult to trade in stable coins and may impact the value of stable coins.
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