PayPal pushes deeper into crypto payments with stablecoin launch

Receive free PayPal Inc updates

We’ll send you a myFT Daily Digest email rounding up the latest PayPal Inc news every morning.

PayPal is launching a stablecoin, becoming the first major financial institution to push deep into crypto payments even as US regulators heighten their scrutiny of digital assets.

The San Francisco-based company said on Monday it had launched a dollar-denominated stablecoin called PayPal USD, marking a further expansion into its services for digital currencies.

PayPal’s move comes in spite of an aggressive crackdown by US regulators on unregulated activity across the crypto market. Other companies have scaled back their crypto activities in the country in the face of tough regulatory actions and investor worries.

Fintech group Revolut suspended its US crypto activities last week, citing “uncertainties around the crypto market in the US”, and becoming the latest to step back from the country.

Stablecoins are a type of cryptocurrency which typically track the value of a major currency such as the dollar one-for-one. They play a key role in connecting traditional and crypto markets, as traders use the coins like cash in order to move in and out of trades without paying high fees, or make transfers across borders without needing multiple bank accounts.

PayPal has offered trading in bitcoin and ether, the two most popular cryptocurrencies, since 2020.

“The shift towards digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar,” said Dan Schulman, chief executive of PayPal.

Traditional finance and tech firms have made little headway in creating a widely used crypto payments network. Meta dumped its controversial Diem stablecoin project, which included PayPal and credit card providers such as Mastercard, last year after running into regulatory opposition.

Gautam Chhugani, senior analyst of global digital assets at Bernstein, said digital asset payments had so far been limited to within crypto companies, whereas for widespread adoption “it has to be on a mainstream app, which is what PayPal brings”.

“There’s not Mastercard, Visa fees and any other kind of third-party rail,” he said, meaning that the stablecoin would allow PayPal users to send and receive money without high fees.

“If PayPal succeeds then every other payment app and consumer financial services brand will want to have their own stablecoins,” added Chhugani.

PayPal USD would be issued by Paxos, which is regulated by the New York State Department of Financial Services, and would be redeemable one-to-one for US dollars, the company said.

The emerging market for privately issued stablecoins had a heavy setback last year when one called TerraUSD imploded in May, causing a collapse in cryptocurrency prices and the failure of several digital asset companies. Its inventor, Do Kwon, has been charged by US officials with eight criminal counts including fraud. PayPal’s move marks a direct challenge to Tether and Circle, which issue the most widely traded stablecoins.

The stablecoin’s reserves would be held in US dollar deposits, short term Treasuries and other assets, the company added.

PayPal customers will be able to transfer the stablecoin between their wallets and other external wallets, send payments to friends and family and make purchases online. They can also convert PayPal USD into and out of the other digital tokens supported by the payments company, which include bitcoin and ether.