What Is PYUSD, PayPal’s New Stablecoin?

Key Takeaways

• The PYUSD is a stablecoin pegged to the US dollar with minimal volatility.
• PYUSD integrates easily within PayPal making digital transactions easy and accessible.
• PYUSD supports fast, low-cost transactions using the Ethereum and Solana blockchains.
• PYUSD is backed by US dollar deposits and Treasuries, holding strong regulatory compliance and transparency and is issued by Paxos Trust Company, a fully licensed company by the New York State Department of Financial Services, .

PayPal’s contribution to digital currencies has been the stablecoin PYUSD, which is pegged to the US Dollar and aims to bridge the traditional economy and digital finance. 

PayPal introduced this stablecoin in August of 2023 with an outlook for broader adoption. PYUSD was an attempt by PayPal to compete in digital payments by providing a stable, secure, and seamless connection between traditional fiat currencies and the digital economy.

What Is PayPal USD (PYUSD)?

PYUSD is a stablecoin introduced by PayPal that was designed to facilitate digital payments. Stablecoins are cryptocurrencies pegged to stable assets like fiat currencies to minimize volatility. 

PYUSD minimizes volatility because the stablecoin is pegged to the US dollar and fully backed by a combination of US dollar deposits, short-term US Treasuries, and similar cash equivalents. A backing of this nature, to date, has ensured PYUSD is a reliable token for everyday transactions.

How Does PYUSD Work?

PYUSD holds a peg against the US dollar through a combination of financial backing and regulatory oversight. As a stablecoin, PYUSD is designed to have a stable value, which is obviously hugely important that it maintains parity to the dollar to uphold its utility and use case for everyday transactions and digital payments. 

Here’s how the PYUSD stablecoin achieves parity with the United states Dollar (USD):

Full Backing By US Dollar Deposits

Each PYUSD token is allegedly fully backed by the equivalent amount of US dollar deposits in reserves. This means that for every PYUSD in circulation, there is a corresponding US dollar held in reserve.

This 1:1 backing ensures that the value of PYUSD remains stable and equivalent to the value of the US dollar. This information was provided by PayPal.

Short-term US Treasuries And Cash Equivalents

In addition to US dollar deposits, PYUSD is backed by short-term treasury bills (T-bills) and similar cash equivalents such as certificates of deposit (CDs), and commercial paper. 

Being highly liquid and low-risk, these assets help ensure the stability and reliability of PYUSD, maintaining its parity to the US dollar. 

Issued By Paxos Trust Company

PYUSD is issued by Paxos Trust Company, a fully licensed and regulated financial institution. Paxos operates under the oversight of the New York State Department of Financial Services, ensuring compliance with strict regulatory standards. 

Adding a financial regulatory framework an extra layer of security and trust is created with the aim of reinforcing the stability that the PYUSD holds.

Transparency And Regular Audits

Paxos publish monthly reserve reports  detailing the assets backing of PYUSD. Said reports will include third-party confirmations conducted by independent accounting firms. This transparency ensures that holders of PYUSD can verify the stablecoin’s backing and trust in its pegged value to the USD.

The Functionality Of PYUSD On Different Blockchains (Ethereum, Solana)

PYUSD initially launched on the Ethereum blockchain, leveraging the widely-used ERC-20 token standard. By launching on Ethereum PYUSD provided broad compatibility with existing Ethereum-based applications, wallets, and exchanges, ensuring easy integration into the DeFi ecosystem. Ethereum’s robust infrastructure and large developer community offered a strong foundation for PYUSD’s introduction to the market.

On 29 May 2024, PYUSD branched into the Solana blockchain. Solana is known for its high-speed transactions and low fees, which significantly improve the efficiency of PYUSD transactions. When operating on both Ethereum and Solana, PYUSD combines the extensive adoption and security of Ethereum with Solana’s scalability and cost-effectiveness. 

This multi-blockchain functionality increases the versatility and accessibility of PYUSD, catering to a broader range of users and applications in the crypto space.

Benefits of PYUSD

PayPal’s stablecoin offers benefits that make it a significant player in the digital payments landscape. These benefits include:

Stability In Value Compared To Volatile Cryptocurrencies

As PYUSD is a stablecoin pegged to the US dollar and fully backed by US dollar deposits and short-term US Treasuries. The backing ensures PYUSD maintains parity at a stable value of 1:1 to the USD, offering an alternative to high volatility seen in other cryptocurrencies.

Accessibility And Ease of Use Within The PayPal Ecosystem

The stablecoin has proven to integrate easily with PayPal’s existing platform, allowing users to easily buy, sell, and hold the stablecoin within PayPal accounts. The integration simplifies the use of digital currencies for a wide audience, making it more accessible and user-friendly.

Potential For Fast And Low-Cost Transactions

By expanding to the Solana blockchain PYUSD benefits from Solana’s high transaction speeds and low fees, facilitating fast and cost-effective transfers. The fast and low cost transactions improve the efficiency of using PYUSD for everyday transactions and payments.

Integration With Existing PayPal Services

The integration of PYUSD internally amongst PayPal users’ vast network, including funding purchases, sending person-to-person payments, and transferring between PayPal and external wallets has worked effectively and efficiently. The wide integration leverages PayPal’s established services to promote the use of PYUSD in various financial activities.

Regulatory Compliance And Oversight

The PYUSD is issued by Paxos Trust Company, which is regulated by the New York State Department of Financial Services. The regulatory oversight implies that PYUSD follows strict compliance standards, providing users with confidence in its security and reliability.

Use Cases Of PYUSD

PYUSD is designed to offer a variety of practical applications in both traditional and digital financial landscapes.

Online Purchases And E-Commerce

PYUSD can be used for easy online purchases and e-commerce transactions. By integrating a native stablecoin into the PayPal ecosystem consumers can use a stable digital currency for shopping on millions of websites that accept PayPal. Its introduction has laid the railways to quick and secure payments.

International Remittances

PUSD facilitates international remittances which allows users to send money across borders quickly and with minimal fees. The stability of the coin ensures that recipients can receive value without the risk of exchange rate fluctuations.

Decentralized Finance (DeFi) Applications 

PYUSD can be used in various DeFi applications, such as lending, borrowing, and trading. The stability and backing by real-world assets provides a reliable option for users looking to participate in DeFi without exposure to the volatility of other cryptocurrencies.

Web3 and Metaverse Payments 

PayPals PYUSD stablecoin supports transactions within Web3 and metaverse environments. By providing a stable and reliable digital currency, PYUSD allows users to engage in virtual economies, purchase digital assets, and participate in immersive experiences with confidence in the value of the currency.

How To Buy PYUSD In The US Via PayPal?

1. Log in to PayPal Account: Open the PayPal app or visit the PayPal website and log in using credentials.
2. Navigate to the Cryptocurrency Section: On the home screen, look for the “Crypto” section. Click on it to explore available cryptocurrencies, including PYUSD.
3. Select PYUSD: Within the cryptocurrency section, find PayPal USD (PYUSD) and select it.
4. Enter Purchase Amount: Specify the amount of PYUSD to purchase. PayPal will display the equivalent value in US dollars.
5. Review and Confirm Purchase: Review the transaction details, including any applicable fees. Confirm the purchase to complete the transaction.

Instructions on How to Transfer or Spend

• Access PYUSD Balance: After purchasing, the PYUSD balance will be visible in the cryptocurrency section of the PayPal account.
• Transferring PYUSD: To transfer PYUSD to an external wallet:
  • Click on “Transfer” within the PYUSD section.
  • Enter the recipient’s wallet address and the amount to transfer.
  • Review the transaction details and confirm the transfer.
• Spending PYUSD: To spend PYUSD for online purchases:
  • At checkout, select PYUSD as the payment method if the merchant accepts PayPal.
  • Confirm the payment details and complete the purchase using PYUSD.

By following the above steps, users can easily buy, transfer, and spend PYUSD within the PayPal ecosystem. Users can then take advantage of the stability and integration of PayPal’s extensive network of merchants and services.

Is PYUSD Safe?

PYUSD is fully backed by U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents, making sure the PYUSD value is kept stable and is reliable. PayPal has issued PYUSD stablecoin using the Paxos Trust Company, which benefits from Paxos’ regulatory oversight by the New York State Department of Financial Services.

However, some potential inherent risks with the stablecoin include:

• Cyber threats and technical vulnerabilities: PYUSD mitigates these risks through strict regulatory standards where PayPal and Paxos comply with anti-money laundering (AML) and know-your-customer (KYC) regulations. 

Tackling cyber threats ensures all transactions are monitored and verified to prevent illicit activities.

Regular audits and transparency reports on reserves are published to maintain trust and accountability. 

PYUSD vs Other Stablecoins – What’s the Difference?

Stablecoins are designed to offer the stability of fiat currencies combined with the flexibility of digital assets. PYUSD, introduced by PayPal, brings unique features and advantages compared to other existing stablecoins. Here’s a comparison table to illustrate the differences:

PYUSD stands out due to its strong regulatory compliance, being issued by Paxos and regulated by New York State DFS, ensuring high consumer protection. PYUSD offers transparent backing with U.S. dollar deposits and Treasuries, and monthly reserve reports with third-party attestations. 

PYUSD supports both Ethereum and Solana blockchains, combining security and efficiency and works in a seamless integration with PayPal enabling a high degree of accessibility, making PYUSD unique among stablecoins.

Conclusion

PYUSD is PayPal’s innovative entry into the stablecoin market, offering stability by being fully backed by U.S. dollar deposits and short-term U.S. Treasuries. The stablecoin is robust, regulatory compliant, transparent, and presents itself as an excellent railway into the PayPal ecosystem. By operating on both Ethereum and Solana blockchains, PYUSD combines security with transaction efficiency.

Potential limitations on this stablecoin are the competition PYUSD faces from other stablecoins and the inherent risks associated with digital currencies. However, PayPal’s commitment to compliance and consumer protection positions PYUSD as a reliable and user-friendly stablecoin option that can be adopted by users globally.

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About the Author

Andrew Kamsky

Andrew Kamsky is a writer and chart analyst, holding a degree in Economics and an ACCA certification. Andrew’s professional background spans roles at a Big Four accountancy firm, a fintech bank, and a chart analyst position at a listed bank focusing on foreign currency hedging. Beyond his financial career, Andrew is passionate about music, glass neon lights and travel.

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