Digital payments company PayPal (PYPL) just launched a U.S. dollar-pegged stablecoin called PayPal USD, becoming the latest firm to offer customers a stablecoin payment option.
PayPal USD would allow customers to transfer the stablecoin between digital wallets, send person-to-person payments, fund purchases via the digital currency, and convert any of PayPal's supported cryptocurrencies to and from PayPal USD.
The new stablecoin is fully backed by U.S. dollar deposits, short-term Treasurys, and cash equivalents. As with most USD-backed stablecoins, it's redeemable for U.S. dollars at a 1-to-1 ratio. PayPal is partnering with Paxos Trust Company, a New York-based fintech company specializing in blockchain, to issue the digital coin.
«The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar,» said Dan Schulman, PayPal's president and CEO.
While PayPal's stablecoin is backed by the U.S. dollar and can easily be transferred and exchanged, keep in mind that stablecoins, like all cryptocurrencies, are inherently among the riskiest financial assets.
Like derivatives, stablecoins derive their value from another financial asset, which tends to add new layers of risk, complexity, and volatility. Even stablecoins backed by the U.S. dollar or Treasury bonds are not immune to volatility, given the stunning collapse of TerraUSD last year.
Given PayPal USD's peg to the U.S. dollar, any significant depreciation of the dollar could also affect the coin's value. On the other hand, stablecoins like PayPal USD offer consumers increased flexibility and payment options, as well as a decentralized means of finance.
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