The implosion of Terra's UST stablecoin, which failed to maintain its value of $1, was a horrific incident for investors. The issuance of PayPal's stablecoin, PYUSD, with regulatory support and asset reserves, can help investors regain confidence in stablecoins.

The global stablecoin market is dominated by Tether (USDT) and USD Coin (USDC), which constitute almost 90% of the market cap. The entry of PYUSD and PayPal's decades-worth reputation has the potential to compete with the top existing stablecoins.

In this article, we will look at what PYUSD is, its significance, and how it impacts web3.

What is PayPal USD (PYUSD)?

PayPal USD or PYUSD is a stablecoin launched by PayPal and issued by Paxos Trust Company that is pegged to the US dollar. This pegging mechanism ensures that PYUSD has a value equivalent to $1 regardless of crypto market volatility. 

Paxos Trust Company is a New York-based financial institution and technology company specializing in blockchain technology. It issues PYUSD and updates the monthly PYUSD-based reports (available to the public through its official website). 

When it comes to stablecoins, asset backup is important to maintain their price with their pegged assets. PYUSD is backed by cash equivalents, US dollar deposits, and US treasuries, and its reports are transparent to the public.

Importance of PYUSD for PayPal

The launch of PYUSD marks PayPal's prominent move in expanding into the web3 space. Moreover, the availability of stablecoin will allow users to conduct transactions through PayPal's web and mobile apps. 

There are over 431 million PayPal users with annual payment transactions of around 25 billion. The availability of PYUSD on the PayPal platform also encourages new web3 users to transact using crypto assets instead of traditionally used fiat currencies. 

The New York State Department of Financial Services (NYSDFS) supports the issuance of PYUSD tokens. The presence of NYSDFS regulation helps build more trust among users, which speeds up PayPal's web3 adoption with its stablecoin and other crypto services.

Features of PYUSD

The major features of PYUSD include: 

• Access to dApps: PayPal USD facilitates transactions using supported dApps like Uniswap. This feature opens the door to potential token staking, borrowing, and lending opportunities for crypto holders.

• Fund Purchases: You can use PYUSD as a payment method to pay for their purchases. Widespread integration with e-commerce platforms can help users for faster and more efficient checkout.

• Send and Receive: PYUSD facilitates person-to-person payment with fewer fees and faster transactions. Here, you can send or receive these stablecoins without worrying about high price fluctuations.

• Trade Tokens: You can trade tokens with PYUSD tokens from supported DEXs or CEXs. For example, exchanges allow you to trade PYUSD with USDT, ETH, or BTC.

• Web3 Integration: As an ERC-20 token, PYUSD can be easily integrated into web3 payment platforms and existing dApps and wallets. This integration allows PayPal USD holders to participate in web3-based activities without exchanging their PYUSD tokens.

How Does PYUSD Work?

Entities can create a Paxos institutional account by completing registration and verification. After creating the account, these entities can send USDs and receive equivalent PYUSD tokens. 

Individual users can buy or sell PYUSD using fiat currencies or other cryptocurrencies by paying the current market price. This stablecoin is available on PayPal, centralized exchanges (CEXs) or decentralized exchanges (DEXs).

Whenever someone pays USD to receive PYUSD, this received fund is deposited into money market funds or FDIC-insured depository banks. Moreover, Paxos also purchases US government securities like Treasury Bills when receiving USDs.  

On the other hand, when an individual sells PYUSD, Paxos removes the equivalent collateral and transfers the fund to its seller at its market price. After that, Paxos burns the received PYUSD tokens to eliminate them from the total token supply.

Timeline of PayPal's Crypto Journey

PayPal's crypto journey is over a decade old  and consists of the following events:

• In 2013, PayPal's former president, David Marcus, on the Bloomberg TV show "The Pulse," expressed his interest in Bitcoin. In this show, Marcus hints that PayPal was thinking of making Bitcoin a funding instrument. 

• In 2014, PayPal partnered with Coinbase, GoCoin, and BitPay to enable Bitcoin transactions for the sale of digital goods. Following this partnership, GoCoin CEO, Steve Beauregard said it was a huge endorsement to the digital currency community. 

• In 2020, PayPal launched its new service, allowing users in the USA to buy, sell, or hold select cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), and Litecoin (LTC). 

• In 2021, PayPal launched its "Checkout with Crypto" service that allowed users to use cryptocurrencies as a payment method. PayPal also charged zero transaction fees for checking out using cryptocurrencies. 

• In 2023, PayPal successfully launched its USD stablecoin, PayPal USD (PYUSD), as its latest contribution to the web3 space.

How to Use PYUSD?

Users with a PayPal account can log in from PayPal's official website or through mobile apps to use its services. PayPal allows registered users to buy, sell, or transfer PYUSD tokens 24/7. 

To buy PYUSD, users can follow these simple steps:

• Log in to your PayPal account.
• Select "Finances" from the main menu.
• Next, choose "Crypto."Select PYUSD from the list of cryptocurrencies.
• Buy required PYUSD tokens by adding funds to your PayPal wallet.

PayPal also offers an option to set recurring purchases for PYUSD token buyers. For example, you can use this feature to consistently invest in this stablecoin on a monthly basis without any manual effort. 

You can also use DeFi platforms like Curve to exchange PYUSD tokens with other crypto assets by paying low fees. Here, the high liquidity of these established DeFi platforms offers faster execution with minimal price slippage.

How Does PYUSD Impact the Web3 Landscape?

With a market cap of more than $65 billion, PayPal is one of the top fintech companies in the world, operating with a net revenue close to $30 billion in the financial year 2023. The entry of such a financial giant will help boost the confidence of traditional retail investors in exploring the new financial instrument from the web3 space. 

Millions of PayPal users also get the chance to experiment with crypto assets without the need to create a new web3-based account. For example, existing PayPal account holders can buy one or a few PYUSD tokens to learn about the buying, selling, and storage process. 

Additionally, integrating traditional financial services with crypto assets adds convenience to users without requiring them to rely on multiple apps. PayPal's progress in web3 will also inspire other fintech companies to expand their services for crypto investors. 

Most importantly, stablecoins will gain more user attention and increase mainstream awareness among investors. Along with adoption, a more clear regulatory framework will operate around stablecoins to safeguard users' investments.

Conclusion

The introduction of PayPal's PYUSD will boost the stablecoin market, adding more new investors to the web3 ecosystem. Moreover, PayPal will inspire more new entities to offer stablecoins backed with adequate reserves.

PayPal's transparency policy regarding its reserve assets will attract investors from traditional finance. With more user adoption, PYUSD has the potential to top the stablecoin market in the future.