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How PayPal's PYUSD could change the crypto landscape - Fireblocks' Ran Goldi

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(Kitco News) - The stablecoin landscape has undergone a significant shift over the past year and a half as the collapse of TerraUSD (UST) in May of 2022 shone a spotlight on the dangers that this subset of crypto-assets poses to the health of the broader crypto market.

Since then, algorithmic stablecoins like UST have all but disappeared from the market, and the third-ranked stablecoin by market capitalization, Binance USD (BUSD), experienced a fall from grace after regulators in the U.S. ordered Paxos, the company responsible for issuing BUSD, to halt minting any new tokens.

While Binance has distanced itself from BUSD and now recommends users adopt the newly issued stablecoin First Digital USD (FDUSD), the biggest story on the stablecoin front has been the release of PayPal USD (PYUSD) by digital payments provider PayPal.

To get a better understanding of how PayPal entering the stablecoin arena will affect the cryptocurrency ecosystem, Kitco Crypto had a conversation with Ran Goldi, senior vice president of payments at Fireblocks.

“PayPal is a worldwide payment powerhouse serving hundreds of millions. Stepping into the stablecoin realm represents a profound shift in how mainstream financial institutions perceive digital assets,” Goldi said. “This strategic move not only widens the reach of digital assets but also carries the potential to inject increased liquidity into the digital asset market, spurring adoption among businesses and individual consumers alike.”

He said PayPal’s decision to launch its own stablecoin “is a significant development in the world of cryptocurrencies and blockchain technology as it indicates that even established retail FinTech companies with millions of users and businesses are recognizing the potential of blockchain for the future of cross-border payments.”

“This move suggests that financial companies increasingly see the value in leveraging blockchain technology to improve their services,” he said. “In the next 18-24 months, we should expect a race among retail fintechs creating their own stablecoins.”

Goldi said that the company’s decision to launch PYUSD on the Ethereum network is an overlooked strategic decision for three reasons.

“It will be interoperable with future central bank digital currencies (CBDCs) and other stablecoins; It would be immediately compatible and easily integrated with the DeFi and Web3 ecosystems on Ethereum and all of Ethereum's Layer 2 blockchains; and It can unlock new incentive models for PayPal’s customers and massive revenue streams for PayPal,” he said.

“More importantly, PayPal comes with a built-in network of over 400 million retail customers and 29 million merchants,” he added. “They can now use the same interface they know and trust to swap into stablecoins. This is a major advantage that PayPal has over incumbents.”

PYUSD also “opens up PayPal’s otherwise closed ecosystem to allow liquidity to flow freely between PayPal and digital asset markets,” he said.

When asked how PYUSD could help bring new participants into the crypto space, Goldi said the stablecoin “can help more businesses accept cryptocurrencies, making them more accessible and accepted by a wider audience.”

“In 2023, PayPal worked with tens of millions of merchants across 202 countries and regions, ranging from small businesses to major retailers like Walmart, Amazon, Target, and Apple,” he said. “PayPal's extensive reach surpasses many competitors, making it well-positioned to onboard these businesses into the digital asset economy, potentially driving cryptocurrency adoption further than any incumbent.”

By launching its own Web3-enabled currency, PayPal is now positioned “as a reliable bridge between digital-native and fiat currencies, particularly the U.S. dollar,” he added. “This innovation will provide enhanced financial experiences for retail and B2B payments, enabling swift value transfers, remittances, international payments, and Web3 ecosystems.”

PayPal's new 'Cryptocurrencies Hub' lets users buy, sell, swap and transfer crypto

Speaking about the broader cross-border payment industry, Goldi said that as blockchain technology matures, it is likely that PYUSD “will be the preferred method of cross-border payments.”

“The use of blockchain technology can make cross-border transactions faster, more efficient, and cost-effective,” he said. “Additionally, its interoperability with other stablecoins and potentially even CBDCs can simplify cross-border transactions, reducing the need for currency conversion and intermediaries.”

As for the impact that stablecoins issued by private companies like PayPal and Circle – the issuer of USD Coin (USDC) – could have on plans to launch a digital dollar in the U.S., Goldi said that “CBDCs and stablecoins like PYUSD and USDC are just different forms of digital money, each with their pros and cons, serving different purposes in the financial system.”

“In a healthy and vibrant digital asset ecosystem, these different forms of tokenized money will likely exist side by side, giving consumers the ability to choose and providing resilience to the financial system,” he said.

“Central bank-issued CBDCs will be the ultimate ‘risk-free’ asset in an economy, just as central bank money is today,” he added. “They will likely have a role as the unit of account in the digital asset ecosystem. Meanwhile, stablecoins may allow for programmability or might be most suited to cross-border use cases. Together, along with other forms of digital money like tokenized deposits, all of these forms of money will enable consumers and investors to interact with the digital asset ecosystem of the future.”

When it comes to how banks will respond to the use of tokens like PYUSD and USDC, Goldi said, “Banks have been waiting for regulatory clarity, and the SEC is still considering how to regulate stablecoins.”

“This makes banks reluctant to take on that risk. Banks need to comply with all applicable securities laws, which can be a complex and expensive process,” he said. “From the perspective of banks, stablecoins are a new and untested technology. Banks know that the potential benefits of stablecoins are too great to ignore, and it is likely that US banks will eventually embrace this technology.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.