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(Kitco News) - The stablecoin landscape is undergoing a shift following Monday’s announcement by PayPal that introduced the PayPal USD (PYUSD) stablecoin, giving many crypto holders a third reliable option when it comes to a U.S.-dollar pegged store of value and payment token.
Shortly after the PYUSD news hit the press, Tether (USDT) CTO Paolo Ardoino noted on Twitter that more than $325 million worth of USDT was redeemed on Monday, and highlighted the company’s banking-grade standards that require customers to be fully verified via KYC/AML before they can access services.
“When you redeem USDt, it means you want to have FIAT back, ie. interact on the banking layer, hence you have to comply with the FIAT system rules,” Ardonio said.
Data provided by Glassnode comfirms that USDT saw significant outflows on Monday, but the overall impact is negligible as USDT is the largest stablecoin by market cap, with a current circulating supply of 83.9 billion tokens worth approximately $83.7 billion.
Tether circulating supply. Source: Glassnode
The reason that the value of the USDT market cap is lower than the circulating supply is due to the fact that the stablecoin is trading slightly off its $1 peg on Tuesday following the redemptions. Data from TradingView shows that USDT slipped as low as $0.997 amid the redemptions as traders looked to swap out their tokens for fiat dollars.
The second-ranked stablecoin by market cap, USD Coin (USDC), has also seen an increase in redemptions in the wake of the PYUSD announcement. According to Circle CEO Jeremy Allaire, over the past month, Circle has issued $5 billion worth of USDC and has redeemed $6.6 billion USDC.
“USDC banking is public and transparent, with 24/7/365 mint/burn, and wire settlement with nearly 90 countries,” Allaire said. “We don't charge fees to mint and burn USDC.”
Allaire also took the opportunity to congratulate PayPal and Paxos on the new stablecoin launch, saying, “It's incredibly exciting to see such a significant internet and payments company entering the stablecoin space.”
“This is what happens when we start to get regulatory clarity, and with the Payment Stablecoin Act, this can open up a free and competitive market for dollar stablecoin issuers with strong supervision, allowing the US to compete with digital dollars that are uniformly safe, transparent, liquid and supervised to Fed-standards,” he said. “Stablecoin laws are arriving in Japan, the U.K., EU, Hong Kong, UAE, Singapore, and the U.S. Customers will know who they are dealing with, and firms that can survive scrutiny by central banks and prudential regulators will thrive. That's the market in 2024 and 2025.”
Allaire also addressed concerns that PYUSD will eat into USDCs market share. “Despite the hype that we're all about the US, we estimate that 70% of USDC adoption is non-U.S., and some of the fastest growing areas are emerging and developing markets,” he said. “Strong progress happening across Asia, LATAM and Africa. Demand for safe, transparent digital dollars is strong.”
The spike in redemptions has led to speculation that some crypto holders are looking to convert their stablecoin holdings into PYUSD once the token becomes widely available. The cryptocurrency exchange Huobi has already signaled that it intends to be the first exchange to list the new stablecoin as a way to help “promote the development of the industry.”
“Huobi will be the first exchange to support the launch of PYUSD stablecoin, and will provide PYUSD/USDT trading pairs with 0 trading fee permanently,” the exchange announced on Tuesday. “When the market circulation and liquidity conditions are ripe, Huobi will open trading for the first time.”
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But not all cryptocurrency enthusiasts are excited about the new stablecoin, as several crypto sleuths have pointed out that the source code for PYUSD allows PayPal to freeze, seize, or burn the tokens in a user’s wallet.
Crypto Carl, a partner at 6th Man Ventures who said he worked on the PYUSD project, pushed back against these concerns, tweeting, “Of course PYUSD has ability to "freeze & seize" assets - this is consistent with USDC, BUSD and even USDT. It's a core requirement for centralized issuers. Anyone tweeting as if it's ‘surprising’ in some way is click-baiting you for a reaction.”
As for why PYUSD is significant, Crypto Carl noted that its “another step towards legitimizing crypto [as] PayPal is the world’s largest fintech provider and carries incredible brand reputation and user trust; there’s a clear vision strategy [and] methodical approach at all levels; PYUSD will enable millions of people to safely enter Web3; and PYUSD is held bankruptcy remote, unlike USDT and USDC.”
“Lastly, they have the right partnerships in place to unlock millions in crypto settlement volume overnight – 29 million merchants and thousands of cross-border payments – one of the few platforms that can begin to solve global payments at scale,” he said. “PayPal's launch of crypto assets in Sept 2021 was a leading driver of the prior bull cycle – I expect PYUSD will lay critical groundwork for future adoption.”
And crypto analyst Miles Deutscher noted the interesting timeline of developments that led to the PYUSD launch, suggesting that the February crackdown on Binance, Paxos, and Binance USD (BUSD) was all part of the plan leading up to the issuance of PYUSD by PayPal and Paxos.
Feb 10: PayPal pauses stablecoin work amid crypto regulatory scrutiny
— Miles Deutscher (@milesdeutscher) August 7, 2023
Feb 13: Paxos ordered to stop minting Binance stablecoin amidst SEC charges
August 7: PayPal launches a stablecoin (issued by Paxos)
All part of the plan..
