The moment PayPal (PYPL) said it is rolling out a new stablecoin, every crypto policy expert in Washington whispered, “Libra.”
In digital-assets circles, that previous effort pushed by Meta Platforms (META) (then Facebook) will forever represent Big Tech’s folly with regulators, and PayPal’s new move will crank up the heat on an already simmering debate over U.S. stablecoin rules. Still, the payments company is coming into the market in a different era — arguably closer than the industry has ever been to getting lawmakers to write rules for these tokens that could soothe government fears.
PayPal USD (PYUSD) — the latest stablecoin pegged to the U.S. dollar — will be an Ethereum-based token offered to the company’s online-payments customers before expanding to PayPal’s Venmo app.
PayPal has allowed customers to buy and sell cryptocurrencies including bitcoin (BTC) and ether (ETH) on PayPal since 2020 and on Venmo since April 2021, but customers were initially unable to transfer that cryptocurrency to an external wallet. In 2022, PayPal began allowing users to transfer their crypto assets to third-party wallets and expanded that capability to Venmo in April 2023.
PayPal’s PYUSD marks the first time a major financial firm is backing its own stablecoin. Specifically, PYUSD will be a fiat-backed stablecoin, a kind token pegged to a government-issued currency to maintain a steady value in the volatile world of cryptocurrencies.
How PayPal’s stablecoin may affect U.S. regulation
The PayPal move arrives during a turning point, because Congress actually has stablecoin legislation that — for the first time — made it through the initial committee stage in the House of Representatives.
“This announcement is a clear signal that stablecoins — if issued under a clear regulatory framework — hold promise as a pillar of our 21st-century payments system,” said Rep. Patrick McHenry (R-N.C.), chairman of the House Financial Services Committee, which moved the stablecoin bill toward a potential floor vote. He says PayPal’s stablecoin makes it “more important than ever” to keep moving the legislation forward, though the push is widely expected to meet heavy resistance when it hits the Senate.
“We think this could spur Senate Democrats to get more engaged on stablecoin legislation,” Ian Katz, an analyst with Capital Alpha in Washington, said of the PayPal announcement in a note to clients. That’s not necessarily a good thing for pro-crypto forces.
The Democrat-controlled Senate includes Sen. Elizabeth Warren (D-Mass.), who considers crypto a financial hazard that empties regular Americans’ pockets, and Sen. Sherrod Brown (D-Ohio), who runs the Senate Banking Committee and has been highly suspicious of the sector. Apart from worries about crypto scams and hacks, they are concerned about the effects a large-scale stablecoin could have on the U.S. banking system in a major crisis and worry that customer runs could destabilize the industry.
One crypto lobbyist observed that the Democrats on McHenry’s committee who had recently voted against advancing the stablecoin bill had returned to well-worn talking points about giant technology companies inserting themselves in crypto. Those complaints reached a height when Facebook was starting its doomed three-year odyssey to establish Libra, later known as Diem. The project was eventually crushed by the Federal Reserve, which warned it might never approve the token.
Rep. Maxine Waters (D-Calif.), the House committee’s ranking Democrat, complained during a recent hearing on the stablecoin bill that the current legislation would allow major technology giants to swoop in and launch their own tokens — a scenario she considers dangerous. PayPal now represents an immediate example for the representative to point to in her arguments.
PayPal’s token is also sure to “get the attention of regulators, particularly the Fed, which worries about the long-term financial stability implications of a dollar-linked stablecoin,” Katz said. But positive or negative, the news is likely to keep a sense of urgency on the legislative work. It shows that “moment is now” for Congress to act, argued Ji Kim, the head of global policy for the Crypto Council for Innovation.
“PayPal’s announcement reaffirms that stablecoins will play a critical role in digital payments, cross-border remittances and so much more in the payments ecosystem,” he said in a statement to CoinDesk.
