PayPal is releasing a new digital currency, PayPal USD. It isn’t just another speculative coin, but a type of currency.
PayPal USD is what is known as a stablecoin. Unlike Bitcoin and other speculative assets, stablecoins’ value is pegged to a real like currency. 1 PayPal USD is worth 1 real Dollar, and can be used for payments. Paypal’s official release reads as follows:
PayPal USD will be available to consumers, merchants and developers to seamlessly connect fiat and digital currencies. As the only stablecoin supported within the PayPal network, PayPal USD leverages PayPal’s decades-long experience in payments at scale, combined with the speed, cost and programmability of blockchain protocols. As an ERC-20 token issued on the Ethereum blockchain, PayPal USD will be available to an already large and growing community of external developers, wallets and web3 applications, can be easily adopted by exchanges, and will be deployed to power experiences within the PayPal ecosystem.
PayPal USD is designed to reduce friction for in-experience payments in virtual environments, facilitate fast transfers of value to support friends and family, send remittances or conduct international payments, enable direct flows to developers and creators, and foster the continued expansion into digital assets by the largest brands in the world. Most of the current volume of stablecoins is used in web3-specific environments – PayPal USD will be compatible with that ecosystem from day one and will soon be available on Venmo.
Essentially, PayPal USD is a private digital dollar. Just like before central banking and national currencies, these crypto dollars function as IOUs, making commercial activity easier. Ultimately, users can convert these digital dollars back to real dollars. CNBC explains:
The utility of using a stablecoin pegged to the price of the U.S. dollar rather than dealing in the fiat currency itself has to do with the nuances differentiating the several different types of digital U.S. dollars out there today.
Sitting in commercial bank accounts across the country are electronic U.S. dollars, which are partially backed by reserves, under a system known as fractional-reserve banking. As the name implies, the bank holds in its reserves a fraction of the bank’s deposit liabilities. Transferring this form of money from one bank to another or from one country to another operates on legacy financial rails and often involves paying fees to move that cash.
Stablecoins are not without risk however. TerraUSD and Luna both failed in 2022, unpegging from the US dollar for a brief moment and losing vast sums of money. PayPal, a respected financial institution, might just be the company to make stablecoins more popular.
READ NEXT: FTX Sues Crypto Fraudster
