The Evolution of PayPal’s Stablecoin: PYUSD Three Months Later

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In August 2023, PayPal, a major U.S. payment provider, made headlines by launching its own stablecoin, PYUSD. This move positioned PayPal as the first major traditional financial institution in the United States to issue a stablecoin.

The announcement came during a period of intense regulatory scrutiny, with the U.S. Securities and Exchange Commission (SEC) engaged in high-profile lawsuits against cryptocurrency exchanges like Coinbase and Binance. It also followed Paxos’s decision to halt the issuance of BUSD. Against this backdrop, PayPal’s entry into the crypto space attracted significant attention and raised questions about regulatory compliance, token design, and the role of traditional finance in the digital asset ecosystem.

Many analysts attributed PayPal’s move to pressure on profit margins and the search for new revenue streams through stablecoins. However, in its initial phase, PYUSD was only available within PayPal and Venmo ecosystems and had not yet been listed on external exchanges. It faced skepticism regarding its centralized design and was not immediately embraced as a major player in the crypto stablecoin landscape.

Now, more than three months after its launch, how is PYUSD performing?

Market and Regulatory Context

The regulatory environment has evolved since August. Landmark legal victories for Ripple and Grayscale have somewhat tempered the SEC’s aggressive stance, a shift also reflected in the increasing approval odds for a spot Bitcoin ETF.

Market conditions have also improved, with a noticeable uptrend driven by positive news. Major cryptocurrencies have shown strength, alternative tokens (altcoins) have gained traction, and narratives like BRC-20 have resurged.

Current Status of PYUSD

Ecosystem Expansion

PYUSD has gradually expanded its reach across the cryptocurrency ecosystem. It is now supported by:

This growing integration indicates increasing adoption and utility for PYUSD across various platforms.

Market Performance

Despite this expansion, PYUSD’s market performance has been modest. According to data from Coinmarketcap, its total market capitalization has reached approximately $158 million, with a 24-hour trading volume of around $4.88 million.

While these figures represent growth, they pale in comparison to established stablecoins. As of mid-November, the top three stablecoins by market cap are:

PYUSD currently ranks 14th among stablecoins globally.

Transparency and Backing

Paxos, the issuer of PYUSD, releases monthly transparency reports. The report for October 2023 disclosed the following unaudited figures:

The report indicates that the assets backing PYUSD exceed its outstanding supply, suggesting a model of over-collateralization aimed at minimizing risk.

Regulatory Challenges

Despite these careful measures, PYUSD has faced regulatory challenges.

In early November, PayPal disclosed in a quarterly earnings report that it had received a subpoena from the SEC’s enforcement division regarding its dollar stablecoin. The company stated it is cooperating with the request for documents related to the project. Few details about the investigation are publicly available.

Outside the United States, PayPal has also encountered hurdles. Although the company successfully registered with the U.K. Financial Conduct Authority (FCA) to offer crypto services, its activities there remain restricted. It cannot, without FCA approval, allow new U.K. customers to purchase crypto assets, expand its current crypto offerings, or run automated processes for converting crypto to fiat currency.

These regulatory challenges highlight the complexities even a financial giant like PayPal faces when navigating the crypto space. They also raise questions about the broader regulatory acceptance of institutionally-issued stablecoins in key markets.

PayPal’s Vision: The “Pay How You Want” Philosophy

Amid these developments, PayPal recently published an open letter titled “Pay How You Want,” outlining its vision for PYUSD and its perspective on the blockchain-driven future of payments.

The Power of Payments

The letter emphasizes that the true power of money lies not in its accumulation but in its fluidity—its ability to move freely and facilitate exchange. Payment is portrayed as a fundamental act of financial autonomy, enabling individuals and businesses to create, share, and capture value.

The Digital Payment Revolution

PayPal positioned itself from its inception as a beacon of trust in the early days of online commerce. It argues that today, with blockchain technology maturing for over a decade, the company is again at a pivotal moment, akin to the early internet days. Its mission remains unchanged: to drive payment innovation that allows everyone to pay how they want.

The shift to digital highlighted a gap. While the internet provided a foundation for global commerce, a trusted, efficient, and intuitive online payment system was still needed. PayPal aimed to bridge this gap, building a system that offers flexible, secure, and global payment services.

Bridging the New Gap with Crypto and Blockchain

Despite advancements, the letter argues that significant gaps remain in digital payments. So-called “instant” settlements and “24/7” services often come with hidden risks or costs. Actual settlement times for online payments in the U.S. still average 2-3 days, hampered by traditional banking hours and processes.

This creates friction for a globalized workforce sending remittances and businesses managing cash flow.

The letter presents blockchain technology as a practical solution to these problems—a new financial rail offering a fundamentally different payment method. Transactions can be nearly instant, occur 24/7, and be more cost-effective. For PayPal, exploring blockchain is not about chasing a trend but about seriously evaluating a potentially superior financial technology.

With over 400 million active accounts, PayPal sees itself uniquely positioned to bridge this new payment channel with the widespread adoption and trust it requires.

The Role of PYUSD

PayPal’s journey into crypto began in 2020, allowing users to buy, hold, and sell cryptocurrency within their accounts. This evolved to allowing transfers to external wallets, effectively connecting the centralized PayPal/Venmo ecosystem with the decentralized world of DeFi.

The company states its overall view on blockchain is neutral; it is not ideologically wedded to any particular system. Its focus is pragmatic: customers want easier, faster, and cheaper payments, and blockchain can enable these in ways traditional rails cannot.

However, PayPal does have a specific stance on stablecoins. It believes they are essential tools for realizing cryptocurrency's potential as an accessible and flexible payment instrument. PYUSD, issued by Paxos, represents this commitment. It is, the letter states, what PayPal has always done: give customers what they want.

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Frequently Asked Questions

What is PYUSD?
PYUSD is a U.S. dollar-backed stablecoin launched by PayPal and issued by Paxos Trust Company. Each PYUSD token is designed to be redeemable for one U.S. dollar and is backed by corresponding assets.

How is PYUSD different from other stablecoins like USDT or USDC?
The primary difference is its issuer. PYUSD is launched by a major, established traditional financial company (PayPal), potentially offering a different trust model and integration within its vast existing payment ecosystem compared to crypto-native stablecoins.

Where can I use PYUSD?
PYUSD can be used within PayPal and Venmo for certain transactions. It is also now listed on several major cryptocurrency exchanges (e.g., Coinbase, Kraken), supported in popular wallets (e.g., MetaMask, Ledger), and accepted by some crypto payment processors.

Is PYUSD fully backed?
According to monthly transparency reports published by Paxos, PYUSD is backed by U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents. The reports indicate the value of these assets exceeds the number of PYUSD tokens in circulation.

What are the main regulatory challenges facing PYUSD?
PYUSD, like all stablecoins, operates in a complex regulatory environment. PayPal has received an investigative subpoena from the SEC regarding the asset and faces operational restrictions in markets like the United Kingdom, reflecting the ongoing global scrutiny of stablecoin projects.

What is PayPal’s long-term goal with PYUSD?
PayPal’s stated goal is to enhance payment freedom. It believes blockchain technology enables faster, cheaper, and more global payments. PYUSD is a step toward integrating this new financial rail into its services, allowing customers more choice in how they pay.