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  • PYUSD marks a significant milestone as the pioneering regulated stablecoin introduced by a prominent global payments corporation.
  • Its customers' assets are safeguarded even in the event of bankruptcy.

 

The leading participants in the stablecoin market, which comprises cryptocurrencies created to imitate the value of the US dollar, seem unfazed by the introduction of PayPal's own PYUSD token, a major player in the fintech industry. However, Paxos, PayPal's collaborator in this initiative, views it as a "watershed moment" for the industry, as it brings a new level of regulatory scrutiny to the space.

Most of the stablecoins in circulation today primarily consist of USDT and USDC. USDT, established by Tether, was one of the earliest stablecoins in the crypto market and has recently achieved a record market capitalization of $83.2 billion in June. On the other hand, USDC is issued in collaboration with Coinbase by Circle, a prominent U.S.-based company.

Walter Hessert, Paxos' Head of Strategy, highlights a distinct advantage that sets PYUSD apart from its competitors. He emphasizes that Paxos' status as a trust company, regulated by the New York Department of Financial Services (NYDFS), creates a noticeable contrast between them and other rivals.

“The difference is significant because we have a prudential regulator,” Hessert said in an interview with CoinDesk. “In our case you have a regulator overseeing every activity involved in the issuance, including the reserve management. It means no matter where you are in the world, anybody who has this token is protected by the oversight and the rules that are set for us by New York.”

In terms of those rules, a big one is the removal of bankruptcy risk, Hessert said. “Customers' assets are protected, including if Paxos were to go bankrupt – a situation we now see with a bunch of companies in crypto. If you can end up sitting in line as a general creditor of a private company that issued you a stablecoin, that’s not as good as a physical dollar,” he said.

Hessert clarified that in the event of Paxos facing bankruptcy, its regulatory body NYDFS would intervene to protect PYUSD, ensuring it remains unaffected by the bankruptcy proceedings. This approach would safeguard customers from unintentionally becoming creditors during such financial turmoil, and ensure the return of funds to all token holders.

PayPal's recent entry into the stablecoin market may not significantly affect Tether, as stated by their CTO Paolo Ardoino, considering that Tether has not yet entered the U.S. market. However, PYUSD has the potential to emerge as a strong contender against USDC, which has experienced a steady decline in market capitalization after the collapse of Silicon Valley Bank (SVB).

In response to inquiries regarding PayPal's new stablecoin, Jeremy Allaire, the co-founder and CEO of Circle, conveyed a powerful message to CoinDesk, stating that "it is a strong signal that near-instant, borderless, and programmable payments in the form of stablecoins are here to stay."

PayPal has been continuously evolving in the realm of cryptocurrencies. A few years ago, they started offering services that allowed customers to buy, sell, and hold certain cryptocurrencies, aligning themselves with similar offerings from Block and CashApp. However, their recent move to introduce their own stablecoin signifies a significant leap in terms of innovation.

Reserves, akin to Tether and Circle, will be backed by U.S. treasury bills, with the interest generated from these T-bills being shared between PayPal and Paxos.

“USDT and USDC are pretty similar these days,” Hessert said. “They are both unregulated, and they both are fairly transparent now.”

PayPal failed to provide an immediate response to a comment request.