Written by: Jack, Cookie, Jaleel, BlockBeats

Edited by: Jack, BlockBeats

On the evening of August 7th, Beijing time, PayPal, a payment company headquartered in San Jose, California, announced that it will launch the stablecoin PayPal USD (PYUSD). The stablecoin will be issued by Paxos Trust (the former issuer of BUSD), fully backed by US dollar deposits, short-term government bonds, and similar cash equivalents, and will gradually be made available to PayPal customers in the United States.

Although PayPal has been involved in the cryptocurrency field for the past few years, the official launch of its stablecoin can still be considered a significant event in the development of cryptocurrencies. As a convenient gateway into the world of cryptocurrencies, stablecoins are generally seen as an important tool for guiding cryptocurrency users. Up to now, this work has been mainly undertaken by USDC and USDT, but due to the lack of traditional financial and real-world applications, the main users of these stablecoins are still internal participants in the cryptocurrency industry.

On the other hand, due to the development and promotion of central bank digital currencies (CBDC) in various countries, stablecoins have always faced strict regulatory pressure. Previously, Facebook's ambitious stablecoin project Libra ultimately failed under this pressure. Therefore, the launch of PayPal's stablecoin will play an important historical role in the process of cryptocurrencies entering traditional finance and the real economy. It not only means that PayPal's 430 million users will have a more stable and convenient entry into the world of cryptocurrencies, but it will also further promote the gradually loosening cryptocurrency policies. What's more interesting is that for Musk and Twitter, the launch of PayPal's stablecoin adds a lot of imagination space to his long-standing "X dream."

Gateway for 430 Million People

In its announcement, PayPal stated: "PayPal USD is designed to reduce friction in the experience of payments in virtual environments, promote the rapid transfer of value to support friends and family, remittances or international payments, direct flow to developers and creators, and promote the continued expansion of digital assets by the world's largest brands. Most stablecoins are currently used in web3-specific environments—PayPal USD will be compatible with this ecosystem from day one and will soon be available on Venmo."

PYUSD will be launched in the coming weeks, and eligible US customers who purchase PayPal USD will be able to:

1) Transfer PYUSD between PayPal and compatible external wallets 2) Use PYUSD for person-to-person payments 3) Choose to use PYUSD for purchases at checkout 4) Convert any cryptocurrency supported by PayPal to PYUSD and vice versa 5) Buy and sell through PayPal at a price of $1 per PayPal USD

As the only stablecoin supported within the PayPal network, PayPal USD leverages PayPal's decades of experience in large-scale payments and combines the speed, cost, and programmability of blockchain protocols. As an ERC-20 token issued on the Ethereum blockchain, PayPal USD will be available for use by the already large and growing external developer, wallet, and Web3 application community, and can also be easily adopted by exchanges.

As of now, PayPal has over 431 million active accounts globally, but with the momentum of online payments during the pandemic weakening, PayPal's stock price has fallen by over 35% in the past 12 months. Additionally, due to PayPal's expansion of consumer and merchant services such as operating funds loans and remittances on its many platforms, the company stated last week that it must allocate more funds in the second quarter to repay bad loans issued to merchants, leading to a single-day stock price plunge of 12%. Amidst these challenges, PayPal's President and CEO Dan Schulman recently announced his resignation in the coming months.

Therefore, PayPal USD can be said to be Schulman's last important work in his PayPal career. Previously, Schulman has always hoped that PayPal could establish a dominant position in the digital payment field by relying on intermediary-free instant low-cost transfer technology. In an interview with Bloomberg, he stated: "The transition to digital currency requires a stable tool that is both native to digital and easy to connect with fiat currencies such as the US dollar… Over time, our vision is to become part of the entire payment infrastructure."

In addition to creating products and services that increase the practicality of digital currencies, PayPal is also committed to increasing consumer and merchant understanding of cryptocurrencies, stablecoins, and central bank digital currencies (CBDC), while closely cooperating with regulatory agencies as the industry develops. In addition to offering PayPal USD to US account holders, PayPal currently provides customers with the ability to buy, hold, sell, and transfer selected cryptocurrencies, and provides educational content to help account holders understand the risks and possibilities of this technology.

It is also worth noting that the company helping to issue PayPal USD is Paxos Trust, which previously collaborated with Binance to issue BUSD. Paxos Trust is a fully licensed limited-purpose trust company regulated by the New York State Department of Financial Services. With its assistance, PayPal obtained a conditional BitLicense in June 2022 and was subsequently awarded a BitLicense by NYDFS.

According to the official announcement, starting in September 2023, Paxos will release monthly public reports on the reserves of PayPal USD, outlining the tools that make up the reserves. Paxos will also provide public third-party proof of the value of PayPal USD reserve assets. The attestation will be issued by an independent third-party accounting firm and will be conducted in accordance with the attestation standards established by the American Institute of Certified Public Accountants (AICPA).

What Facebook Failed to Achieve, PayPal Has Achieved

In June 2019, after years of preparation, Facebook (now Meta) launched an ambitious project: a cryptocurrency called Libra. In Meta's plan, the project would be supported by an international consortium of companies, aimed at providing financial services to underserved populations and expanding its mission as a social media platform to connect a wider world to the thriving digital currency market.

Facebook's cryptocurrency would be managed by the Libra Association, which includes companies such as Visa, Mastercard, and PayPal. Each member has equal voting rights and is required to deposit $10 million into the reserve, and ultimately integrate Libra into its services to bring digital currency to more consumers.

However, Libra quickly faced significant regulatory pressure. In October 2019, PayPal announced its withdrawal from Libra. Shortly after, members such as Visa, Mastercard, eBay, and Stripe also announced their withdrawals. In May 2020, Facebook renamed its Calibra payment division to Novi. About six months later, the Libra Association was renamed Diem in an attempt to distance itself from the failure of Libra. In October, Facebook launched the Novi digital wallet pilot, but without Diem. Shortly after, David Marcus, who led the Libra project, left Facebook.

The failure of Libra was not the only setback for PayPal in the field of digital currency payments. In May 2022, the historic collapse of TerraUSD led to losses of over $40 billion for investors, directly leading to increased attention from regulatory agencies on cryptocurrencies, especially stablecoins.

In February 2023, PayPal announced the suspension of development work on PYUSD. The day before, its partner Paxos was investigated by the New York Department of Financial Services (NYDFS) and was instructed to stop issuing BUSD, which is owned by Binance. NYDFS stated that its decision was the result of "several unresolved issues related to Paxos' supervision of its relationship with Binance."

PayPal's History in Cryptocurrency

As early as 2016, PayPal established a long-term partnership with Coinbase. In 2018, Coinbase allowed US customers to make instant withdrawals through PayPal. Last year, European Coinbase users were able to withdraw from their PayPal accounts, followed by Canadian users.

In early 2020, it was reported that after a brief collaboration with the Facebook-led Libra project the previous year, PayPal's focus was now on expanding its expertise in payments. Subsequently, PayPal posted some job vacancies to expand its new blockchain research team. Sri Shivananda, Chief Technology Officer of PayPal, stated in an interview that the company hopes to "have its own views and opinions on blockchain technology itself, to see how it can help us realize the idea of creating an open digital payment platform that can serve everyone."

In June 2020, PayPal was rumored to be planning to directly sell cryptocurrencies to its 325 million users. In October, Charles Cascarilla, co-founder and CEO of Paxos, announced that Paxos was beginning to support PayPal's "new service," allowing US users to directly purchase, hold, and sell crypto assets from their PayPal digital wallets.

In December of the same year, a survey report from the Japanese securities firm Mizuho Securities indicated that conducting Bitcoin transactions within the PayPal user base could be beneficial to its stock price, and projected an increase in revenue of about 20% for the following year. The report raised the company's stock target price from $270 to $290, while PayPal's stock price at the time was $218. At the same time, Paxos announced that it had raised $142 million in Series C funding from companies including PayPal.

In February 2021, according to information reported to investors by PayPal, in the fourth quarter of 2020, PayPal added a net of 16 million active accounts and processed a total payment volume of $277 billion. Users who purchased cryptocurrencies through the platform logged in to PayPal twice as often as before purchasing cryptocurrencies. This was the first profitable quarter for the payment giant since it launched its cryptocurrency purchase service at the end of last year, with PayPal's transaction revenue increasing by about 12% in the fourth quarter of 2020 to $5.7 billion.

In March 2021, Reuters reported that PayPal would launch cryptocurrency settlement services, allowing US consumers to use their held cryptocurrencies to make payments to millions of online merchants worldwide. The next day, PayPal CEO Schulman used Bitcoin to purchase a pair of cowboy boots through PayPal and recorded the purchase process for release online. In April, Paxos announced the completion of a $300 million Series D financing round, with PayPal continuing to invest.

In May, according to The Block, PayPal was officially considering the launch of a stablecoin. Sources indicated that if PayPal were to issue a stablecoin, it would be more inclined to collaborate with third parties and had discussions on stablecoin issues with multiple teams, including the Avalanche team. Previously, Bloomberg developer Steve Moser discovered related code in the PayPal iPhone app exploring the construction of its own stablecoin.

In April 2022, PayPal President and CEO Schulman emphasized the key role of digital wallets in PayPal's future growth during the company's quarterly earnings conference call, stating, "We need to double down on digital wallets, I believe this is the future of the industry and the core of PayPal."

Musk's "X Dream"

In 1999, Musk founded X.com with the aim of becoming an online center for various financial transactions. Later, X.com merged with Peter Thiel's Confinity, with an agreement for Musk to become the largest shareholder of the merged company and also the CEO. Musk insisted that the company's name should be X.com, with PayPal being just one of its subsidiary brands. However, Peter Thiel's team opposed this, and ultimately, Thiel ousted Musk from PayPal.

According to Walter Isaacson, author of "The Musk Biography," Musk stated, "If you only want to be a niche payment system, PayPal would be better… But if you want to take over the world financial system, then X is a better name."

In 2017, Musk purchased the X.com domain from PayPal, with the specific amount undisclosed. At the time, Musk thanked PayPal on Twitter for allowing him to buy back the X.com domain and stated, "There are no plans at the moment, but it has huge emotional value for me." Five years later, Musk acquired Twitter for $44 billion, officially merging his newly acquired social media company into a Nevada-registered entity called X Corp.

In October 2022, Musk stated, "The acquisition of Twitter is an accelerator for creating everything in X." The Twitter CEO mentioned in a live forum, "If you're in China, you can live through WeChat, it can do everything, X is a bit like Twitter, plus PayPal, plus a bunch of things, and all of these are integrated into one interface with an excellent interface."

Therefore, Musk's initial vision for Twitter included embedding a set of financial systems. However, in August 2023, Twitter user @cb_doge tweeted a reminder to cryptocurrency players that Elon Musk and X (Twitter) had never issued any cryptocurrency, warning against scams. Musk replied to this tweet, "We will never (issue cryptocurrency)."

However, Twitter, without an internal payment system, has indeed faced limitations in many aspects. Also in August 2023, Musk tweeted that he would be talking to Apple CEO Tim Cook to see if the company would adjust its 30% commission on in-app purchases. Currently, Apple charges a 30% commission on all in-app purchases on iOS, including subscriptions sold by creators through Twitter. Musk expressed his desire to change this situation, so that Apple would only take a 30% commission on the portion of profits obtained from Twitter, maximizing the creators' earnings on Twitter.

Musk added that Twitter is also changing the way it charges creators for revenue. He stated that Twitter will only take 10% of subscription revenue from creators after 12 months, and is also adjusting to take 10% when creator revenue exceeds $100,000. In this new model, Twitter will not take any fees from creators in the first 12 months.

In November 2021, Musk criticized Apple's 30% commission as a "hidden 30% tax on the internet." He also delayed the launch of Twitter Blue on iOS to avoid paying Apple's fees. However, after visiting Apple's headquarters, he stated that it was a misunderstanding.

In February of this year, Musk promised to start paying creators a portion of Twitter's ad revenue. In June, he announced that the initial revenue sharing total amount would be $5 million, and this revenue sharing had been distributed to eligible creators in July. Twitter directly shares the ad revenue it receives from replying to people's tweets with users, so the more people reply to tweets and the more people view the ads in those replies, the more income creators can earn. Currently, to be eligible for compensation, one must purchase Twitter Blue and have at least 5 million tweet views per month.

Musk mentioned in the All-In Podcast that payments might become part of products like Twitter, "whether it's cryptocurrency or fiat currency." In the past, Musk has hinted at using Dogecoin as a payment option for Twitter and even changed Twitter's logo to the Dogecoin logo. While no one knows if he was serious about Dogecoin as a payment option for Twitter, the launch of PYUSD may provide a new option for the Twitter CEO, who has deep roots in the cryptocurrency world.

Loosening Regulatory Exposure and Intensified Race

Since the Web3 conference in Hong Kong in April, the entire cryptocurrency world has felt that the policies of mainstream countries are gradually loosening, even in the face of strong actions by the SEC in recent months.

On June 16, one of the world's largest asset management groups, BlackRock, through its subsidiary iShares, submitted a filing to the US SEC for a spot Bitcoin ETF, attracting high attention from the industry. For a long time, the SEC had exerted significant regulatory pressure, and multiple spot Bitcoin ETFs had not been approved, yet the world's largest asset management giant unexpectedly applied for a Bitcoin ETF. Subsequently, the new cryptocurrency trading platform EDX Markets, supported by Citadel Securities, Fidelity Investments, and Charles Schwab, began trading.

On July 14, a US court ruled that XRP is not a security, injecting a powerful shot of confidence into the industry. Then on July 21, Glenn "GT" Thompson, Chairman of the House Agriculture Committee and Republican Congressman from Pennsylvania, formally submitted a new digital asset regulatory bill in the House of Representatives, aiming to establish a regulatory framework to protect investors in the cryptocurrency industry. The revised bill will exclude a series of traditional securities from the definition of "digital assets," such as stocks, bonds, "transferable shares," and "equity or participation certificates in any profit-sharing agreement."

The arrival of PayPal's stablecoin PYUSD is undoubtedly another important milestone event for the cryptocurrency industry on the compliance path, signifying that the cryptocurrency industry, starting with payments, has a new round of imagination space. However, for individual entities in the industry, the launch of PayPal's stablecoin may not bring only good news.

After PayPal announced the launch of its payment stablecoin, Patrick McHenry (NC-10), Chairman of the House Financial Services Committee, made a statement, saying, "This is interesting. Another stablecoin has emerged in the United States. It may lead to a decrease in payment revenue mainly supported by Mastercard and Visa. At the same time, it will also help the industry further develop and promote reasonable regulatory policies."

The launch of PayPal's stablecoin PYUSD will undoubtedly lead to a decrease in the market share of USDT. According to CoinGecko's data, the circulating value of stablecoins is approximately $126 billion, with Tether Holdings Ltd.'s USDT being the largest so far. Tether's stablecoin USDT currently has a market share of 67.2%.

Although Tether's Chief Technology Officer Paolo Ardoino stated that the launch of PayPal's stablecoin would not affect Tether because the company does not serve US users, shortly after the news of PayPal's stablecoin launch, official Curve data showed that USDT's share in the 3pool had reached 68.82% (156,352,796 coins), and USDT had experienced a slight deviation, falling to around $0.9979.

The compliance journey of PYUSD also seems to highlight the loosening of regulatory policies in various countries and regions. After Singapore and Hong Kong embraced Web3 and reaped many benefits, various signs also show that the attitude of the US political arena is changing, intending to embrace digital assets: BlackRock's application for a Bitcoin ETF, the court ruling that XRP is not a security, and now PayPal issuing the stablecoin PYUSD. Changes in the regulatory environment often determine the fate of an industry.

More importantly, the launch of PayPal's stablecoin PYUSD is undoubtedly a milestone event for the cryptocurrency world. This payment giant has finally completed its long-planned strategy in the digital asset field, opening the door for 430 million users to the world of cryptocurrencies. Whether PYUSD can break the long-standing dominance of USDT and USDC in the stablecoin market, and how PayPal will use PYUSD to transform the payment ecosystem, are worth continuous attention from the industry. We also look forward to PYUSD opening the door to cryptocurrency compliance.

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