PayPal’s stablecoin, PYUSD: Why it’s a good idea

The big news in crypto this week is that fintech giant PayPal is making good on its longtime plans to launch a stablecoin. After getting cold feet last year amid harsh market and regulatory conditions, PayPal chose Monday to announce PYUSD—a digital token on the Ethereum blockchain that U.S. customers can use for payments or transfers.

While the news spurred a modest jump in PayPal’s share price, not everyone was thrilled. Some were quick to point out that the software supporting PYUSD was written in relatively old code, and that the project will be highly centralized (a big no-no among crypto purists)—even allowing PayPal to pause transfers and freeze addresses at will. As such, the crypto community will be reluctant to embrace it.

The critics are correct. But they’re also missing the point. While PayPal will need to make strategic inroads with the crypto community, the company also has a massive customer base of potential PYUSD users who don’t care a lick about decentralization. And if the company can get even 10% of those using PayPal and Venmo (which the company also owns) to use PYUSD, it will enjoy a nice new high-margin income stream. The beauty of running a stablecoin business right now is that you can park your reserves—the dollars that back the stablecoin—in T-bills earning 5% while paying depositors zero.

It’s fair to ask how the company will persuade its customers to use PYUSD in the first place, especially as plain old U.S. dollars work just fine for PayPal and Venmo transfers. On this front, the company has more levers than you might think, including in-app promotions and the opportunity to move money easily between Venmo and PayPal as well as other wallets. Meanwhile, recall that PayPal has a massive network of merchants, and that can offer incentives for them to use PYUSD and encourage their customers to do the same. There are also rumors big-name partnerships are in the works to further promote the stablecoin.

Another objection to PYUSD is that, unlike other blockchain networks, it’s limited to the U.S. That is definitely a drawback given how some of the most promising use cases for crypto are remittances and international payments. But this is only temporary. PayPal is clearly playing a long game when it comes to U.S. regulators and can afford to bide its time until Congress creates a legal infrastructure to support a broader crypto ecosystem. It doesn’t hurt that PayPal’s size and relatively clean image will make it easier for the company to seek favors in Washington, D.C., versus crypto-native companies. Don’t be surprised if five years from now PayPal is at the vanguard of a global stablecoin-based payment and transfer network.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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