PayPal is trying to drag its 435 million users into the $120 billion stablecoin market.

PayPal has become the first major US fintech company to offer its own crypto token with a dollar-pegged stablecoin called PayPal USD. The company is entering an extremely crowded market already dominated by stablecoins like tether and USDC, at a time when the hype over cryptocurrency has largely fizzled and prices have been mostly stable with no big run-ups since 2022. PayPal's chief crypto executive, Jose Fernandez da Ponte, believes that stablecoins are the killer application for blockchains right now. "Stablecoins are something that we cannot just sit out," da Ponte added. PayPal denied a Bloomberg report that the payments processor paused development of its stablecoin in February. The market is primed for new entrants that are fully backed and unlike tether, fully regulated. PayPal's launch comes after crypto liquidity plummeted in the last year and a half. The collapse of the crypto banking trifecta rippled into the stablecoin market, with Circle's USD Coin briefly losing its peg to the U.S. dollar. The total market cap of stablecoins has plunged since its peak, dropping 25% to $120 billion. PayPal's infrastructure, including being regulated in multiple countries, risk management, and compliance, is a key asset that is a difference in the approach that the company is taking.

PayPal USD is a stablecoin that is backed by dollar deposits, short-term U.S. Treasuries, and cash equivalents and is redeemable for dollars. It is similar to USDC and is backed by a combination of dollar deposits, short-term U.S. Treasuries, and similar cash equivalents. The hypothetical digital dollar, CBDC, is a digital twin of the U.S. dollar, fully regulated, under a central authority, and with the full faith and backing of the country's central bank. There are both benefits and drawbacks to these forms, with some arguing that a CBDC in the U.S. would technically be safer than privately issued stablecoins because it would present a direct claim against a central bank. However, many people who deal in stablecoins want an easier way of doing business, especially internationally. PayPal is an alternative payments network built on top of the commercial bank system, offering interoperable, transparent, and faster settlement and cross-border settlement.

Stablecoins originally emerged to cater to demand for dollar exposure offshore and overseas, but nongovernmental digital tokens are increasingly being used in domestic and international transactions, which is scary for central banks. PayPal's chief crypto executive, Nic Carter, believes the payment processor has a place in the dollar-pegged stablecoin sector by enlarging the pie and offering a more accessible market. The company's competitive advantage lies in its extensive network of over 435 million active accounts, a large base of consumers and merchants, and its competitive advantage in fiat connectivity.