But stablecoins — an asset class worth roughly $120 billion, according to CoinMarketCap — have also raised alarms in Washington and flummoxed policymakers. Top financial regulators led by the Treasury Department in November 2021 recommended that Congress adopt a framework for the tokens and limit their issuance to banks, citing potential risk to the broader financial system. But lawmakers so far have failed to approve rules for stablecoins.
Meanwhile, Hong Kong-based Tether, issuer of the world’s most widely traded stablecoin, last year said it would not abide by sanctions Treasury placed targeting a crypto service that allowed North Korean hackers and others to launder billions of dollars in stolen digital assets. The collapse in May 2022 of another stablecoin, TerraUSD, set off a cascade of failures by other crypto companies that decimated the industry.
PayPal already allows users to buy bitcoin and several other crypto tokens and transact with them. The company said it expects customers will use its stablecoin for payments in online games and in other Web3 applications and to send international payments.
“The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar,” PayPal CEO Dan Schulman said in a statement.
The cryptocurrency, dubbed PayPal USD, will be redeemable for $1. The company said it will be fully backed by U.S. dollars, short-term government debt and other highly liquid assets.
To issue the token, the company partnered with Paxos Trust, the same firm that issues the stablecoin of embattled crypto exchange Binance. In February, the Wall Street Journal reported that the Securities Exchange Commission planned to sue Paxos for violating investor protection laws related to sales of the token, alleging it was an unregistered security. The New York Department of Financial Services then directed the company to stop issuing the token.
PayPal referred a request for comment on the matter to a Paxos spokesperson, who said the company believes its stablecoins are “unequivocally not securities.”
“Blockchain will transform financial services and Paxos will lead that transformation by providing global enterprises with safe, compliant and regulated infrastructure solutions,” Paxos spokesperson Julia Horowitz said.