PayPal Holdings Inc.’s rolling out of a stablecoin will drive payments efficiencies and improve customer experience even though the adoption will likely be insignificant in the near term, according to Bank of America Corp. Key reasons behind this are the lack of crypto wallet compatibility, exchange trading pairs or new functionality, the firm added.
“Over the longer term, we expect PYUSD to experience additional adoption headwinds as competition from CBDCs and yield-bearing stablecoins increases,” the firm’s strategists Alkesh Shah and Andrew Moss wrote in a note Thursday. PYUSD is the market symbol for the token, while CBDC stands for central bank digital currencies.
“Investors may have been fine holding non-yield bearing stablecoins, such as USDT and USDC, when rates were close to zero, but yield-bearing stablecoins will likely become increasingly available and attractive with short-term rates above 5%,” they added. The analysts are referencing stablecoins issued by Tether and Circle Internet Financial.
PayPal on Monday announced the launch a stablecoin — crypto tokens that are pegged to an asset like the dollar — the first by a large financial company. PayPal USD is issued by Paxos Trust Co. and fully backed by dollar deposits, short-term Treasuries and similar cash equivalents. It’s pegged to the dollar and will be gradually available to PayPal’s customers in the US.
After a scandal-ridden 2022 which saw a string of massive crypto firms collapse, some view this as potentially a significant boost to the sluggish adoption of digital tokens, especially for payments.
“Investors are likely indifferent to which stablecoins they hold as long as the stablecoins are perceived as safe and accessible on the largest trading platforms,” the Bank of America strategists said. “We do not expect PYUSD’s launch to lead to accelerated regulatory clarity, given the stablecoin’s issuance does not alter systemic risk for traditional markets, but the stablecoin may face regulatory headwinds if non-banks are ultimately barred from stablecoin issuance.
Stablecoins have been around for almost a decade, but they’re mostly used by traders to move digital assets between exchanges and have made limited inroads into consumer payments. There’s roughly $126 billion worth of stablecoins in circulation, according to CoinGecko, the biggest by far being Tether’s USDT.
The payments giant isn’t the first to try launching one. A high-profile attempt by Meta Platforms Inc. unraveled last year after an intense regulatory backlash. PayPal itself paused work on PYUSD in February as regulators stepped up scrutiny of cryptocurrencies.
On Wednesday, Maxine Waters, the top Democrat on the House Financial Services Committee and one of the most vocal critics of Meta’s project, criticized PayPal’s launch in the absence of regulation.
--With assistance from Anna Irrera and Vildana Hajric.
