Fintech Entrepreneur Michael Zetser Comments On PayPal's Latest Stablecoin And More
According to fintech expert Michael Zetser, PayPal’s launch of a dollar-backed stablecoin is big news for payments and transfers. On August 7, the payment giant announced that it would be launching a stablecoin backed by the US dollar. This officially makes it the first major tech firm to start using digital currencies for the purpose of payments and transfers.
This begs the question: what are stablecoins? These are cryptocurrency tokens and their monetary value is based on a stable asset like a fiat currency. This makes a stablecoin very different from regular cryptocurrencies, which are subject to trends of significant volatility. Although stablecoins have existed for quite a long time, they still haven’t made their way into the mainstream ecosystem of consumer payments.
PayPal’s Share Price Increases After Announcement
After PayPal made the announcement, its shares went up by a whopping 2.5 percent during afternoon trading hours. Michael Zetser explains that this sudden increase shows a rise in confidence in the crypto industry. Over the last year, investors have struggled with major regulatory changes and crackdowns. To make matters worse, these were exacerbated by the collapse of many major crypto exchanges and lenders.
While many major and mainstream companies have attempted to roll out their own stablecoins in the past, they were met with fierce opposition from government policy makers and financial regulators. Back in 2019, Meta, then known as Facebook, had planned to launch a stablecoin, Libra, but they were held back after regulators said that it could potentially have a negative impact on global financial stability.
Governments Roll Out Stablecoin Regulations
In the past few years, Michael Zetser has kept up with numerous economies that have rolled out their own rules to control stablecoins. By June 2024, the EU’s policies on stablecoins will come into effect. Back in July, the US House Financial Services Committee pushed a bill that would set up a regulatory system for stablecoins. The purpose of such a framework is that it will focus on the registration and approval process for companies that issue stablecoins.
PayPal’s latest stablecoin, called PayPal USD, is pegged to US dollar deposits and is backed by short- term US treasuries. They will be issued by Paxos Trust Co. and, over time, will be accessible to PayPal users in the US. Fintech entrepreneur Michael Zetser explains that PayPal’s brand name backing the stablecoin makes the launch seem like a big deal. However, the payments company has been involved with cryptocurrencies in the past, so it shouldn’t come as a surprise.
In 2021, VISA mentioned that it would allow the use of crypto tokens so users can settle transactions through its payment network.
What Does a PayPal Stablecoin Mean?
With the recent announcement of PayPal’s stablecoin, it raises the question as to what it can mean for customers. According to Michael Zetser, it means that the token can be redeemed for 1:1 USD. In his opinion, regulated and fully-backed stablecoins can enhance payments through Web3 and other digital environments.
Once PayPal users purchase the stablecoin, he expects that they’ll be able to make transfers, pay for other purchases, send PayPal USD to other people, and convert supported cryptocurrencies into PayPal USD.
Further Clarification For Banks Issuing Stablecoins
Despite the current launch of PayPal USD, there are still regulations in place to control dollar-backed crypto- currencies. According to the central bank, member state banks will need to obtain a written supervisory nonobjection from the Federal Reserve before they issue, hold, or transact in any dollar tokens for facilitating payments like stablecoins.
In its recent supervisory letter, the Federal Reserve also stated that it’s developing a new supervisory program to monitor crypto-related activities of banks under its supervision. This also includes activities regarding tech-based nonbank partnerships and integration of blockchain technology. The aim of doing so is to enhance the current supervisory process and improve the oversight of tech- based activities.
Will PayPal’s Stablecoin Really Be Decentralized?
Michael Zetser expected the recent launch of PayPal’s stablecoin to be met with criticism from the Web3 community. Specifically, they’ve raised concerns that, at its core, the stablecoin is a centralized digital asset. That’s because it’s operated by PayPal, one of the biggest regulated payments companies in the world. Consequently, it implies that a holder’s PayPal USD tokens can be frozen and seized, just like their bank account.
He also notes that PayPal USD addresses can be blocked and unblocked by an operator, and other stablecoins like Tether and USDC have similar features. But this doesn’t come as a surprise, he says. US regulators wouldn’t allow a stablecoin with placing a centralized issuing entity. And even with features like freezing and blocking accounts, it’s a win for the crypto industry. That's because it increases the rate of adoption among consumers.
