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PayPal (PYPL) Coin: What are the chances of its success?

By Angelique Ruzicka

11:38, 10 February 2022

PayPal logo shown on smartphone screen
Is there too much competition for the PayPal Coin? Photo: Shutterstock

In early January PayPal (PYPL) announced the launch of a stablecoin: PayPal Coin. This came as no surprise given the infrastructure it had already built around digital currency services – such as buying and selling cryptos.

Pavel Matveev, CEO of Wirex, says: “The launch of Paypal’s stablecoin will definitely shake up the industry. It’s been clear that Paypal’s support for crypto has been growing in the last few months, and this announcement will likely pit them against some of the other leading stablecoins out there.

“Many believe that stablecoins will be the future of finance, given that they remove the volatile nature of cryptocurrencies whilst offering all the other benefits such as low cost and faster transaction speeds, making it much more favourable amongst consumers.”

The stability of stablecoins

Stablecoins are a form of cryptocurrency that peg their value against an external asset, such as fiat currency (eg, US dollar), cryptocurrencies, precious metals or real estate.

Cryptocurrencies are very volatile in price so stablecoins may offer a bit more stability for those looking at digital investments as an alternative.

But given that Meta-backed Diem has failed to materialise, what chances does the PayPal Coin have, given the increase in governmental opposition and competition from central banks issuing central bank digital currencies (CBDCs)?

Diem failure?

Meta’s much-anticipated cryptocurrency Diem, which was run by the Diem Association, appears to have wound down – or, at the very least, Meta’s participation in it.

The Diem Association announced at the end of January this year that it sold its cryptocurrency venture for $182m (£134.15m) to Silvergate Capital Corporation. It was initially set to be launched in 2019 as Libra but then faced a barrage of opposition from federal regulators.

Diem’s failure came in spite of some high-profile backers, and the Association’s pro-active approach, seeking feedback and offering developmental transparency to global governments and regulators.

Diem CEO Stuart Levey said in a statement: “Despite giving us positive substantive feedback on the design of the network, it nevertheless became clear from our dialogue with federal regulators that the project could not go ahead. As a result, the best path forward was to sell the Diem Group’s assets…”

Competition from CBDCs

Any entity launching stablecoins now also must contend with stiff competition coming from various CBDCs. This means much work for PayPal, particularly as there are nearly 100 countries reportedly exploring CBDCs that are either at research, testing or even in the distribution phase.  

Just recently, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), highlighted how private cryptocurrencies and stablecoins may not be as practical as well-designed CBDCs.

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She argued in a speech at an event hosted by the Atlantic Council that CBDCs could “potentially offer more resilience, more safety, greater availability and lower costs” than stablecoins and “unbacked crypto assets that are inherently volatile”.

PayPal success?

Diem had the combined technical prowess of multiple organisations behind it, and yet it still failed. This doesn’t bode well for the likes of PayPal and other commercial enterprises wanting to launch their own stablecoins.

However, there are many reasons why Meta’s Diem failed to materialise. Some say it was because of the association with Facebook (now Meta), which has recently been in the spotlight for all the wrong reasons, especially when it comes to privacy issues.

One thing that PayPal has on its side is its good name. This is where the Meta-backed Diem fell short. Even Diem co-creator David Marcus conceded this to be true, saying on Twitter last month that the idea of Diem would fare better with a more “acceptable” promoter.

This is where PayPal has the advantage. “Having a reputable name behind a token is an advantage in itself, and the benefits of stablecoins over other cryptocurrencies such as Bitcoin will help,” points out Matveev.

An established player

Another thing that stands in PayPal’s favour is that its audience is already familiar with it in the crypto and finance space.

Matveev says: “However, what differs with the PayPal stablecoin is that this is a global payments brand within the traditional finance space.

“Compared to stablecoins from crypto-native firms, PayPal already has many of the regulatory approvals, payments rails and on/off-ramps linking it to the traditional financial system, which many argue is one of the biggest drawbacks with them at the moment.”

He adds: “Businesses and individuals are looking for a safe, reliable solution for this, and PayPal’s stablecoin could therefore be the answer for mainstream consumers being able to use crypto in the everyday.

“Not only this, but PayPal already has over 350 million customers globally, offering a huge opportunity with a sizeable market that could instantly begin utilising the stablecoin.”

What’s more, the news of PayPal’s launch has so far been well received, despite Diem’s failure. “The launch will be a huge positive for the crypto market. The announcement that the stablecoin is being developed has already hit mainstream media, and this positive news from a global brand could be the catalyst needed to pick the crypto market back up,” concludes Matveev.

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