PayPal’s stablecoin may well succeed where Facebook failed, thanks to the payments giant’s presence in Washington and policymakers’ greater understanding of the issues over the past three years.
PayPal said this month that it would launch PayPal USD, a dollar-pegged cryptocurrency, making it the second major global company to launch a stablecoin after Facebook (now Meta Platforms) launched Libra in June 2019.
PayPal announced the appointment of a new chief executive last week, a move that appears risky as Facebook’s stablecoin is crushed by political opposition and regulators focus on the cryptocurrency industry after several debacles.
But PayPal’s position is stronger than Facebook’s, former officials, executives and analysts say. Policymakers are more familiar with stablecoins (crypto tokens that are typically pegged to fiat currencies) than they were in 2019. Pushing for federal stablecoin regulations could also help boost their legitimacy in the eyes of lawmakers.
Christopher Giancarlo, former chairman of the U.S. Commodity Futures Trading Commission, said: “The world has changed a lot since Facebook’s Libra project. People are not familiar with stablecoins at all.”
“Since then, the administration, Congress, and the Federal Reserve have had time to think about stablecoins and stablecoin regulation, and the industry has engaged in very extensive public relations, including a lot of lobbying.”
Unlike social media giant Facebook, which has come under constant scrutiny over privacy concerns and Russian election meddling, PayPal is an established financial operator in Washington. According to OpenSecrets, the company spent $1.13 million (nearly 9.4 billion rupees) on federal lobbying last year, and records show it has been lobbying on cryptocurrencies for years.
“From a policy perspective, there’s a huge difference between Facebook’s Libra and PayPal’s stablecoin,” said Isaac Boltansky, director of policy research at brokerage BTIG.
“There is still a wall between banking and commerce, so knowing that PayPal is very clearly on the side of that wall should reassure lawmakers.”
PayPal and Meta declined to comment.
PayPal USD will be issued by Paxos Trust, a digital trust company, backed by U.S. dollar deposits and U.S. Treasury bonds, and will be supervised by the New York State Department of Financial Services.
PayPal is launching the stablecoin because the company sees itself as a leader in payments innovation, and Chief Executive Dan Schulman said he expects the stablecoin to eventually be used for payments, a person familiar with the matter said. But sources said PayPal expects the stablecoin to be used primarily by U.S. customers to buy and sell other crypto tokens on its platform.
For PayPal investors, PayPal USD will not be a game-changer, said Dan Dolev, senior analyst at Mizuho Bank. “It’s positive noise,” he added.
big ambition
To be sure, some policymakers are concerned. Maxine Waters, the top Democrat on the House Financial Services Committee, expressed concern about PayPal launching a stablecoin without federal oversight to protect consumers and financial stability. But the response from Washington has been mostly muted.
When Facebook launched Libra, a Swiss-based stablecoin pegged to a basket of currencies, executives made no secret of their ambitions. They say they want to overhaul the global financial system.
The project has faced strong opposition from policymakers who fear Libra could give Facebook too much control over the monetary system and invade users’ privacy. To the surprise of regulators, they are confused about who should regulate stablecoins.
Facebook rebranded Libra, scaled back and moved the project to the United States to win approval from U.S. regulators.
The decision to approve Libra coincides with the transition of President Joe Biden’s administration in January 2021, according to a former official with direct knowledge of the matter. While the Fed has been working on the issue for some time, the decision ultimately fell into the hands of the new Fed chair. Treasury Secretary Janet Yellen. She needs time to fully analyze the issues, the person said.
Tired of waiting, Facebook sold the venture in January 2022.
The White House and the Fed declined to comment. A Treasury Department spokesperson noted that Yellen “has repeatedly called on Congress to create a comprehensive regulatory framework for stablecoins.”
The Treasury Department has been working on stablecoins for the past two years. After the TerraUSD crash last year, Yellen said that stablecoins do not pose systemic risk. Since then, concerns that stablecoins could replace traditional currencies have receded, and the Treasury Department and Congress generally agree that prudential regulators should oversee them.
“We’ve done a lot of work to understand the scale of these things,” said Jack Fletcher, director of policy and government relations at blockchain firm R3.
The Fed this month outlined a process for state-owned banks to conduct stablecoin transactions, while the House Financial Services Committee last month introduced a bill that would give the Fed more powers to oversee stablecoins while retaining the authority of state regulators.
The committee’s Republican chairman, Patrick McHenry, said in a statement on PayPal USD that Congress should move quickly to pass the bill “to enable stablecoins to reach their full potential.”
© Thomson Reuters 2023
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