PayPal Doesn’t Want to Rely on Yield of Reserves for Stablecoin PYUSD

PayPal’s new stablecoin PYUSD explores alternatives to yield of reserves, amid criticism over design choices. Will it gain adoption?

José Fernandez da Ponte, PayPal’s Senior Vice President and General Manager of Blockchain, Crypto, and Digital Currencies, said on Unchained that the company is exploring alternative monetization strategies for its newly launched stablecoin, PYUSD, and does not want to rely solely on the yield of reserves.

Traditionally, stablecoins have been monetized through the yield of reserves, as evidenced by Tether’s recent Q2 profit of $850 million, backed by $72.5 billion worth of U.S. Treasury Bills. However, da Ponte indicated that PayPal is considering other mechanisms, stating, “We don’t think that we should foresee that that’s going to be the only monetization mechanism and the interest rate environment might change. What we are betting is that when there is adoption for this stablecoin, we will monetize that with instruments that are closer to the traditional payments business.”

The launch of PYUSD has been met with criticism from the crypto community, particularly concerning its design. Critics have pointed out that PayPal’s stablecoin can roll back transactions and that the ERC-20 contract is written in an old version of Solidity. These design choices have raised questions and concerns among crypto enthusiasts.

Despite the criticism, da Ponte also outlined how PYUSD differentiates itself from other popular stablecoins like USDT and USDC. Key differentiators include:

1. Integration with the PayPal Ecosystem: PYUSD’s acceptance within the PayPal and Venmo networks provides access to millions of consumers and merchants.
2. Connectivity to Fiat: PYUSD leverages PayPal’s existing bank connectivity, streamlining the process of moving between fiat and stablecoin.
3. Compliance and Regulation: Issued out of New York and approved by New York DFS, PYUSD adheres to strict regulatory frameworks.

While the exact fee structure for PYUSD was not detailed in the conversation, da Ponte’s comments suggest that fees may play a role in the stablecoin’s monetization strategy. This aligns with PayPal’s emphasis on payment applications.

When asked about the future of PYUSD, da Ponte expressed a ‘moderate’ expectation. “There are $120 billion of stablecoins out there and we expect that we’ll capture a market share there, but we also expect that we will help enlarge the pie,” he said. He envisions PYUSD as part of a multi-year journey that reflects PayPal’s strategic approach to the stablecoin market.