Loading...

Is PayPal’s PYUSD the future of crypto or a threat to decentralization?

Most read

Loading Most Ready posts..

TL;DR

  • PayPal’s PYUSD stablecoin launch marks a milestone for Ethereum but raises concerns over transaction costs.
  • PYUSD’s introduction sparks fears over similarities to centralized digital currencies.
  • The crypto community’s response to PYUSD is mixed, with both optimism for broader adoption and skepticism over potential centralization.

PayPal recently concluded a two-year exploratory period, culminating in the launch of its newly established stablecoin, PayPal USD (PYUSD), on August 7, issued by Paxos Trust Co. Tailored for digital transactions and Web3 applications, PYUSD functions on the Ethereum platform and is poised to make significant impacts on Ethereum’s mainstream acceptance.

The stablecoin’s functionalities, such as purchasing, vending, retaining, and transferring, although reminiscent of a conventional checking account or an existing PayPal account, signal a substantial milestone. As the firm gears up for making PYUSD available to U.S. customers, notable figures within the crypto space, like Ethereum proponents Anthony Sassano and Ryan Sean Adams, hail the launch as a potential catalyst for Ethereum’s prominence as the internet’s money layer.

On the other hand, the initiative has attracted scrutiny concerning the potential costs linked to Ethereum transactions. David Phelps, an advocate for web3 technologies, questioned PayPal’s decision to launch the stablecoin on Ethereum’s mainnet, hinting that the move might be a clever tactic to overshadow PayPal’s own fees with Ethereum’s substantial gas costs. Moreover, the company itself seemed to acknowledge the challenge of elevated fees outside its platform.

Centralization features raise alarms

While PYUSD’s introduction could boost Ethereum’s adoption, it has also sparked concerns and debates over decentralization, individual asset control, and similarities to central bank digital currencies (CBDCs).

Expert digital asset lawyer Sarah Hodder drew attention to the alarming parallels between PYUSD and a censorship-enabled CBDC, igniting apprehensions among smart contract auditors. Specific functions within PYUSD’s smart contract, such as “freezefunds” and “wipefrozenfunds,” are seen as vulnerabilities associated with centralized control. 

Cryptocurrency researcher Chris Blec echoed these fears, suggesting that PayPal might exploit these functions at its discretion. Furthermore, critics have also expressed doubt over some of PayPal’s engineering choices, such as opting for an outdated version of Solidity to program the contract. Again some have maintained that the new stablecoin from PayPal isn’t something new with the fresh hype surrounding it. At present, the stablecoin lacks genuine decentralization and borderlessness, meaning it cannot function as a worldwide reserve currency that people who are excluded from traditional U.S. payment systems can use, such as those in Argentina or Russia. Therefore, the practical uses of the stablecoin for everyday consumers remain somewhat uncertain.

But others, including lawmakers like Patrick McHenry, the United States House Committee on Financial Services chair, view PYUSD as a promising component of the 21st-century payments system.

Despite minor fluctuations in Ethereum’s price post the announcement, the cryptocurrency community’s response has been mixed, reflecting a range of reactions from optimism for broader adoption to skepticism over potential centralization and censorship capabilities. Nonetheless, the next few weeks will be pivotal as PayPal plans to roll out PYUSD, setting the stage for both opportunities and challenges in the crypto industry. 

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

Share link:

Damilola Lawrence

Damilola is a crypto enthusiast, content writer, and journalist. When he is not writing, he spends most of his time reading and keeping tabs on exciting projects in the blockchain space. He also studies the ramifications of Web3 and blockchain development to have a stake in the future economy.

Stay on top of crypto news, get daily updates in your inbox

Related News

Cryptopolitan
Subscribe to CryptoPolitan