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 Furthermore, critics have also expressed doubt over some of PayPal’s engineering choices, such as opting for an outdated version of Solidity to program the contract.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.