PayPal’s recent announcement that it will issue a U.S. dollar stablecoin on the Ethereum network has been met with enthusiasm from the crypto world. Optimists see it as a sign of validation for blockchain and smart contracts from a major fintech player. But there may be another motive at play: PayPal wants to collect the interest on your dollars, says The Node newsletter.
PYUSD, like other dollar stablecoins, will be backed by a collection of dollar bank deposits and highly liquid dollar equivalents, held in a trust managed by Paxos. Short-dated U.S. Treasuries, which are likely to make up the bulk of PYUSD’s backing, are now offering a whopping 5% yield. PayPal gets to keep that yield. Jose Fernandez da Ponte, head of PayPal’s crypto efforts, told CNBC Crypto that We think of PYUSD as an extension of the PayPal balance…making it available outside of the PayPal ecosystem.
A PayPal balance is the money a customer leaves on the platform – or, going forward, money they leave with PayPal in exchange for PYUSD. However, users should not do this at scale, as their money is at risk of seizure and PayPal does not pay any interest. This is why PayPal’s value added revenue, which includes interest earned on certain assets underlying customer balances, has been rising much faster than transaction fee revenue.
A stablecoin could be beneficial to PayPal for two reasons. First, it may encourage users to hold a larger amount of money in the form of PYUSD, and to hold it longer. Second, it could be spent without the underlying balance ever having to leave PayPal’s coffers. This would mean a smaller proportion of PYUSD users would cash out to actual dollars at any given point, leaving PayPal a higher proportion of Treasury or other interest as revenue.
If PYUSD catches on, it could be at least as important to PayPal’s corporate strategy as it is to the crypto sector.