Borderless cryptocurrencies have introduced an affordable, rapid, and convenient method for executing cross-border payments. Among these digital assets, stablecoins stand out due to their non-volatile pricing, high liquidity, US dollar accessibility, and worldwide acceptance. These features have made them immensely popular for remittances. It was no surprise when the renowned online payment company PayPal launched its own stablecoin, PayPal USD (PYUSD), in 2023.
Today, users can employ the PayPal stablecoin for international transfers without concerns about banking holidays, currency conversion fees, or remittance charges. This guide explores everything you need to know about PYUSD and its practical applications.
What Is the PayPal USD Stablecoin?
PayPal USD is a cryptocurrency token pegged to the US dollar. As a stablecoin, it is engineered to maintain a consistent value of $1. The stablecoin is fully backed by US dollar cash deposits and short-term US treasuries, ensuring it is redeemable on a 1:1 basis for US dollars.
Developed in collaboration with Paxos, a blockchain technology company, PYUSD is issued on both the Ethereum and Solana blockchains. Importantly, while PayPal facilitates its use, the collateral backing PYUSD is held in custody by Paxos, which also publishes monthly attested reports on the reserves.
Currently, PYUSD is the exclusive stablecoin available on PayPal and its owned payments app, Venmo. According to PayPal, this digital asset aims to reduce friction in virtual payments, enable fast value transfers for remittances, support international payments, and drive broader adoption of digital assets.
How Does PYUSD Function?
PYUSD operates on the Ethereum and Solana blockchains. These public blockchains host thousands of crypto assets and rely on a decentralized network of validators rather than a central operator. These validators ensure transactions and account balances are managed transparently and honestly.
A significant advantage of cryptocurrencies like PYUSD over traditional financial assets is their availability for trading and transfer 24 hours a day, seven days a week. The decentralized validator network ensures continuous operation without interruptions.
How to Use PYUSD on PayPal
PYUSD offers multiple functionalities within the PayPal ecosystem:
- Purchase listed cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH).
- Transfer PYUSD to friends on PayPal without incurring fees.
- Make payments at online stores that accept PYUSD.
- Send PYUSD to external crypto wallets.
Users can hold PYUSD in their PayPal or Venmo wallets. Additionally, transfers to supported crypto exchanges and self-custodial wallets are possible. However, initiating on-chain transactions—such as transferring PYUSD to an external wallet—requires paying gas fees. These fees compensate blockchain validators and vary based on network congestion.
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Risks Associated with PayPal’s PYUSD Stablecoin
Like all cryptocurrencies, PYUSD carries risks, including smart contract vulnerabilities, market volatility, and potential hacks. However, the most prominent risk at present is regulatory uncertainty.
Global regulators have expressed concerns about stablecoins' growing influence and potential threats to financial stability. Regulations such as the Markets in Crypto-Assets Regulation (MiCA) in the European Union are emerging rapidly. In the US, the Securities and Exchange Commission (SEC) has taken legal actions against major crypto firms, including Binance, Coinbase, and Kraken.
PayPal itself received an SEC subpoena in late 2023 regarding PYUSD. The company’s terms of service explicitly state that support for PYUSD may be discontinued at any time, requiring users to sell or transfer their tokens elsewhere.
Despite these challenges, some policymakers believe compliant stablecoins like PYUSD could become a cornerstone of modern payment systems, offering efficiency and robust consumer protections under clear regulations.
How to Purchase PayPal Stablecoin
PYUSD can be acquired directly through the PayPal app using fiat currency or other cryptocurrencies. As an on-chain asset, it is also available on numerous centralized and decentralized exchanges.
Centralized exchanges like Coinbase, Kraken, and Crypto.com offer PYUSD, as do decentralized platforms such as Uniswap and Jupiter. When purchasing on decentralized exchanges, users must ensure they have sufficient tokens to cover gas fees and verify the blockchain network compatibility, as Ethereum-based PYUSD tokens are not interchangeable with those on Solana.
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The Bottom Line
The launch of PayPal’s PYUSD stablecoin in August 2023 marked a significant milestone in crypto adoption. It represented the first major stablecoin initiative by a leading payment company since Meta’s abandoned Libra project. The future of PYUSD and similar assets hinges on the development of clearer regulatory frameworks, which will enable users to fully leverage the speed and cost-efficiency of stablecoins for daily and cross-border transactions.
Frequently Asked Questions
What is the primary use of stablecoins in PayPal?
Stablecoins like PYUSD on PayPal are designed for seamless digital transactions. They enable users to make instant transfers, pay for goods online, and convert between cryptocurrencies without exposure to price volatility. Their primary use cases include remittances, international payments, and everyday digital purchases.
What is the main purpose of PYUSD?
PYUSD aims to combine the stability of the US dollar with the flexibility of cryptocurrency. It allows users to engage in borderless transactions, avoid traditional banking delays, and reduce fees associated with currency conversions and international transfers.
Is PayPal USD crypto a good investment?
PYUSD is intended as a stable medium of exchange rather than an investment vehicle. Its value is pegged to the US dollar, meaning it does not appreciate like volatile cryptocurrencies. It is best used for transactions, savings within the crypto ecosystem, or as a hedge against market fluctuations.
How secure is PYUSD?
PYUSD is backed by US dollar reserves and short-term treasuries, providing a high level of stability. However, users should remain aware of regulatory developments and potential changes in PayPal’s support policy. Practicing secure storage and transaction habits is also recommended.
Can I use PYUSD outside of PayPal?
Yes, PYUSD can be transferred to external wallets and traded on supported crypto exchanges. This interoperability allows users to leverage broader blockchain ecosystems while maintaining the stability of a dollar-pegged asset.
What are the transaction fees for using PYUSD?
Internal transfers between PayPal users are fee-free. However, transferring PYUSD to external wallets or exchanges incurs gas fees, which vary based on the blockchain network and current demand.