PayPal's Bid to Make a Stablecoin

Politics at the precipice of the convergence of Web3 and payments.

Now that it’s official that Facebook’s centralized Libra/Diem project has been a failure, there’s still a brief window for others to create a stablecoin before Biden’s administration regulates them.

Bankers are starting to believe Web 3.0 and in particular stable coins could pose a threat to their dominance and even financial regulation itself. It’s no secret that PayPal is considering the launch of its own cryptocurrency stablecoin as a way to make and accept payments and it has among the best chances to implement it.

“We are exploring a stablecoin; if and when we seek to move forward, we will of course, work closely with relevant regulators,” Jose Fernandez da Ponte, senior vice president of crypto and digital currencies at PayPal (January, 2022).

If Meta’s Diem project was doomed (Facebook/Libra) due to the opposition of Congress, regulators and incompetence, PayPal understands payments and the regulatory mechanism very well.

With the second Bitcoin Bull Market, Biden’s administration will have to take another look at so-called Web 3.0 and how to better regulate it. So why stablecoins becoming dominant from crypto aren’t very likely, a FinTech leader such as PayPal could make it happen more realistically.

As of 2021, PayPal has 392 million active users. That’s along with more than 30 million merchants. It’s that kind of scale that makes it more practical for a trial stablecoin by PayPal. PayPal’s stock is down over 40% in the last six months. During the company's third-quarter 2021 earnings call, management provided sales guidance of $30 billion for 2022 that disappointed Wall Street. Rumour of it acquiring Pinterest led to investors souring on it.

PayPal has clarified that the source code found on its iPhone app was developed in an internal hackathon, that insinuated a Stable coin was in the works. The indication arrived after developer Steve Moser discovered references to something called “PayPal Coin” within the company's iOS app, which also featured PayPal's logo in it. Stablecoins have grown in popularity for making transfers between exchanges and crypto use in day-to-day commerce.

PayPal and the Narrow Window of Stable Coins before Central Bank Digital Currencies dominate

PayPal understands that threat that Block poses upon its ecosystem among others. In fact all the big payment providers have made strides to integrate crypto in recent years. Web 3.0 has encroached upon the payments industry, FinTech and even banking and financial services.

However from a regulatory point of view, the stronger CBDCs get, the more stablecoins will be regulated. China’s digitual yuan is already the global leader in digital money. The digital yuan or e-CNY is a digital version of China's sovereign currency and has been in the works since 2014 and has made a lot of progress in 2022. Since the U.S. is a laggard in a CBDC, Paypal has a narrow window to implement a stable coin before then.

PayPal and Web 3.0.

To remain relevant Paypal needs to become a Web 3.0 leader, as far fetched as that sounds today. It could and should acquire Bakkt. PayPal itself has well over 350 million active users and already lets users in the U.S. and United Kingdom buy, sell and hold Bitcoin (BTC), Ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTC) while enabling payments in these crypto assets.

PayPal launching its own stablecoin would “definitely open up cryptocurrency to more people” who “have not had the inclination to really figure out this niche space.” The problem is its complicated and a regulatory crackdown on Stablecoins in 2024 is very likely. It’s a calculated risk.

The Regulatory Backdrop in Washington

In November, 2021 The Biden administration said that stablecoins, a type of digital asset pegged to traditional currencies, could transform the way Americans pay for everything from cell phones to haircuts. Still, President Joe Biden’s economic advisors said Congress should pass legislation that limits stablecoin issuance to insured banks.

When regulated, stablecoins could “support faster, more efficient, and more inclusive payments options,” said the President’s Working Group on Financial Markets, which includes several top economic advisors to President Joe Biden. With many countries and their Central Banks having CBDCs in the works, I think Joe Biden is referring to a central bank version of a stablecoin and not one owned by any one company like Meta, PayPal, Block, Amazon or Apple.

• Stablecoins are a type of cryptocurrency that is backed by a cache of fiat currency — normally dollars — or highly liquid assets, to maintain a stable $1 to $1 peg.

• A PYMNTS/Stellar Development Corporation study released in September 2021 sized the fees associated with U.S. outbound remittances at 3.5 billion, on average. Stablecoins could reduce the fees and improve the speed of those remittances, while at the same time, giving PayPal users on both ends of the transaction another reason to favor PayPal as their Super App.

Stripe is a Stable Coin Dark Horse

A company that could be primed to create a stablecoin is also Stripe. Stripe is the most important payments company that is not gone public yet. In March, 2021 Stripe was valued at $95 Billion although by now that would be well over $100 billion. In October, 2021 Stripe was recruiting for a new crypto team.

For PayPal if it truly does want to create a super-app, a stable coin would be necessary to on-board more users. I’m sure it understands this from a marketing and sales perspective. Just as Ant Group now understands that being too disruptive to banks is not always a good thing.

PayPal has engaged in a major cryptocurrency effort in recent months, launching new features to buy and hold the digital coins as well as the ability to pay for purchases using the monies. However it seems likely that PayPal’s potential in building a Stable coin will likely result in failure due to the competitive and regulatory pressures. PayPal while wildly successful is not considered a pioneer in Web3 inclusion or early adoption.

Since PayPal began letting US users buy, sell, and hold cryptos through its app in November 2020, it’s launched several payment-adjacent crypto solutions. It’s late to the party and a Stablecoin would be an unlikely cherry on the top for its efforts. PayPal isn’t the first technology giant to explore launching its own coin, but it is one that’s well positioned to actually do so, if it was given a regulatory green light.

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