PayPal launches stablecoin – what will this mean for the ongoing regulation and adoption of cryptocurrency?

In spite of a tumultuous regulatory landscape for crypto-assets in the United States, PayPal has announced it is launching a stablecoin, PayPal USD, becoming the first global payment service provider to do so. The Ethereum-based token will become available to users in the US in the coming months, allowing users to transact between fiat and digital currencies, and connect to a range of wallets and Web3 apps.

What are stablecoins?

Stablecoins - whose value is tied to that of another currency, commodity, or financial instrument - are seen as a low-volatility means of connecting traditional and crypto markets. The benefits of stablecoins, increasingly adopted for their low-cost, real-time and corruption-resistant utility, allows traders to use them like cash, avoiding high fees and facilitating cross-border transactions without needing multiple bank accounts. They can connect unbanked individuals to the entire global financial system, and in some inflation-affected parts of the world, are already being used by approximately 1/3 of the population for everyday purchases. With the total value settled on stablecoins reaching over $7 trillion USD in 2022, their adoption is picking up steam. 

Are they globally recognised?

PayPal is the first of the global payment service provider to demonstrate the broad market appeal of stablecoins. International legislators and regulators are therefore unsurprisingly paying increasing attention to stablecoins, and their legal status is becoming slowly but progressively recognised, a considerable development following the tumultuous crypto-assets market of the past few years. We discussed in our last article that their international reputation is becoming more established, as evidenced by both the European Union's recent Markets in Crypto-Assets Regulation and the UK's stated intention to regulate stablecoins in advance of the possible introduction of a UK digital currency. Whilst there has been an unexpectedly muted response across the Atlantic - with only a handful of policymakers publicly remarking on the announcement - there are a number of stablecoin-related bills soon to hit the House floor. The U.S. is unlikely to want to fall behind in both regulating and benefitting from these new assets. Similarly, the recognition and regulatory stability afforded to stablecoins by international legislation will be integral to the technology delivering on its potential. 

In offering 24/7 instant settlements on a provably neutral, shared global ledger, stablecoins will become a core part of the global payments infrastructure over the coming decade. Whether the traditional financial markets embrace stablecoins or not, there is no doubt, stablecoins are about to go mainstream.

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