PayPal announced that it is exploring the launch of its own stablecoin. But what could this mean for payments and regulation?
Q4 2021 hedge fund letters, conferences and more
Adam Nasli, head analyst of international broker comparison site BrokerChooser commented:
“PayPal announced in early January that it is exploring the launch of its own stablecoin. In recent years, PayPal introduced more services around digital currencies, such as buying and selling cryptos. We’ve also seen examples of exploring stablecoin by tech companies. For example, Meta Platforms Inc (NASDAQ:FB)’s sponsored stablecoin, called Libra/Diem, didn’t succeed and Facebook will sell all assets related to Libra/Diem to Silvergate Capital Corporation.
Stablecoins are cryptocurrencies that peg their value to an external asset. While most cryptocurrencies are really volatile in price, stablecoins could bring more stability in price by pegging its value to an asset or using methods to control the stablecoin supply.
The asset which is the collateral behind stablecoin can be
- a fiat currency, like USD or EUR,
- a cryptocurrency, like Ethereum,
- precious metal, real estate, and other assets.
There could also be cases when stablecoins are not backed by any asset but instead use methods to control the supply of the stablecoin.
Launching a stablecoin by a tech company, such as PayPal, would have multiple effects on payments and on our lives:
- Lower transaction costs and accessibility by a wide number of users are definitely the greatest benefits.
- It would create fierce competition between tech companies and banks, incentivizing banks to put more effort into digital currency developments.
- Stablecoins launched by private companies raise many regulatory questions. For example, there should be proper risk management behind stablecoins to ensure there is enough reserve. It could also limit the effect of monetary policy if such a stablecoin would be widely used in an economy.”
