WASHINGTON (Reuters) – PayPal’s stablecoin is expected to succeed where Facebook’s failed, thanks to the payment giant’s influence in Washington and policymakers’ increased understanding of the issues over the past three years.
In this month, PayPal announced the launch of PayPal USD, a cryptocurrency token tied to the U.S. dollar, marking the second major global company to introduce a stablecoin since Facebook, now known as Meta Platforms, revealed Libra in June 2019.
Although the move seems risky after the political opposition that crushed Facebook’s stablecoin and the intensified regulatory focus on the crypto sector following multiple collapses, PayPal holds a stronger position, according to former officials, executives, and analysts. Policymakers are now more familiar with stablecoins, which are crypto tokens typically pegged to a fiat currency, compared to their understanding in 2019. The push for federal stablecoin regulations has also contributed to their legitimacy in the eyes of lawmakers.
“The world has changed dramatically since Facebook’s Libra project. There was no familiarity with stablecoins whatsoever,” said Christopher Giancarlo, former chair of the U.S. Commodity Futures Trading Commission.
“Since then, the administration, Congress, and the Federal Reserve have had time to understand stablecoins and stablecoin regulations, and there has been extensive public relations by the industry, including a lot of lobbying.”
In contrast to Facebook, which faced sustained scrutiny over privacy issues and Russian election interference, PayPal is an established financial player in Washington. According to OpenSecrets, it spent $1.13 million on federal lobbying last year and has been lobbying on cryptocurrencies for several years.
“From a policy perspective, there is a seismic difference between Facebook’s Libra and PayPal’s stablecoin,” said Isaac Boltansky, director of policy research for brokerage BTIG.
“There is still a separation between banking and commerce, so knowing that PayPal is very clearly on one side of that separation should assure lawmakers.”
Both PayPal and Meta declined to comment on the matter.
PayPal USD will be issued by digital trust company Paxos Trust, backed by dollar deposits and U.S Treasuries, and will be subject to oversight by the New York State Department of Financial Services.
The decision to launch a stablecoin was driven by PayPal’s belief that it is a leader in payment innovation, as stated by an individual familiar with the plan. CEO Dan Schulman has also expressed his vision that the stablecoin will eventually be used for payments. However, the source mentioned that PayPal expects the stablecoin to be primarily utilized by U.S. customers to buy and sell other cryptocurrencies on its platform.
Dan Dolev, a senior analyst at Mizuho, stated that PayPal USD is not a game-changer for PayPal investors. “It’s positive noise,” he added.
Although some policymakers have raised concerns, such as Maxine Waters, the top Democrat on the House Financial Services committee, who expressed alarm that PayPal is launching a stablecoin without federal oversight to protect consumers and financial stability, the reaction in Washington has mostly been subdued.
When Facebook unveiled Libra, executives openly declared their ambitions to revolutionize the global financial system with a stablecoin pegged to a basket of currencies and based in Switzerland. However, the project faced severe opposition from policymakers who feared that Libra would grant Facebook excessive control over the monetary system and intrude on user privacy. Regulators were uncertain about who should oversee stablecoins.
Facebook rebranded Libra, scaled it back, and relocated the project to the United States in an effort to gain U.S. regulatory approval. However, in January 2022, Facebook sold the venture due to delays in receiving approval. The decision on approving Libra was said to coincide with the transition to President Joe Biden’s administration, which ultimately fell to Treasury Secretary Janet Yellen, who wanted more time to thoroughly analyze the issues.
The White House and the Federal Reserve declined to comment, but a Treasury spokesperson noted that Yellen has consistently called on Congress to establish a comprehensive regulatory framework for stablecoins.
Over the past two years, the Treasury has conducted studies on stablecoins. After the collapse of TerraUSD last year, Yellen stated that stablecoins do not pose systemic risks. Subsequently, concerns that stablecoins could replace traditional money have diminished, and the Treasury and Congress broadly agree that prudential regulators should oversee them.
“There’s been an awful lot of work done… to understand what the proportional risk of these things is,” said Jack Fletcher, head of policy and government relations at blockchain company R3.
This month, the Federal Reserve outlined the process for state banks to transact using stablecoins, while the House Financial Services committee advanced a bill last month to grant the Fed more authority to oversee stablecoins while preserving state regulators’ power. The committee’s Republican chair, Patrick McHenry, stated in response to PayPal USD that Congress should quickly pass that bill, “enabling stablecoins to achieve their full potential.”
(Reporting by Hannah Lang in Washington; Additional reporting by Andrea Shalal and Pete Schroeder in Washington, and Niket Nishant in Bengaluru; Editing by Michelle Price and Matthew Lewis)
Credit: The Star : Tech Feed
