Analyzing PayPal's stablecoin PYUSD | Profit mechanism, use cases? What are its advantages compared to USDT?

In the latest episode of the podcast "Unchained" hosted by crypto journalist Laura Shin, PayPal's Senior Vice President of Blockchain, Cryptocurrency, and Digital Currencies, Jose Fernandez da Ponte, was invited for an interview. During the interview, they discussed the use cases, profit mechanisms, and future development plans of PYUSD, as well as compared its advantages to stablecoin predecessors like USDT and USDC.

Vision and Use Cases of PayPal's Stablecoin PYUSD

At the beginning of the program, Laura directly asked about the vision behind PayPal's stablecoin PYUSD.

Jose explained that PayPal's overall vision has always been to serve as a bridge between fiat currency and Web3, aiming for mainstream adoption in the payment system.

"We do see stablecoins as a killer app in the blockchain space right now, and they are very closely related to the payment markets we care about," said Jose.

Laura then inquired about how PYUSD will be used by people and in which areas it will be utilized.

Jose mentioned that PayPal believes the fundamental elements of digital currencies are well-suited for payments, with inherent advantages related to costs, programmability, and settlement times. While much of the discussion focuses on the cost of each transaction, PayPal is more interested in settlement times, as faster payment speeds mean lower costs.

Jose presented three use cases for PYUSD, which are:

1. Remittance services
2. B2B payments
3. Digital goods payments

Firstly, for PayPal's remittance service "Xoom," Jose mentioned that the integration between remittances and digital currencies is already in progress. Next is B2B payments, where Jose used an example of an exporting company that receives payments from abroad, highlighting the advantage of instant settlement times over the three to five days required for traditional wire transfers. Lastly, for digital goods, Jose cited popular games like Minecraft and Roblox, where sellers of digital goods within the games may need up to 15 days to settle and receive their earnings. Therefore, achieving in-game, digitally native, and instant settlements would provide a significant advantage for PayPal's PYUSD.

Additionally, Jose added that while PYUSD is currently only available in the PayPal wallet, the team is accelerating the product's promotion and aims to make PYUSD available on mainstream exchanges. Once this goal is achieved, crypto users can use PYUSD in traditional use cases, such as in DeFi protocols.

Differentiating PayPal's Stablecoin PYUSD from USDT and USDC

Initially, Laura was curious about how PayPal's stablecoin PYUSD distinguishes itself from the current mainstream stablecoins.

Jose outlined three key advantages of PYUSD, which are:

1. Strong ecosystem support from PayPal
2. Conversion between fiat currencies
3. Regulatory compliance

Firstly, PYUSD is the only stablecoin accepted within PayPal's ecosystem, which will eventually include Venmo, PayPal's mobile payment service. This means that millions of consumers and merchants will have access to using PYUSD for payments.

Furthermore, compared to the usual process of converting between fiat and stablecoins through wallets and exchanges, which often incurs fees, PayPal's established bank connections over the years will be advantageous. Users can sell PYUSD and transfer the proceeds to their PayPal balance for withdrawal to a bank account.

Lastly, PYUSD is issued by the New York Trust Company Paxos, and PayPal brings its 20 years of experience in online fraud prevention and financial crime prevention, reducing the likelihood of regulatory and fraud-related risks for PYUSD.

Development Plans and Reserve Reports for PayPal's Stablecoin PYUSD

Considering that PYUSD was initially launched in the United States, Laura asked how PayPal plans to expand PYUSD to other countries and whether they will introduce stablecoins pegged to other fiat currencies.

In response, Jose mentioned that the immediate goal is to enable PYUSD in the Venmo wallet, so the focus remains on the United States. While international expansion is being considered, there are no plans yet to introduce stablecoins pegged to local currencies.

So, how will the monthly reserve reports for PYUSD be presented?

Jose stated that the reserve reports for PYUSD will be similar to those of other stablecoins issued by Paxos, verified by third parties, and will include the amount and composition of reserves. Taking the example of the reserve report for USDP, PYUSD will have a monthly reserve report released by Paxos and a reserve accounting report by a third-party institution.

Profit Mechanism of PayPal's Stablecoin PYUSD

For mainstream stablecoins, attracting user deposits and utilizing them to purchase investment products such as treasury bonds has been a viable and relatively stable profit method. Additionally, transaction and deposit fees make stablecoins a profitable business.

Regarding the profit mechanism, Jose acknowledged the validity of the mentioned method, especially in a high-interest rate environment. However, he also emphasized that profitability should not be solely reliant on these methods. He expects that once stablecoins are widely adopted, profits will be generated through means more akin to traditional payment businesses, such as offering merchant discount rates and charging fees when merchants opt for stablecoin settlements.

Furthermore, purchasing other cryptocurrencies within the PayPal ecosystem incurs transaction fees, but trading and transferring PYUSD will be free, excluding Ethereum network fees.

How will PayPal's Stablecoin PYUSD be Presented in the App?

Lastly, Laura inquired about how PYUSD will be presented for user utilization within PayPal.

Jose explained that PYUSD will be presented in two different ways:

1. In the cryptocurrency section, users will see the tokens supported by PayPal, among which PYUSD will be included, allowing users to buy, sell, and transfer to external wallets.
2. During checkout, PYUSD will be offered as a new payment option, without any specific promotion by the platform, serving as one of the diverse payment choices.