JPMorgan: PYUSD Benefits Ethereum, But Stablecoin Regulatory Framework Still Uncertain

JPMorgan Chase stated that the launch of the stablecoin PYUSD by PayPal this week may benefit Ethereum by increasing its trading volume. However, it also warned that the regulatory framework for stablecoin issuers in the United States is still pending.

PYUSD May Fill the Gap Left by BUSD

According to a report by The Block, JPMorgan analyst Nikolaos Panigirtzoglou believes that the issuance of PYUSD could boost activity on the Ethereum chain and strengthen Ethereum's network effect as a stablecoin/DeFi platform.

In other words, PayPal's move is expected to encourage more companies to choose the Ethereum blockchain or its Layer 2 for issuing stablecoins or decentralized projects in the future.

Panigirtzoglou suggests that Ethereum could further benefit from PYUSD, as BUSD was ordered to stop issuance by the New York Department of Financial Services earlier this year. PYUSD may fill this gap, potentially shifting trading volumes from Binance Smart Chain to the Ethereum blockchain (or its Layer 2).

Critics Question Ethereum's High Gas Fees

However, some cryptocurrency experts criticize PayPal's choice of Ethereum as the chain for its stablecoin issuance due to its high transaction fees, known as Gas fees.

Co-founder of Sei Network, Jayendra Jog, aiming to develop a lower-fee Layer 1, stated:

Using PYUSD with high Gas fees would be absurd and would reduce its utility. To improve user experience, PayPal either needs to subsidize transaction costs or support PYUSD on networks with cheaper Gas fees.

Nevertheless, JPMorgan analyst Panigirtzoglou and his colleague Mayur Yeole believe that PayPal's entry into the stablecoin business will enhance the synergies between traditional finance and decentralized financial payment networks.

However, they caution:

The regulatory framework for stablecoin issuers in the United States is still uncertain, and the relatively loose compliance and regulatory framework enjoyed by fintech companies may change in the future.

Various opinions were also discussed yesterday, such as concerns about its code, Ethereum supporters' bullish views, and House Financial Services Committee Chairman Patrick McHenry's belief that stablecoins could become a new pillar of the payment system.

In addition, stablecoin issuers Circle and Tether have also shared their perspectives.