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(Kitco News) – The launch of PayPal’s new stablecoin PayPal USD (PYUSD) has so far met with a muted reaction from investors as crypto advocates have opted to continue investing in Tether (USDT) and USD Coin (USDC), the two leading stablecoins , to be used by market capitalization.
PYUSD, issued by stablecoin provider Paxos Trust Company, is fully backed by US dollar deposits, short-term US Treasury bonds, and similar cash equivalents. PayPal received a BitLicense from the New York State Department of Financial Services (NYDFS) in June, allowing them to issue the stablecoin in partnership with Paxos.
According to insights from blockchain analytics firm Nansen, on-chain data shows that currently around 90% of PYUSD is held in Paxos-controlled wallets, and holdings on crypto exchanges account for almost 7% of the total supply.
That means only 3% of PYUSD supply is currently in everyday investors’ digital wallets, a sign that the public isn’t too keen on another centralized stablecoin right now.
“On the surface, there is a lack of demand for PYUSD from crypto users when there are other alternatives (possibly due to PayPal targeting a different audience),” Nansen’s report said. The largest single holder of PYUSD owns a stablecoin worth less than $10,000, and fewer than ten holders, with no contracts or exchanges, have balances greater than $1,000.
While PYUSD adoption has been slow to begin with, the payment provider is working hard to change that by partnering with cryptocurrency exchanges to increase access. Kraken listed the stablecoin just three days after its launch, and Coinbase announced on Thursday that it would be adding support for the token.
Coinbase’s endorsement followed an exchange’s announcement that users in Germany and the UK can now link their PayPal accounts to Coinbase for “seamless crypto transactions.”
In a report published shortly after PYUSD’s debut, Bank of America said that over time the new stablecoin would likely help improve efficiency in the crypto market, but that adoption would be slow to begin.
“We anticipate that PYPL’s PYUSD launch will increase payment efficiency and improve customer experience over time, but PYUSD launch is unlikely to be significant in the near future due to wallet compatibility, exchange trading pairs or lack of new features,” Bank of America said. “In the longer term, we expect PYUSD to face additional headwinds in launch due to competition from CBDCs [central bank digital currencies] and profitable stablecoins are increasing.”
They added, “When interest rates were near zero, investors might have been fine holding non-yielding stablecoins like USDT and USDC, but yielding stablecoins are likely to become more available and attractive once short-term interest rates are above 5% . .”
According to Jose Fernandez da Ponte, PayPal’s senior vice president of blockchain, the company’s initial plan to increase adoption of PYUSD is to make the stablecoin available on the largest cryptocurrency exchanges and decentralized finance (DeFi) platforms.
“I think DeFi will be part of the first wave in the sense that we want to go where crypto users are using stablecoins today, and DeFi is a use case for that,” da Ponte said. “We’re continuing to develop the product, but the intention is definitely that it will be available on the main exchanges and when that distro is available people can use it for the traditional use cases.”
These plans also appear to have been slow to get off the ground, as on-chain data shows that the available liquidity pools on decentralized exchanges, such as Uniswap’s PYUSD/wETH and PYUSD/USDC, contain fewer than 50,000 tokens.
Despite its muted adoption so far, PayPal remains committed to increasing PYUSD adoption, and several analysts have suggested that the stablecoin will help increase adoption of digital assets and, over time, attract new users to the cryptocurrency ecosystem bring to. This is because the platform has a global user base of 350 million users and only a small portion of these users have interacted with cryptocurrencies through PayPal so far.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee its accuracy. This article is for informational purposes only. It is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article assume no liability for any loss and/or damage arising from the use of this publication.
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