PayPal has launched a new cryptocurrency that is tied to and backed by the US dollar.
PayPal USD, issued by Paxos Trust Company, is a type of digital currency called a stablecoin, which differs to other cryptocurrencies like bitcoin as their values are tied to traditional fiat currencies like dollars, pounds or euros.
“The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar,” said PayPal chief executive Dan Schulman.
“Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.”
The new crypto token will roll out first to US PayPal customers, offering the ability to send and transfer PayPal USD to other people, as well as fund purchases when checking out at online stores.
The new cryptocurrency comes at a time of increased scrutiny at the crypto industry, with regulators looking to avoid a repeat of the TerraUSD stablecoin collapse that wiped tens of billions of dollars from markets in 2022.
The TerraUSD token was also pegged to the US dollar, however unlike PayPal USD it was not backed up by any dollar reserves. Instead, it used a partner cryptocurrency to maintain its value algorithmically, which ultimately caused both cryptocurrencies to crash in tandem.
Other companies have also attempted to launch stablecoins, including Facebook’s Libra project, which was shut down last year after facing push back from regulators.
The US House Financial Services Committee has since advanced a bill aiming to set up a federal framework for stablecoins in order to integrate them into modern payment systems.
“We are currently at a crossroads to keep America at the forefront of digital asset innovation,” US Representative Patrick McHenry, who chairs the committee, said in a statement following PayPal’s announcement.
“Congress is making significant, bipartisan progress on legislation to ensure the US leads the financial system of the future.”
