Can a fintech company take over the crypto market?

PayPal Holdings, Inc. revealed 2 days back that they will be rolling out their own stablecoin: PayPal USD (ticker: PYUSD), becoming the first major US-based financial company to have its own USD-backed stablecoin.

But first, what are stablecoins? These are crypto tokens that are (at least) supposed to be pegged to the value of something. The most popular ones like the USDT and USDC are pegged to the USD (the USD being the global reserve currency). In theory, the price of these stablecoins should be $1. Most companies that issue this type of token claim they have cash in their coffers to back up the tokens issued by them.

Stablecoins are a major source of liquidity in the crypto ecosystem, with people converting cash into stablecoins first and then buying their desired cryptocurrencies. These can even be used to transact peer-to-peer, since the transactions are faster and maybe safer than traditional methods if done using proper channels.

But as with everything related to crypto, you can’t trust them blindly. A stablecoin named Terra USD (ticker: UST) went to almost zero in 2022 and people who invested in it lost all their money.

USDT, issued by Tether, is the biggest stablecoin in the world, with a market cap of around $80 billion. And what PayPal wants to do is increase the size of the pie of the stablecoin market by introducing its hundreds of millions of customers to the space. They already have the infrastructure for payments set up due to their work, they just have to use all of that to implement this into their ecosystem.

So this should mean a positive for crypto fanatics, right? In a way, yes. A regulated multi-billion dollar payments company coming into the industry would help with the validation, plus there is the matter of trust. And established companies could well help with the trust factor that one would have with the newer companies.

But there is also the factor of centralization to consider. Cryptocurrencies were based on the premise of decentralization (moving away from the control of a person/company or a group). With big companies entering the space, the decentralization factor could decrease, and more so, if they are the ones controlling liquidity through stablecoins.

Well, we’ll just have to see what happens. Meanwhile, stay safe and read more of my articles here. Subscribe for free to receive more posts like this every day! And do let me know if you want a specific topic covered.