Accurately Assessing Cryptocurrency Stablecoins

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"Accurate Understanding of Cryptocurrency Stablecoins

Cryptocurrency stablecoins are pegged to a single sovereign currency or a fixed value, and they are generated by exchanging the pegged currency or its compliant assets. They carry special rights and obligations and are used within specific boundaries. In essence, stablecoins are the ""tokens"" of their pegged currencies. They require strict token reserves and regulatory oversight within their applicable scope, and they must not be used for credit operations.

PayPal's Introduction of Stablecoin

On August 7, 2023, American payment giant PayPal announced the launch of the ""Paypal USD"" (PYUSD) stablecoin. PYUSD is created using the ERC20 standard and is backed by US dollar assets, including cash deposits, US short-term government bonds, and other high-quality US dollar assets. It is hosted by Paxos Trust and can be deposited and redeemed 1:1 with the US dollar. Notably, PYUSD is the first cryptocurrency stablecoin issued by a major non-crypto payment company. PayPal's unique advantage lies in its extensive traditional payment infrastructure and a large user base, which can support the rapid adoption of PYUSD.

According to PayPal's press release, PayPal customers who purchase PYUSD will be able to:

1. Transfer PYUSD between PayPal and compatible external wallets.
2. Use PYUSD for face-to-face (P2P or C2C) payments on the PayPal platform.
3. Choose to use PYUSD to purchase exclusive funds at checkout.
4. Exchange PYUSD with any PayPal-supported cryptocurrency and vice versa.
5. Qualified PayPal users can purchase and transfer PYUSD for free.

The launch of PYUSD created significant excitement across the cryptocurrency, traditional payment, and e-commerce sectors. Some believe that it will usher in a different future for cryptocurrency applications and explore new models of digital payments. Others see it as a precursor to a digital US dollar that could significantly enhance the dollar's international influence.

How to View PayPal's Launch of PYUSD

The Emergence of Cryptocurrency Stablecoins

Since the launch of Bitcoin in 2009, cryptocurrencies have promised to disrupt or replace existing national sovereign credit currencies and their associated, multi-step, inefficient, and costly payment and clearing systems. However, the closed nature of Bitcoin's blockchain system, which is highly isolated from the real world, has limited its practical application. Bitcoin primarily serves as a cryptocurrency for limited use cases and is often criticized for its high energy consumption, low efficiency, and lack of scalability. This has led to the emergence of other cryptocurrencies like Ethereum and Solana, which offer more diverse ecosystems.

The Birth of Ordinals Protocol

Ordinals Protocol is a novel protocol that allows the creation of NFTs on the Bitcoin blockchain, breaking the limitations of Bitcoin's simplicity and expanding its capabilities. It has garnered attention and innovation within the cryptocurrency space.

Ordinals Protocol enables the creation and tracking of individual satoshis (the smallest unit of Bitcoin) based on their order of issuance. Each satoshi is assigned a unique ordinal number between 0 and 2,100,000,000,000,000 and can be associated with various content types, including images, text, videos, music, and code. Since its launch, over 27,000,000 Ordinals have been recorded, contributing to the rise in Bitcoin's price as users seek platforms to invest in the latest digital assets introduced to the crypto world.

The Birth of Stablecoins

Cryptocurrency exchanges started developing stablecoins, which are pegged to a single sovereign currency or a fixed value, allowing them to facilitate the exchange between various cryptocurrencies and national sovereign currencies. This led to the creation of stablecoins like USDT, USDC, GUSD, and more. Stablecoins have gained traction in the crypto space, contributing to increased trading activity and rising cryptocurrency prices.

Regulation of Cryptocurrency Stablecoins

Cryptocurrency stablecoins require strict oversight and regulatory compliance to ensure that they are backed by adequate token reserves and used within specified boundaries. They must not be used for credit operations that involve leveraging beyond their reserve holdings.

Conclusion

PayPal's introduction of PYUSD is not a challenging task, and it's not necessarily a game-changer. While it has the potential to impact existing stablecoins due to PayPal's user base, it will face increasing financial regulatory scrutiny. Additionally, PYUSD will primarily be applicable in countries that allow the circulation of the US dollar. In countries with strict foreign exchange controls, the use of PYUSD may still face significant limitations. Therefore, while noteworthy, PayPal's PYUSD launch should not be overemphasized."