One month after its launch, here’s why PayPal USD has failed to gain popularity

According to revelations from Onchain data. PayPal’s recently released stablecoin, PayPal USD, is facing challenges gaining traction. 

Per findings from blockchain analytics firm Nansen, around 90% of PayPal USD is still held in stablecoin issuer Paxos Trust’s wallets. Which signals a lack of interest in the new digital currency.

Recall that a month ago, payments giant, PayPal, made an announcement that signals its entry into the world of blockchain with the launch of PayPal USD. 

According to the release, the stablecoin which is built on the Ethereum network, issued by Paxos Trust Co. is backed by United States dollar deposits and short-term US Treasuries. 

Read more: PayPal launches $PYUSD as it moves into stablecoin market

For the uninitiated, stablecoins are a type of cryptocurrency designed to have a stable value relative to a specific asset or a basket of assets, typically a fiat currency such as the US dollar, Nigerian naira, euro or Japanese yen. 

They are designed to offer a “stable” store of value and medium of exchange compared with more traditional cryptocurrencies like Bitcoin, which can be highly volatile. Fiat money, cryptocurrencies, and commodities like gold and silver are examples of assets used to collateralise or “back” stablecoins. The leading stablecoins in the space include the Tether-issued $USDT, Circle-issued $USDC, Binance’s $BUSD, $DAI and the defunct Terra’s $UST. 

Stablecoins combine the benefits of blockchain technology with the stability of traditional currency, effectively bridging the gap between conventional financial systems and the digital realm.

Back to the crux of the story. PayPal’s stablecoin entry weeks ago raised hopes for broader adoption and an introduction of cryptocurrencies to the masses. It is however now disappointing that early adoption metrics have proven to be abysmal. 

PayPal USD has failed to takeoff

Data says holdings of PayPal USD on crypto exchange wallets signify just 7% of the total supply. Analytics from Nansen show that on the surface there’s a lack of demand from crypto users for PYUSD.

Related post:

Here is how to detect fake PayPal Stablecoin tokens flooding the crypto market

Paxos, the issuer of PYUSD, holds 90% of the circulating supply and pools in decentralised exchanges like Uniswap and Pancakeswap representing less than 50,000 tokens. Further analysis of the top individual holders reveals a moderate level of interest, with the largest holder who isn’t an exchange or contract holding less than $10,000 worth of PYUSD. 

The Nansen data further shows that fewer than 10 holders, excluding contracts or exchanges, have a balance exceeding $1,000.

Per CoinMarketCap, there are 44 million PYUSD tokens in existence. However, DeFiLlama numbers indicate that most of the tokens have not been put into circulation, indicating a lack of active use. 

Do we need a PayPal stablecoin?

According to Lucky Uwakwe, a blockchain expert, who spoke with Technext PayPal stablecoin is not needed in the crypto space because it is not an innovation to the existing stablecoins in circulation. 

Lucky draws on PayPal’s reputation and methodology over the years in blocking accounts which could be an impediment to getting widespread acceptance. 

“For example, PayPal is expected to respect the laws of the United state of America. How can PayPal handle the fact that a crypto user that receives PayPal stablecoin sends that same stable coin to a receiver in Venezuela, North Korea, Zimbabwe or Iran?”

Aside from these concerns, PayPal has been highlighted to have made it clear at one point on seizing users’ funds without explanation to the user or clear explanation to the user, people’s accounts have been blocked or frozen simply because of IP address details changes.”

Read also: Lucky Uwakwe of Sabi Groups speaks on FTX crash and vulnerabilities of centralised exchanges 

Lucky Uwakwe believes that PayPal cannot efficiently run a stablecoin with its current brand because it has become too entangled with the traditional finance mode of operations. According to him, although PayPal has visibility and wide reach, the Fintech firm has to disassociate itself from the stablecoin ownership. 

“I don’t think the PayPal USD solution is novel aside from the fact that PayPal has a wider user base. PayPal stablecoin is not in any way better than USDT(tether) or USDC. It doesn’t offer anonymity or anything that make it better than the existing ones

As for the future, I think PayPal might be forced to shut down the operation.”

Though once anticipated as a potential rival to market leaders Circle and Tether, PYUSD has struggled to find traction and it doesn’t look to get better, at least in the near term. 

There are criticisms that the stablecoin is overly centralised, with no definite feature that distinguishes it from a CBDC. This in itself, would hinder adoption among core crypto enthusiasts.

With these factors, it is not likely that PYUSD would stand the test of time.