The US payments giant PayPal could succeed with its cryptocurrency PayPal USD where the social network Facebook had failed with its cyber motto. Because PayPal has lobbied extensively in Washington and is therefore in a stronger position than Facebook, well Meta, when it launched its cryptocurrency Libra in 2019, former employees, executives and analysts said.
Moreover, politicians are now better informed about the so-called stablecoins. Attempts to create nationwide regulation of stablecoins in the US also mean that such cybercurrencies, which are typically pegged to an existing currency, have gained legitimacy in the eyes of lawmakers.
“The world has changed dramatically since Facebook’s Libra project,” said Christopher Giancarlo, former head of the US Commodity Futures Trading Commission. At the time, people were completely unfamiliar with stablecoins. Since then, the government, the US Congress and the US Federal Reserve have had time to deal with cryptocurrencies and their regulation. “And the industry has done a lot of public relations, including a lot of lobbying,” he added.
Pegged to the US dollar
PayPal recently announced that it would be launching a dollar-pegged cryptocurrency called PayPal USD. The payment service provider is the second major US company after Facebook to introduce a stablecoin. When Facebook announced it in 2019, it faced fierce backlash from governments and regulators around the world, and the project was eventually shelved.
But while the social network has come under repeated scrutiny in Washington over data protection issues and Russian meddling in the election, PayPal is considered an established financial services company there. According to the nongovernmental organization OpenSecrets, PayPal spent $1.13 million on federal lobbying last year. The PayPal stablecoin, issued by trust company Paxos Trust, is backed by dollar deposits and US Treasury bonds and is overseen by the New York State Financial Services Commission (NYSDFS).
“Politically, there is a huge difference between Facebook’s Libra and PayPal’s stablecoin,” said Isaac Boltansky, director of policy research at brokerage firm BTIG. There is still a clear separation between banking and trading. “Knowing that PayPal is clearly on one side of that wall should therefore reassure lawmakers.”
“It’s Positive Sound”
PayPal bills itself as an innovation leader in payments, and CEO Dan Schulman hopes the cryptocurrency will prevail as a form of payment, said someone familiar with PayPal’s plans. However, the group assumes that US customers will initially mainly use the stablecoin to trade other cryptocurrencies on its platform. The planned cryptocurrency is therefore not a groundbreaking novelty for PayPal investors, said Dan Dolev, an analyst at Mizuho. “It’s positive sound.”
Concerns remain among some policymakers. For example, Maxine Waters, a leading Democrat on the US House Financial Services Committee, expressed concern that PayPal would launch a stablecoin without government oversight from federal agencies to protect consumers and ensure financial stability. Most reactions in Washington, however, were muted.
Facebook had big ambitions
When Facebook presented Libra, headquartered in Switzerland and linking the cyber currency to a basket of currencies, the group made no secret of its ambitions and publicly stated that it wanted to revolutionize the global financial system. This immediately led to fierce political resistance. Fears were high that the social network would gain too much control over the monetary system and violate user privacy. Supervisors were also put on the wrong track, because it was unclear who was actually responsible for it.
Facebook eventually downsized the project, renamed it Libra Diem, and moved the company to the US to seek approval from local authorities. According to a former official with knowledge of the matter, this coincided with the transition to the administration of US President Joe Biden in January 2021. The US Federal Reserve had been dealing with the issue for some time, but the decision ultimately fell into the hands of the new Treasury Secretary Janet Yellen. But Yellen wanted time to analyze the case thoroughly, the insider said. Tired of waiting, Facebook eventually sold the project in January 2022. The White House and the Fed declined to comment on this information.
Cryptocurrency has long been a subject for regulators
The U.S. Treasury Department has been digging deep into cryptocurrencies over the past two years, and Yellen has repeatedly called on the U.S. Congress to create a comprehensive regulatory framework, according to a spokesman for her department. After the collapse of cybercurrencies TerraUSD last year, Yellen said that such cryptocurrencies do not pose a systemic risk. Fears that such cybercurrencies could displace traditional money have since subsided.
The US Federal Reserve, meanwhile, has outlined a process for how state-owned banks should handle cryptocurrency transactions. The Financial Services Committee of the US House of Representatives introduced legislation in July that would give the Federal Reserve more powers to oversee stablecoins, while preserving the authority of state regulators. Congress must now act quickly to pass the bill “so that stablecoins can reach their full potential,” said Republican committee chair Patrick McHenry.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
