Digital Transactions Authoritative, insightful and timely information for payments professionals
The wild—and somewhat unpredictable—swings in value that beset digital currencies have begun to lead major payments players to consider a promising alternative: stablecoins, so named precisely because their values are pegged to a national currency, such as the U.S. dollar. Early on Thursday, PayPal Holdings Inc. and Ripple Labs Inc. separately announced initiatives that will involve cross-border transfers funded by stablecoins and, in Ripple’s case, the launch of a first-time stablecoin initiative.
In PayPal’s case, the San Jose, Calif.-based payments company said its Xoom cross-border payments service will, starting Thursday, enable U.S. users to send money funded by the stablecoin USD, which is denominated in U.S. dollars. More specifically, the new service will let PayPal users convert PayPal’s own stablecoin version, PYUSD, to USD and then use the USD to fund the transfer. Recipients will receive funds converted from the USD to their own currency.
Users of the PayPal app can start a transfer with the “Send Money” button, the company says. They then choose a destination country, enter the recipient’s account or mobile-wallet data, choose PYUSD as the payment method, and confirm the conversion of PYUSD to USD. The USD goes into the user’s PayPal balance at that point. Recipients get the money in the fiat currency the sender selects.
The new service opens to users the roughly 160 countries that Xoom covers, PayPal says, with no transaction fee so long as funds are received in USD. If previously converted to another currency, the transaction will incur an exchange fee, PayPal says. PayPal relies on Paxos Trust Co. LLC to issue and hold custody of PayPal USD. Xoom has been a PayPal property since November 2015.
Jose Fernandez da Ponte, PayPal’s senior vice president for the blockchain, cryptocurrency, and digital currency group, says in a statement the company hopes the new money-transfer service will help build consumer confidence in cryptocurrencies generally. The service is also intended to offer an “easy” method to send money abroad “at a lower cost,” he says.
Ripple, based in San Francisco, says its plan to launch a stablecoin is the first such venture in its 12-year history. The coin will be fully backed, the company says, by U.S. dollar deposits as well as by short-term treasuries and some other cash equivalents.
The launch, which Ripple says is “expected to be later this year,” is intended to meet what the company sees as “growing demand.” It cites figures indicating the value of the stablecoin market stands at $150 billion, with the potential to grow to $2.8 trillion within four years.
With the launch, the company says it hopes to “continue bridging the gap between traditional finance and crypto,” according to a statement by Brad Garlinghouse, Ripple’s chief executive. The initiative’s reserve assets will be audited by a “third-party accounting firm,” Ripple says, and the new coin will be issued on the company’s XRP ledger as well as on Ethereum.
These initiatives come as the Federal Reserve begins to look upon stablecoins with a somewhat skeptical eye, leading some officials to point to a need for regulation. A senior official at the Fed said late last summer stablecoins, if not federally regulated, could “pose significant risks to financial stability, monetary policy, and the U.S. payments system.” That regulatory effort, he added at the time, was already under way with a review of the private stablecoin market.
