When Facebook’s Libra stablecoin was announced in 2019, it seemed like a winner. The crypto token was supposed to allow users worldwide to send and receive money without needing a social media account. A basket of fiat currencies would back it to ensure stability and be overseen by various companies from the payments, telecommunications, and tech sectors. The idea was that cryptocurrency could help unprecedentedly reshape cross-border remittances, international commerce, and other financial services.
But the project failed. The cryptocurrencies backing Libra—LunaUSD, TerraUSD and Luna—couldn’t hold their value, and the tokens quickly lost market value after the launch. That led to criticism of the stablecoin as a Ponzi scheme and fueled broader concerns about the sector. A few months later, Libra was dropped, and the companies behind it refocused their efforts on other projects—most of which have since shut down.
The failure of Libra prompted renewed skepticism about cryptocurrencies, and the public’s aversion to volatility in the markets weighed heavily on their value. It also threw the entire industry into a tailspin that saw the price of Bitcoin plunge below $5,000 for much of last year.
Against that backdrop, PayPal’s (PYPL.O) announcement this month that it was launching a stablecoin—called PayPal USD—is likely to find more success. The payment giant’s standing in Washington and policymakers’ more significant understanding of the issues in the last three years should give it a much better shot at getting its coin off the ground than Libra did.
PayPal, a longtime established player in the financial space that operates in most countries worldwide, has a far more robust lobbying operation than Facebook did when it first launched its stablecoin. Last year, the company spent $1.13 million on federal lobbying, according to data provider OpenSecrets. The payments firm has also worked with financial regulators on stablecoin regulation for several years.
It will be a different approach for PayPal to take with PYUSD, which it plans to offer through its Venmo app and other sites. Instead of being backed by the social network, digital trust company Paxos will anchor it to the dollar. According to PayPal, the token’s reserve assets will be publicly disclosed monthly, and an attestation from an independent third party will be provided.
As a result, the token will be more trustworthy than a stablecoin backed by an algorithm or the whims of investors. That might not be enough to make it a hit, but it should help it gain traction and bolster its credibility in the market. That could speed its shift to deposit interest revenue instead of crypto trading, which has hurt its bottom line in recent years. It might even hasten the shift to a new era for the global payments industry, one that’s based on blockchain technology but doesn’t require a central authority. The industry can only hope.