Exploring transformation of value in the digital age
By Michael J. Casey, Chief Content Officer
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Yet another part of the financial establishment is diving into crypto. This time it’s payments giant PayPal launching a stablecoin, known as PYUSD. Not everyone in Washington is happy with this, but, as I argue, resistance to this new round of initiatives now seems futile.
And… a friendly reminder to keep subscribing to this newsletter’s accompanying podcast, also under the name Money Reimagined.
PayPal’s Stablecoin Is No Libra
(Alex Wong/Getty Images)
This week, Rep. Maxine Waters, (D-CA) declared she was “deeply concerned” with payments giant PayPal for launching a stablecoin under the New York Department of Financial Services regulatory framework before federal legislation addressing such crypto instruments has been debated. The moment had echoes of the battle over the doomed Libra project, which Waters also vehemently opposed.
But the circumstances are quite different from four years ago, when Facebook, now known as Meta, rolled out a basket-based stablecoin to a barrage of regulator criticism around the world. The attacks were so heavy they ultimately stymied Libra’s advance, leaving it to wither and die, even after a radical redesign intended to appease regulators and a name change to Diem.
Libra was one of those rare issues that generated bipartisanship – in opposition to the project, rather than for it – in part because at that time other concerns about Facebook’s treatment of user data had turned it, briefly, into a pariah for politicians.
By contrast, the stablecoin industry now seems to have won over a decent number of backers in Congress, mostly from one side. Last month, House Republicans successfully pushed stablecoin legislation through the House Financial Services Committee. And, while its passage was more contentious than many had hoped, with Waters herself leading Democrat resistance, the bill seems likely to win support in the Republican-controlled House when it goes to a floor vote.
PayPal has now complicated the outlook for this bill’s passage through the Senate. I tend to agree with observers, cited in a piece by CoinDesk’s Jesse Hamilton this week, who argued that PayPal, in upsetting Democrats by jumping the gun on the legislation, will harden the resolve of the party’s anti-crypto crusaders in the Senate, such as Sen. Elizabeth Warren (D-MA). And that could halt the bill’s passage in the upper chamber, where Warren’s party controls the majority.
But in the grand scheme of things, PayPal’s project is in a far stronger position politically than the universally mistrusted Libra ever was. Republicans are thrilled that the payments company launched its stablecoin, known as PYUSD, at this moment. The bill’s sponsor, Rep. Patrick McHenry (R-N.C.), chairman of the House Financial Services Committee, called the move a “clear signal that stablecoins — if issued under a clear regulatory framework — hold promise as a pillar of our 21st-century payments system” and made it “more important than ever” to keep moving the legislation forward.
Just as importantly, PayPal’s move follows a slew of initiatives from financial establishment players to prod policymakers to support their own engagement in the crypto industry. BlackRock, Fidelity, Invesco and many more are now pushing the Securities and Exchange Commission to support newly revived submissions seeking approval of bitcoin exchange-traded funds (ETFs.) Meanwhile, Charles Schwab, Fidelity and Citadel are jointly seeking regulatory approval for a new crypto exchange. These institutions do their homework in Washington before going down paths like this, as does PayPal.
People are rightfully concerned about the polarization and politicization of the crypto debate. But with six Democrats – a surprisingly large number – breaking ranks in the House Financial Services Committee to support a separate McHenry-sponosred bill that creates a broad regulatory framework for crypto, the risk of gridlocked stalemate mightn’t be as high as feared, especially given the clout of the companies now showing their support for the industry.
The other factor in PayPal’s favor is that, unlike Libra, it is offering up a dollar-only stablecoin, which could boost demand for the U.S. currency around the world and that it doesn’t have nearly the same global footprint as Facebook had at the time of the Libra launch. Libra’s first iteration was a token pegged to a multi currency basket, which many policymakers saw as a threat to monetary sovereignty. They feared that, if Facebook’s billions of users shifted to using the token, it would directly diminish demand for their domestic currencies.
PayPal may well face some grandstanding opposition from Democrats and that might hold up legislation. But it’s hard to see this development as being on the wrong side of history. Sooner rather than later, stablecoins will enjoy a constructive regulatory framework in the U.S. and that could spur a dramatic change in money that newcomers like PayPal and old-timers like Tether and Circle, will be well placed to exploit.
If crypto markets feel strikingly quiet in terms of price moves in either direction, that’s because they are. As you can see from this chart, CoinDesk Indices data for realized bitcoin volatility shows it to be near its lowest level in two years. This is not an easy environment for traders to make money in. Let’s see if things get more interesting after Labor Day.
The Conversation: Whose Time Matters More?
When Maxine Waters voiced her concern about PayPal’s use of an NYDFS regulation to launch PYUSD, VC Matt Walsh suggested this was absurd as the federal law doesn’t yet exist. But the critique is really a matter of perspective. The Washington mindset is that Congress sets the timetable for when things should be allowed to happen. Digital firms like PayPal think they cannot wait. It’s a matter of whose time matters more.
Relevant Reads: PayPal Perspective
Following PayPal’s big news on Monday, CoinDesk writers and contributors weighed in on what it could mean for stablecoin legislation, for a possible “digital dollar,” for the stablecoin market, and for crypto as a whole.
Columnist David Z. Morris looked at the motivations of the fintech giant (think: fat yields on treasury investments.)
Meanwhile, Austin Campbell, the former head of portfolio manager at Paxos, the issuer of PayPal’s coin, described the project as a watershed moment for crypto, owing to its mainstream appeal.
It is now more important than ever to set industry standards and align on practical short-term and long-term objectives through pointed conversations with the best legal minds and Washington D.C.’s most important decision makers.
Join us at State of Crypto: Policy and Regulation on October 24 in Washington D.C. for an unprecedented opportunity to evaluate, dissect and ultimately shape crypto regulatory frameworks that support a vibrant, secure and healthy future for the digital economy.
