PayPal introduces its inaugural PYUSD report, coinciding with a shrinking stablecoin market now valued at $131 billion.
PayPal's introduction of PYUSD emphasized the stablecoin's potential for worldwide payment applications. However, the token's inaugural transparency report indicates that its adoption still has a considerable journey ahead, even as PYUSD competes with other stablecoins facing their challenges.
Paxos Trust, the entity responsible for issuing PayPal's stablecoin, disclosed that it held assets worth $45.3 million as collateral for PYUSD by the end of the previous month.
This report, released last week, marks the first public glimpse into the assets linked to the $44.3 million worth of PYUSD. While PYUSD was backed with just over $1.5 million in cash deposits, a majority of the coin’s reserves were reverse repurchase agreements collateralized with U.S. Treasuries and worth $43.8 million, the report said.
Stablecoins are digital assets that are tethered to the value of a sovereign currency, such as the U.S. dollar. Typically, these coins are backed by a combination of liquid assets like cash and government debt, and some of the leading stablecoins boast assets in the billions of dollars.
However, the overall market capitalization of stablecoins has been on a gradual decline since the turbulence surrounding Terra's UST stablecoin last spring. According to data from CoinGecko, the collective value of stablecoins has decreased from approximately $188 billion in May of the previous year to its current standing at $131 billion.
Circle's USD Coin, which ranks as the second-largest stablecoin in the cryptocurrency market, faced challenges of its own when it temporarily deviated from its $1 peg during the collapse of Silicon Valley Bank in March. Moreover, concerns have arisen recently, with analysts from the research firm Kaiko expressing doubts about Tether's ability to maintain a consistent $1 value.
Terra's UST stablecoin operated on an algorithmic basis, and its value stability was maintained through trading incentives involving another cryptocurrency, LUNA. However, this stability mechanism faltered, resulting in a combined loss of $60 billion for the two tokens, triggering a bear market in the cryptocurrency space and prompting calls for U.S. legislation to regulate stablecoins.
Some members of Congress, including Maxine Waters (D-CA), argued that PayPal should have waited for legislative measures and a federal regulatory framework before launching PYUSD. Nevertheless, PayPal proceeded with its product launch, as Paxos, the entity responsible for PYUSD, was already regulated in New York by the state's Department of Financial Services, ensuring compliance with state-level regulations.
As PayPal entered the stablecoin space, the payments firm said its offering would rest on transparent and reputable ground. In its initial announcement for PYUSD, PayPal emphasized that reports on reserves would be a pillar of the product’s monthly cadence.
Even though stablecoins have been highlighted as useful for cross-border payments and remittances, the technology is also used heavily by those conducting crypto trades, according to a report from Kaiko.