PayPal’s New Stablecoin and the ‘2 Wolves’ Inside Crypto

The payments giant has been transparent in its need to freeze and seize crypto accounts that violate its terms of service. But is that really crypto?

AccessTimeIconAug 8, 2023 at 5:45 p.m. UTC
Updated Aug 8, 2023 at 8:29 p.m. UTC
AccessTimeIconAug 8, 2023 at 5:45 p.m. UTCUpdated Aug 8, 2023 at 8:29 p.m. UTC
AccessTimeIconAug 8, 2023 at 5:45 p.m. UTCUpdated Aug 8, 2023 at 8:29 p.m. UTC

Here’s some confirmation that crypto isn’t entirely toxic: In the hours after internet payments pioneer PayPal announced a stablecoin on Ethereum, the company’s stock rallied 2%. That may seem a tiny rally for anyone used to triple-digit gains on s**tcoins, but is respectable in the world of late-stage, slow-growth tech companies that have just about reached peak market saturation (PayPal reports having more than 400 million active users, and accounts for ~70% of eBay transactions).

Of course, as ever in the world of crypto, it’s not all sunshine and roses: After the surprise PYUSD stablecoin announcement, a bevy of imposter tokens like “pepeyieldunibotsatoshidoge” (aka PYUSD) have launched on Ethereum, various layer 2s and BNB Smart Chain looking to capitalize on post-announcement ignorance and buzz. The largest of these saw nearly $3 million in trading volume in mere hours, and almost assuredly more than a few will turn out to be rug pulls.

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But this isn’t new for crypto, an industry racked by competing visions, contradictory strategies and occasional moral scruples. As the meme goes: inside crypto are two wolves. There’s money crypto and tech crypto. Regulation wanters and law-avoiders. The build-and-break-things contingent and those who go slow and steady.

It’s enough headbutting and disagreement to wonder how exactly crypto made it this far – that one of the most used payments companies is tapping the Ethereum mainnet, high fees be damned, for its next rung of expansion.

And so PayPal’s stablecoin is no different: PYUSD, which to begin with is U.S.-only, will eventually be a near-universally accessible payments option that is subject to just as much surveillance and “censorship” as PayPal or its subsidiary Venmo today. It’s crypto, sans crypto – or fintech with the benefit of blockchain. It’s the two wolves in conflict.

It should be no surprise which wolf is dominant in PayPal, the side that wants to work from within the system, rather than outside. The publicly-traded company, which launched the careers of Elon Musk, Peter Thiel and the rest of the “PayPal Mafia,” learned pretty quickly that its initial vision for a stateless, global payments system would be beaten into submission by banks and governments. PayPal has been an active and consistent supporter of crypto since it expressed interest in Bitcoin in 2013, but it gave up on the cypherpunk ideal of a “new world currency.”

PayPal’s stablecoin may come with restrictions (no self-respecting extropian coder has ever signed a “terms of use” contract), but the company should be commended on its apparent commitment to transparency. As ex-PayPal comms director and typewriter aficionado James Wester says, “so long as freeze and seize is in the t’s and c’s” (terms and conditions) then there’s no real reason to complain that the PYUSD smart contract code has functions to confiscate and burn tokens.

I mean, freezing tokens is standard practice among the major, corporate-backed stablecoins including USDC and USDT – as is the commitment from Paxos, the actual issuer of PayPal USD, to publish a monthly “reserve report” starting in September. Does all this also cut against the idea that crypto should break free from third-party financial companies that control who people can transact with online, who can access an account and collect data about clients’ transaction history. Indubitably, my good man, welcome to the era of Censored Crypto; it started 10 years ago and is only picking up.

(To be fair to Tether, it did say it wouldn’t always abide by the U.S. Treasury’s sanctions program.)

But when big news like this comes along from big brands outside the world of crypto, all of the industry’s political commitments seem to matter less. A “Bankless” podcast co-host was saying this the biggest deal since PayPal announced in 2020 it would allow users to transact in crypto, largely because PayPal is like training wheels for the heavier stuff like decentralized finance (DeFi). In fact, as hardly noted anywhere, it’s not PayPal’s entire 435 million strong customer base that has access to the stablecoin, but only the U.S. residents who have already purchased crypto on PayPal.

That restriction will likely lift in time, and PayPal may ultimately onboard more people into crypto than Coinbase (108 million at last count). And even if only a fraction of those customers ever interact with Web3 beyond PayPal this doesn’t have to cheapen crypto’s purity (which frankly has already been tainted). It’s not like the existence of PYUSD means bitcoin or ether or dai will disappear. And as Austin Campbell, who formerly managed the BUSD stablecoin reserves at Paxos, wrote: “A player like PayPal entering the field is material, for credibility, for access, for public education and to force everyone else to start grappling with the reality of blockchains and the types of commercial applications they enable.”

But it is interesting to imagine exactly what Web3 would look like if a company like PayPal was a major crypto services provider, or even what the company’s own vision for Web3 in five years will be. There is little doubt that PayPal will have to abide by U.S. sanctions, develop lengthy blacklists and use automated software to (sometimes erroneously) freeze accounts; that it will likely have underpaid comms people doing its crypto customer service. More people will be in crypto, but like the internet after the “Eternal September” that brought a critical mass of people online (and necessitated the need for digital-first payments options like PayPal), crypto may become unrecognizable to today’s users.

Saying whether that is good or bad is like picking a preference in a wolf fight, a futile attempt to apply human morals to nature. What do wolves even know of Web3?

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Daniel Kuhn

Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.