Category: Investment News

Bank of America reacts to the launch of PayPal’s PYUSD stablecoin, pegged to the US dollar, arguing that the asset is unlikely to be widely used, at least not anytime soon.

PayPal’s recent groundbreaking announcement about the launch of its US dollar-denominated stablecoin PYUSD has sparked much criticism around the world. While it seems like a significant step toward cryptocurrency adoption, some say PayPal won’t be very successful any time soon.

One of the largest banks in the US, Bank of America, outlined the main reasons why PayPal USD is unlikely to see immediate adoption in its recent research report.

Competing against CDBCs

First, Bank of America analysts Alkesh Shah and Andrew Moss explained that PayPal’s stablecoin could face intense competition in the market:

“Longer term, we expect PYUSD to experience additional hurdles to adoption as competition from central bank digital currencies (CBDCs) and yield stablecoins increases.”

It is true that several countries are actively exploring Central Bank Digital Currencies (CBDCs) that could compete with stablecoins, as both are based on similar technologies and are pegged to fiat currencies. Only this year, countries like Brazil, South Korea, Russia, Japan, the United Kingdom, among others, have reported news about the launch of their CBDCs. There is speculation that the US may also be working on its CBDC, although some of the country’s presidential candidates have claimed to be against it.

Competing against other stablecoins

Also, there are many other stablecoins that PYUSD will have to compete with. Profitable stablecoins are now especially attractive to investors, according to Bank of America:

“Investors may have been fine holding non-yielding stablecoins like USDT and USDC when rates were close to zero, but it is likely that yielding stablecoins will become increasingly available and attractive with short-term rates above 5%.” .

Dealing with regulatory scrutiny

Finally, the analysts also suggested that PayPal could face regulatory problems if traditional banks are prohibited from issuing stablecoins:

“Investors are likely to be indifferent to the stablecoins they own, as long as the stablecoins are perceived as safe and accessible on major trading platforms. We do not expect the launch of PYUSD to lead to accelerated regulatory clarity, as stablecoin issuance does not change the systemic risk for traditional markets, but stablecoins could face regulatory hurdles if nonbanks are prevented from issuing stablecoins. ”.

Just one day after PayPal unveiled its stablecoin project, the US Federal Reserve released new guidelines on the use of “dollar tokens” by US banks. According to the notice, to engage in any type of stablecoin-related activity, US banks will now need to receive a written supervisory no objection from the Federal Reserve.

Meanwhile, cryptocurrency scammers didn’t wait long to try to cash in on the big news and flooded decentralized exchanges with fake PayPal tokens.