PayPal is exploring its own stablecoin backed by the US dollar

PayPal confirmed Friday that it’s currently researching a PayPal stablecoin, Bloomberg reports. Before, developer Steve Moser found code inside the PayPal app regarding PayPal Coin, a US dollar-backed stablecoin.

A PayPal spokesperson confirmed the code and images came from an internal hackathon by the company’s blockchain, crypto, and digital currencies division.

“We are exploring a stablecoin; if and when we seek to move forward, we will, of course, work closely with relevant regulators,” Jose Fernandez da Ponte, PayPal SVP of crypto and digital currencies, told Bloomberg.

Stablecoins are an offshoot of digital currency that is tied to the value of a stable reserve asset like the dollar or the value of a tangible commodity that can be redeemed.

They try to offer the best of both worlds, the fast processing and privacy of cryptocurrency transactions and the centralized, more stable values of fiat currencies like the US dollar.

Currently, the major stablecoins are Tether, with its less than stellar reputation, and USDC from the startup Circle. A significant portion of USDC is used for crypto lending.

USDC has more than $43 billion in circulation and has been used for $1.6 trillion in on-chain transactions, the vast majority in the past 18 months. In contrast, 24-year old PayPal, with more than 400 million wallet holders, did $906 billion in transactions in the nine months to end September 2021.

Historically, PayPal has been used mainly for retail and P2P payments versus investing. So when PayPal launched the ability to buy and sell crypto, it was very pleased with the take-up and the stickiness within the app.

Recently, Fernandez da Ponte said on the Unchained podcast that Paypal has “not yet seen a stablecoin out there that is purpose-built for payments,” the publication conveyed.

Noting that a stablecoin would need to support payments at scale and have security for the payments giant’s use, he opined:

“There would have to be clarity on the regulation, the regulatory frameworks, and the type of licenses that are needed in this space.”

Last year, PayPal partnered with Paxos for its initial cryptocurrency offering. Paxos has its own stablecoin, which notably is being used by Meta’s Novi for its pilots because of the regulatory backlash against Diem (formerly Libra). Paxos also drives the number three stablecoin issued by Binance. So a big question is whether PayPal would go the internal route in creating a stablecoin or partner with Paxos.