PayPal enters the game, Dai undergoes brand restructuring, stablecoin race welcomes a second battle?

Jaleel加六

2023-08-08 20:28

Read this article in 17 Minutes

On the evening of August 7th Beijing time, payment giant PayPal announced the launch of its stablecoin PayPal USD (PYUSD). PYUSD will be fully backed by deposits in US dollars, short-term US government bonds, and other cash equivalents, and is intended to gradually become available to PayPal's broad customer base within the United States.

It is worth noting that the issuance of PYUSD is executed by Paxos Trust. Paxos is a well-known player in the stablecoin industry, established in 2013. Paxos mainly provides services such as cash custody, cryptocurrency services, digital asset issuance, securities and commodity settlement. In September 2018, Paxos obtained a stablecoin license issued by the New York State Department of Financial Services (NYDFS) and subsequently launched the Pax Dollar (USDP) stablecoin. At the beginning of USDP's issuance, this stablecoin once occupied nearly 30% of the stablecoin market on Ethereum, but due to limited application scenarios, its market share has continued to decline.

FTX CEO Sam Bankman-Fried (SBF) believes that the year 2018, when Paxos obtained a license to issue stablecoins, witnessed the "first stablecoin war" among five stablecoins. In this competition, USDT and USDC emerged as winners, while TUSD, GUSD, and USDP withdrew from the battlefield.

Just one year later, Paxos partnered with Binance to launch another stablecoin, BUSD. SBF believes that the rise of BUSD could trigger the "second stablecoin war", with its market value skyrocketing in the months following its launch.

Paxos' partnership with Binance can be said to be mutually beneficial. Binance can have a compliant branded stablecoin, while Paxos can accompany Binance's global expansion and regain lost market share. In November 2022, the stablecoin market share of USDP and BUSD on Ethereum reached a historical high of 23%.

However, recently, MakerDAO chose to distribute its profits to users, raising the DAI deposit interest rate to 8%, surpassing the market value of BUSD. With the introduction of PayPal's PYUSD, it seems that the second stablecoin competition is once again underway.

PayPal 大军压境

translates to

PayPal army invades the border

PYUSD will be launched in the coming weeks. Eligible US customers who purchase PayPal USD will enjoy a range of financial benefits: they can freely transfer PYUSD between PayPal and compatible wallets, complete peer-to-peer transactions using PYUSD, choose PYUSD as a payment tool, and easily convert other cryptocurrencies with PYUSD on the PayPal platform. In addition, customers can buy or sell PayPal USD for $1.

As of now, PayPal has over 431 million active accounts worldwide. As the only stablecoin supported within the PayPal network, PayPal USD leverages PayPal's decades of experience in large-scale payments and combines the speed, cost, and programmability of blockchain protocols to issue an ERC-20 token on the Ethereum blockchain. This will provide a highly compliant digital currency gateway for the global market.

Surprisingly, when the on-chain contract address of PYUSD was made public, the community discovered that the "owner" of the proxy was a "simple multi-signature" contract that had been deployed for at least 2 years.

Meanwhile, the contract displays "avoiding name conflicts with the emerging standard in ERC865", knowing that ERC865 was proposed as early as 2018. Combined with PYUSD's use of the outdated Solidity 0.4.24 version, community members have concluded that PayPal must have been preparing for PYUSD several years ago.

Cryptocurrency analyst Miles Deutscher (@milesdeutscher) also listed this year's PYUSD progress on his social media.

February 10: PayPal suspends stablecoin work during cryptocurrency regulatory review; February 13: Paxos orders halt to BUSD minting in SEC charges; August 7: PayPal launches stablecoin (issued by Paxos).

Obviously, PayPal has been brewing on PYUSD for a long time, and the timing of its release is also very clever. BlackRock has submitted a file application for spot Bitcoin ETF, the US court ruled that XRP is not a security, and members of Congress submitted a new digital asset regulatory bill, the "21st Century Financial Innovation and Technology Act." This does not seem to be a coincidence, but rather PayPal's long-term strategic planning and cultivation over the years.

With the gradual advancement of legislation in the US Congress, American companies with stronger compliance backgrounds like PayPal will become increasingly advantageous. As the founder of PayPal, whether Musk will make PYUSD a payment option for Twitter and the entire X ecosystem behind it also adds a lot of possibilities for the future of PYUSD.

According to monitoring, a whale recently sold 5640 ETH, purchased over 10.32 million DAI, and lent out 4 million DAI, depositing these DAI into MakerDAO to enjoy an annualized return rate of up to 8%.

Throughout the cryptocurrency community, DAI has been criticized for lacking a clear development roadmap. Unlike USDT and USDC, DAI claims to be a decentralized stablecoin, but its decentralized nature is compromised due to its heavy reliance on USDC reserves. As a result, its share in DEX trading volume has been affected, and its position as a market leader at the beginning of 2021 has slowly declined. DAI is gradually becoming irrelevant as the market chooses USDT, USDC, and BUSD instead.

With the MakerDAO community voting in favor of a proposal aimed at strengthening its functionality and adding new protocols on August 5th, the market's attitude towards DAI seems to be shifting. The proposal was executed on August 7th, and according to MakerDAO's Spark Protocol page, the deposit rate (DSR) for DAI has now increased to 8%.

Data source: DUNE

It seems that this change has led to the revival of DAI. According to the latest data, the total locked value (TVL) of the DAI pool has exceeded $400 million, and the market value of DAI has also surpassed BUSD.

In order to strengthen its market position and attract more users, Rune, co-founder of MakerDAO, published a long article on social media, stating that the brand will be reshaped in the next year, upgrading DAI and MKR to a unified brand, temporarily named NewStable (NST) and NewGovToken (NGT). In addition, MKR will be upgraded to NGT at a ratio of 1:12000, and NST will have the opportunity to mine NGT tokens.

Racing Veteran

The current stablecoin market is dominated by USDT and USDC. After PayPal and Paxos launched the USD stablecoin PYUSD, Circle co-founder and CEO Jeremy Allaire congratulated them, saying "It's exciting to see such important internet and payment companies enter the stablecoin field." The Payment Stablecoin Act can open up a free and competitive market for institutions issuing USD stablecoins.

Jeremy Allaire also stated that despite the constant speculation surrounding the United States, we estimate that the adoption rate of the stablecoin USDC outside of the United States has reached 70%, with some of the fastest growth occurring in emerging and developing markets. Significant progress has been made in regions such as Asia, Latin America, and Africa. This reflects a strong demand for a secure and transparent digital dollar.

Circle is a fully regulated company that has been favored by US institutions. Despite facing challenges such as Silicon Valley Bank's bankruptcy and the termination of its relationship with it, USDC still firmly holds the second position in the stablecoin market.

The impact of PayPal's launch of stablecoins on USDT cannot be ignored. According to CoinGecko's data, the value of stablecoins in circulation is about $126 billion, with the largest being Tether Holdings Ltd.'s USDT. Tether's stablecoin USDT currently has a market share of 67.2%.

Stablecoin market share, data source: DefiLlama

With the news of PayPal's PYUSD launch, analysts generally predict that USDT's market share will face pressure. Indeed, according to the latest data from Curve, USDT's share in 3pool has slightly declined, and its price has also slightly deviated from the anchor price of $1. However, Tether's Chief Technology Officer Paolo Ardoino is not worried about this, insisting that the market Tether primarily serves is not the United States, so the impact of PYUSD on it is limited.

Paolo's confidence comes from the huge circulation of USDT. If Tether's stablecoin USDT is considered as a country, it will surpass Australia or Italy and rank 20th among US government debt holders, comparable to Germany, the world's fourth largest economy. Tether's circulation is 83 billion US dollars, and it is still growing. It is a global giant, perhaps even a too-big-to-fail behemoth, and has become the reserve asset of the crypto economy in fact. However, Tether's success in promoting US dollar-backed stablecoins is ironic: Tether uses a technology designed to disintermediate governments and intermediaries from financial transactions, making the US dollar the first killer application of Web3.

So, how does Tether make a profit? ALEX TAPSCOTT, founder of NextBlock Global and author of "Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World," shared his opinion: Tether invests these deposits in government securities, with yields typically at 5% or more. As USDT holders do not earn interest, Tether's profits from its investments are almost pure profit.

In the global financial market, the profit model of stablecoins has been successfully verified by Tether. Therefore, it is not surprising that global giants such as PayPal have entered the market. For PayPal, this is a way to find higher returns and diversification opportunities in the payment battlefield. As a convenient channel for entering the world of cryptocurrencies, stablecoins are often seen as an important tool for guiding cryptocurrency users. With the addition of global payment giants like PayPal, the stablecoin market seems to have a new round of imagination space.

For a long time, the stablecoin market has maintained a situation where USDT and USDC are the two major players. However, despite their huge influence in the cryptocurrency market, their application is still relatively limited in traditional finance and daily life.

"At the economic forefront of Web3, anything is possible - even PayPal seems to have realized this. Anyone who cares about the future and wants to play a role in shaping it should closely follow the stablecoin wars. ALEX TAPSCOTT also believes that with PayPal joining the fight, a new stablecoin war is becoming increasingly imminent."

However, with the participation of more traditional financial institutions and tech giants like PayPal, the boundaries of the Web3 economy are becoming increasingly blurred. As ALEX mentioned, PayPal's entry may herald the beginning of a new "stablecoin war". The future of the crypto market also seems to be ushering in another exciting wave of changes.

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