Why did PayPal Halt its Stablecoin Development? A Detailed Insight

According to the latest reports, PayPal, a multinational

payment system, has paused the development of its stablecoins. 

As per the reports, the increasing intervention of regulatory bodies in blockchain businesses and the recent investigation on Paxos are said to be the main reasons behind discouraging the fintech giant. It should also be noted that Paxos is a business partner of PayPal and enable the users its users to transfer crypto on and off PayPal’s ecosystem.

Stablecoins are those cryptocurrencies that algorithmically peg their value to any other fiat currencies. They are more stable in nature as they are backed by a traditional currency and do not depend on highly volatile crypto markets. When it comes to regulation and heightening scrutiny, stablecoin issuers have nothing to worry about if they have developed a clean algorithm.

PayPal, while declaring their stablecoin, made it clear that they would be working closely with relevant regulators to avoid any unforeseen situations for the project. Taking a step back on their stablecoin development because of increasing regulations goes against their initial intent of providing their users with an alternative to traditional fiat.

Why PayPal is Retreating?

PayPal decided to venture into the stablecoin space in early 2022 after which a series of project collapses shook the industry and pushed it towards a severe crypto winter. The severe Terra-Luna crash created an extreme FUD in the industry and most of the new ventures stopped. It is true that the crypto industry is trying to recover from a terrible fall and entering into the stablecoin space right now might not be the ideal scenario for PayPal.

Apart from that, countries around the world including China, the U.S.A, India, the United Kingdom, Argentina, and many more are already working towards launching their CBDCs. This increasing fascination with CBDCs directly conflicts with the value proposition of a completely decentralized stablecoin. CBDCs not only provide users with more reliability and credibility but also extremely high liquidation. This could also be one of the reasons behind PayPal halting its stablecoin development as competing against the popularity of government-backed CBDCs would not be easy for stablecoins. 

It is also possible that PayPal might be planning to integrate state-relevant CBDCs into its multinational payment mechanism. This could save it from facing the problems of operating a crypto token within regional regulation. A CBDC-centric process will be much more efficient and beneficial for PayPal and we can see such collaboration in the future.