Banks and large institutional players are showing interest in the stablecoin industry after PayPal’s recent entry into the crypto space, according to Richard Rosenthal, Deloitte Principal and Partner. In a conversation with Walter Hessert, Head of Strategy at Paxos, the two executives discussed the advantages of dollar-pegged crypto tokens in the market and the increasing willingness of firms to explore them.
The Benefits of Stablecoins
“A lot of banks have been studying and exploring how to engage,” said Rosenthal during an American Banker podcast episode. Stablecoins are cryptocurrency tokens that are pegged to stable assets like fiat currencies such as the USD. Popular stablecoins today include Tether USD (USDT) and USD Coin (USDC), which are backed by large reserves primarily consisting of cash and U.S. Treasuries.
Rosenthal’s firm, Deloitte, has initiated audits of financial statements for Circle, the issuer of USDC. The company also audits Coinbase, America’s only publicly listed cryptocurrency exchange that offers custody for the largest Bitcoin fund, Grayscale. Tokenizing assets like dollars and other commodities has the potential to unlock market liquidity that is currently tied up in existing settlement cycles, especially for cross-border transfers. Tokenized assets are also compatible with smart contracts, streamlining processes through automated logic.
“Clients, banks, and the market are exploring a range of use cases, including securities lending, tokenized money market funds, bank deposits, mortgage servicing rights, and digitized repos,” Rosenthal added.
PayPal’s Impact on the Industry
PayPal made waves in August with the announcement of its Web3-focused stablecoin, PYUSD, which now boasts a market cap of $44.4 million. However, the Securities and Exchange Commission (SEC) issued a subpoena against PayPal, requesting documents related to its token. The SEC also compelled Paxos to wind down its BUSD stablecoin in February, claiming it was an unregistered security.
Despite these regulatory challenges, both Paxos and Deloitte view PayPal’s entry as a game-changer for the stablecoin industry. Hessert commented, “They’re saying to other payments companies… that stablecoin is a real product. It’s now a trusted product that you can hold. It’s a safer product that’s backed by PayPal.”
