What Is PayPal's PYUSD Stablecoin? Risks, Benefits, and How to Buy

PayPal, one of the world’s leading digital payment platforms (Nasdaq: PYPL), launched its own U.S. dollar-pegged stablecoin—PYUSD—in 2023, marking a significant step in bridging traditional finance with blockchain technology.

PYUSD was introduced to address key limitations of conventional payment systems: slow transaction speeds and high processing fees. By leveraging blockchain technology, PayPal aims to enable faster, cheaper, and more efficient global settlements. The stablecoin maintains a 1:1 parity with the U.S. dollar and is fully backed by U.S. short-term Treasury securities. It can be used both within the PayPal ecosystem and across public blockchains for transfers, payments, and decentralized finance (DeFi) applications.

With over 429 million active users globally and a 45.39% market share in online payments (as of 2024, per DemandSage), PayPal’s entry into the crypto space signals a growing integration between mainstream financial services and Web3. However, as of now, PYUSD is only available to U.S.-based PayPal users, limiting its global reach.

This article explores what PYUSD is, how it works, its advantages and risks, how it compares to other major stablecoins like USDT and USDC, and where you can buy it.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrencies are highly volatile and risky investments. Always conduct your own research before making any investment decisions.

What Is PYUSD?

Data source: CoinMarketCap as of December 11, 2024

PayPal USD (PYUSD) is a centralized stablecoin launched by PayPal in collaboration with Paxos Trust Company. It operates on both the Ethereum (as an ERC-20 token) and Solana (as an SPL token) blockchains. As of late 2024, PYUSD ranks as the 7th largest stablecoin by market capitalization.

It belongs to the category of fiat-backed stablecoins, meaning each PYUSD is pegged 1:1 to the U.S. dollar and fully backed by equivalent reserves—primarily U.S. Treasury bills. These reserves are held in segregated accounts independent of PayPal and Paxos.

The primary goal of PYUSD is to act as a bridge between traditional banking systems, digital payments, and blockchain-based financial services. It enables fast, low-cost transactions around the clock and integrates seamlessly into PayPal’s existing infrastructure.

PYUSD can be used for:

• Everyday purchases
• Peer-to-peer transfers
• Cross-border remittances
• Web3 payments
• DeFi activities such as staking and lending

Thanks to blockchain technology, PYUSD transactions are available 24/7, with near-instant settlement times—offering a clear advantage over traditional banking hours and wire transfer delays.

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What Is a Stablecoin?

Most cryptocurrencies like Bitcoin or Ethereum are highly volatile, making them impractical for daily spending. Stablecoins solve this by being pegged to stable assets like the U.S. dollar or euro.

The most popular type is the fiat-backed stablecoin, which maintains a 1:1 ratio with its underlying currency. For every stablecoin issued, there should be an equivalent amount of real currency or safe assets held in reserve.

PYUSD falls into this category. After initial launch fluctuations, it consistently trades at or very close to $1 across exchanges.

Learn more: What Are Stablecoins?

How Does PYUSD Work?

100% Reserves Backed by U.S. Treasuries

Unlike decentralized cryptocurrencies such as Bitcoin, PYUSD is not mined. Instead, it is issued on demand by PayPal in partnership with Paxos.

When users purchase PYUSD, new tokens are minted, and an equivalent amount of U.S. dollars is deposited into reserve accounts holding short-term U.S. Treasury securities. When users redeem or sell their PYUSD, the tokens are burned, and the corresponding reserves are reduced.

This ensures that every circulating PYUSD token has full backing.

Transparency is a key feature: Paxos publishes monthly attestation reports on its website (paxos.com/pyusd-transparency), verified by third-party auditors. These reports detail the exact composition and value of the reserves, giving holders confidence in the stability and security of their assets.

About Paxos Trust Company

Paxos is a regulated financial institution under the oversight of the New York Department of Financial Services (NYDFS). A subsidiary of PayPal since acquisition, Paxos specializes in blockchain infrastructure and has previously launched its own stablecoin, USDP (Pax Dollar).

Seamless Integration with PayPal Ecosystem & DeFi

As an ERC-20 token on Ethereum and an SPL token on Solana, PYUSD uses smart contracts that allow for programmability and interoperability.

This means:

• Users can spend PYUSD directly through PayPal for goods and services
• Transfer funds instantly to Venmo or Xoom (both PayPal-owned)
• Use PYUSD in external wallets, decentralized apps (dApps), and supported exchanges
• Participate in DeFi protocols like yield farming, staking, and lending

For over 400 million PayPal users and millions of merchants worldwide, PYUSD opens up new possibilities for frictionless digital transactions—especially across borders.

Built on Solana for Speed and Low Cost

PYUSD was first launched on Ethereum in August 2023 but expanded to Solana in May 2024 due to performance advantages.

While Ethereum remains a leader in smart contract security, it suffers from high gas fees and slower confirmation times—making it less ideal for microtransactions or frequent retail payments.

In contrast, Solana offers:

• Average block time: 400 milliseconds
• Median transaction cost: $0.00064
• Daily transactions: Over 40.7 million
• Target throughput: Thousands of transactions per second

By operating on Solana, PYUSD enables near-instantaneous and ultra-low-cost transfers—perfect for everyday use cases like sending money to friends or paying merchants.

Advantages of PYUSD

Faster Transactions & Lower Costs

Traditional international wire transfers can take days and incur fees upwards of $30–$50. With PYUSD on Solana, cross-border payments settle in seconds for less than a cent.

Even on Ethereum, network fees are typically under $1—still far below traditional costs.

This makes PYUSD ideal for:

• Real-time salary disbursements
• Instant remittances
• Global e-commerce settlements

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Free Transfers for U.S. Users via PayPal Network

U.S.-based PayPal users enjoy zero-fee transfers using PYUSD across:

• PayPal
• Venmo (domestic P2P)
• Xoom (international remittances to 160+ countries)

Previously, sending money internationally via PayPal involved significant fees for both sender and recipient. Now, converting to PYUSD eliminates these costs—especially beneficial for freelancers, remote workers, or families receiving overseas support.

Note: Venmo and Xoom services are currently limited to U.S. residents only.

High Regulatory Compliance & Security

PYUSD is regulated by two major U.S. authorities:

• NYDFS (New York Department of Financial Services) – Oversees licensing and compliance for virtual currency firms.
• FinCEN (Financial Crimes Enforcement Network) – Monitors anti-money laundering (AML) and counter-terrorism financing efforts.

This level of oversight ensures strong consumer protection and operational transparency—giving users greater peace of mind compared to less-regulated alternatives.

Price Stability & Financial Transparency

As a dollar-backed stablecoin with fully disclosed reserves audited monthly, PYUSD offers:

• Consistent 1:1 value against USD
• Publicly verifiable asset reports
• Protection against devaluation risks

This transparency helps build trust—especially important after past controversies involving opaque reserve practices in other stablecoins.

Risks and Limitations of PYUSD

Centralization Risk

PYUSD is a centralized stablecoin, meaning PayPal controls issuance, redemption, and user access.

Potential concerns include:

• Account freezes without notice
• Geographic restrictions (currently only available to U.S. users)
• Censorship or policy changes affecting usability

While regulatory compliance adds safety, it also introduces dependency on corporate decisions.

Limited Blockchain Compatibility

Currently, PYUSD is only available on Ethereum and Solana—limiting its utility in broader DeFi ecosystems where multi-chain support is standard.

In contrast, USDC operates across 10+ blockchains including Polygon, Arbitrum, Avalanche, and Optimism.

This restricts PYUSD’s liquidity and adoption outside PayPal’s network.

Small Market Share

With a market cap of ~$505 million (as of Dec 2024), PYUSD represents just **0.75%** of the total stablecoin market—far behind leaders like USDT ($138B) and USDC ($40.8B).

Its limited availability outside the U.S. contributes to low trading volume and exchange listings.

High Withdrawal Fees from PayPal

Although internal transfers are free, moving PYUSD from PayPal to an external wallet incurs a steep 1.5% fee.

For context:

• Transferring $1,000 → $15 fee
• Transferring $10,000 → $150 fee

This discourages external usage unless necessary. In contrast, most crypto exchanges charge only nominal network fees (often <$1).

Expensive Crypto Trading Fees on PayPal

Buying other cryptocurrencies using PYUSD within the PayPal app comes with high fees ranging from 0.49% to 1.75%, depending on trade size.

Compare this to major exchanges like Binance or OKX, where spot trading fees average 0.1%, making third-party platforms more cost-effective for active traders.

U.S.-Only Access for Direct Purchases

Only U.S. residents can currently buy or hold PYUSD directly through PayPal or Venmo. International users must rely on compatible crypto exchanges—an extra step that limits accessibility.

How Does PYUSD Compare to USDT and USDC?

PYUSD stands out in transparency and regulatory compliance, surpassing even USDT in audit rigor. However, its limited blockchain support and small market presence hinder widespread adoption compared to USDC and USDT.

How to Buy PYUSD

1. Through PayPal or Venmo (U.S. Users Only)

Eligible U.S. customers can:

• Open a PayPal account
• Enable crypto features
• Buy PYUSD directly at $1 per token (no fees)

Venmo users can also buy and send PYUSD instantly among contacts.

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2. Via Cryptocurrency Exchanges

While not listed on Binance yet, PYUSD is available on several reputable exchanges such as:

• Kraken
• OKX
• Gemini
• Coinbase (limited availability)

Users can deposit funds via bank transfer or credit card and trade for PYUSD with low fees.

Always choose well-established platforms with strong security practices.

Key Takeaways

1. PYUSD is a regulated, dollar-backed stablecoin issued by PayPal in partnership with Paxos.
2. It runs on Ethereum and Solana, offering fast settlements and low fees.
3. Fully backed by U.S. Treasuries with monthly audited reports.
4. Ideal for fast cross-border payments and everyday digital spending.
5. Currently limited to U.S. users; global expansion may come later.
6. High withdrawal fees from PayPal; better suited for internal use.
7. Not yet widely adopted in DeFi due to limited chain support.

PayPal’s move into crypto reflects a broader trend of traditional finance embracing blockchain innovation. While still in early stages, PYUSD could become a key player if it expands globally and integrates further into decentralized ecosystems.

Stay informed—and always prioritize security when navigating digital assets.

Frequently Asked Questions (FAQ)

Q: Is PYUSD backed 1:1 by U.S. dollars?

A: Not exactly in cash—but yes in value equivalence. Each PYUSD is backed by highly liquid assets like U.S. Treasury bills, which are considered as safe as cash and maintain stable value relative to the dollar.

Q: Can non-U.S. users buy PYUSD?

A: Not directly through PayPal or Venmo. However, international users can purchase PYUSD on supported cryptocurrency exchanges like Kraken or OKX.

Q: Is PYUSD safer than other stablecoins?

A: In terms of regulatory oversight and reserve transparency, yes—PYUSD exceeds many competitors like USDT in audit frequency and government compliance. However, its centralized nature means reliance on PayPal’s policies.

Q: Can I earn interest on PYUSD?

A: Not within PayPal itself—but yes through external DeFi platforms that support staking or lending of PYUSD on Ethereum or Solana networks.

Q: Why did PayPal choose Solana?

A: For speed and cost efficiency. Solana processes transactions faster (~400ms) and cheaper (~$0.0006 per tx) than Ethereum—making it ideal for mass consumer use cases like retail payments.

Q: Will PYUSD replace USDT or USDC?

A: Unlikely in the near term. While PYUSD offers superior transparency, it lacks multi-chain support and global accessibility needed to challenge dominant stablecoins like USDC or USDT.