Most cryptocurrencies are volatile investments that aren’t suitable for conservative investors. However, stablecoins — which are pegged to fiat currencies and other real-world assets — might be compelling cryptos for investors who can’t stomach a lot of near-term volatility.
PayPal USD, which was launched on Aug. 7, 2023, was issued by the Paxos Trust Company on behalf of the digital payments leader PayPal. It was initially minted as an ERC-20 token on Ethereum, and it was also launched on Solana’s blockchain last May. It’s integrated into PayPal’s namesake app and its Venmo peer-to-peer payments platform to reach more potential users, but it doesn’t run on its own native blockchain like Ripple USD.
Ripple USD’s market cap of $730 billion is still smaller than PayPal USD’s market cap of $1.26 billion. That’s because PayPal can promote its stablecoin across its own apps — which served 438 million active accounts in its latest quarter — as well as its huge network of retail and banking partners.
Ripple — which promotes its blockchain as a cheaper, faster, and more secure alternative to traditional transfers through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) — hasn’t locked in as many active users or partners yet.
PayPal USD has a bigger market cap, more expansive ecosystem, and stronger liquidity than Ripple USD. But both stablecoins are firmly backed by cash and short-term U.S. Treasuries.
Paxos publishes monthly attestations of its reserves from independent auditors, which ensures that PayPal’s USD stablecoins remain firmly pegged to the U.S. dollar. Ripple, which was closely scrutinized by the Securities and Exchange Commission (SEC) over the past few years, also started to publish its monthly attestations last December.
USD-backed stablecoins might seem like counterintuitive investments, since they’re always valued at $1. That means they won’t ever outpace inflation or beat the S&P 500.
But unlike real U.S. dollars, USD stablecoins can be held without a bank account, used for faster and cheaper cross-border money transfers, and can help people preserve their savings in countries that are grappling with hyperinflation and currency devaluation issues. They can also be used a “bridge currency” to support trades between two volatile or illiquid assets.
More importantly, both stablecoins can be lent out on centralized finance (CeFi) exchanges like Coinbase, decentralized finance (DeFi) pools like Stargate, and other stablecoin staking platforms to earn higher yields than savings accounts, CDs, and Treasuries.
Ripple USD and PayPal USD have both stayed firmly pegged to the U.S. dollar since their debuts, and they should both be reliable stablecoins for most conservative investors. But if I had to pick one over the other, I’d stick with PayPal USD because it has a longer history, and it’s backed by a broader network of banks, retailers, and PayPal/Venmo users.
