PayPal develops a dollar-backed stablecoin, raising its stock price.

PayPal announced the introduction of a US dollar stablecoin on Monday, making it the first major financial technology corporation to embrace digital currencies for payments and transfers.

PayPal's decision, which increased its shares 2.66% on Monday, signals a vote of confidence in the beleaguered cryptocurrency business, which has faced regulatory challenges compounded by a spate of high-profile collapses over the previous year.

While stablecoins (crypto tokens whose monetary value is tethered to a stable asset to defend against wild volatility) have been around for years, they have yet to make inroads into the mainstream consumer payments sector.

Attempts by major mainstream firms to create stablecoins in the past have been met with significant criticism from financial regulators and legislators. Meta's (META.O), then Facebook's, intentions to introduce a stablecoin, Libra, in 2019 was thwarted when regulators raised concerns that it would disrupt global financial stability.

Since then, a slew of major economies, from the United Kingdom to the European Union, have established legislation to oversee stablecoins. The EU's policies will take effect in June 2024.

"PayPal isn't as divisive as Facebook, but it's a high-profile name that will undoubtedly garner attention on Capitol Hill, as well as from the [Federal Reserve] and [Securities and Exchange Commission]," wrote Ian Katz, managing director of Capital Alpha Partners, in a note.

Last month, the United States House Financial Services Committee adopted legislation to create a federal regulatory framework for stablecoins, with an emphasis on requirements for stablecoin issuer registration and approval.

Representative Patrick McHenry, the committee's Republican head, said in a statement on Monday that PayPal's move shows that stablecoins "hold promise as a pillar of our 21st-century payments system."

"We are currently at a fork in the road in terms of keeping America at the forefront of digital asset innovation." "Congress is making significant, bipartisan progress on legislation to ensure the United States leads the future financial system," he said.

PayPal USD, a stablecoin backed by US dollar deposits and short-term US Treasuries, will be released by Paxos Trust Co. PayPal consumers in the United States will progressively be allowed to use it.

The token can be redeemed for US dollars at any moment, and it can also be used to purchase and sell other cryptocurrencies available on PayPal's network, including Bitcoin.

"PYUSD is the first of its kind, representing the next phase of U.S. dollars on the blockchain," Paxos wrote on the messaging network X, formerly known as Twitter. "This is a watershed moment not only for Paxos and PayPal but for the entire financial industry."

Visa also stated that beginning in 2021, it will allow Bitcoin to be used to settle transactions on its payment network.