As PayPal tries to expand use of its stablecoin, the payment company has branched into a new venue by using
The value of the investment is small, at $6.5 million, so it’s unlikely to add a lot of scale to PYUSD on its own. But the investment can demonstrate how PayPal’s stablecoin can be used, which could help the digital currency become competitive in the future.
“The use of PYUSD to fund the investment, or at least part of the investment, is a clever proof of concept, showing a real-world case of PayPal’s stablecoin being used for a meaningful transaction,” said Aaron Press, research director of worldwide payment strategies at IDC Insights.
Mesh sells tools that help process digital asset transfers and perform account aggregation. PayPal made the investment through its PayPal Ventures unit. The investment is almost entirely in PYUSD, with the funds transferred on chain using Mesh’s application programming interface.
PayPal did not provide comment by deadline. In announcing the investment, PayPal said the funding would help reinforce Mesh’s position in embedded finance, or the practice of using a payment or bank account to access other products.
Mesh will use the strategic investment to further develop tools for deposits, payments, and payouts so its infrastructure can manage larger volumes both from the institutional and retail clients, said Bam Azizi, Co-Founder and CEO at Mesh, in an email. “This is particularly timely given that the Bitcoin ETFs have just been approved by the Securities and Exchange Commission and many large players from traditional finance are entering the space,” Azizi said.
Stablecoins are a type of cryptocurrency that are backed by traditional currency to mitigate the volatile shifts in valuation that afflict other cryptocurrencies. That makes stablecoin a potential payments instrument as well as a hedge against other cryptocurrency investments.
Mainstream payment companies such as
Stablecoins have not been a slam dunk for non-crypto companies.
But PYUSD lags other stablecoins, including Circle’s USDC. Circle has added payment products over the past few years, including a
PYUSD’s market capitalization on Friday was about $300 million, according to
In its quest to scale PYUSD, PayPal is seeking out new use cases, said Alenka Grealish, emerging tech in bank lead at Celent. “While PayPal’s stablecoin has risen to No. 8 in the stablecoin rankings by market capitalization, its market cap is less than a half a percent of Tether,” Grealish said.
Since PayPal could have easily invested traditional money in Mesh, analysts suggested the use of PYUSD is designed to showcase the stablecoin.
“I don’t see PYUSD as an investment vehicle any more than cash is an investment vehicle,” Press said. “It’s a useful hedge against volatility, which certainly has value in many use cases, but not an investment per se.”
In the Mesh use case, stablecoins provide a stable store of value that reduces volatility that would otherwise be a risk as value moves from wallet to wallet or exchange to exchange, Press said.
PayPal is also focusing on its stablecoin and digital assets as the company evolves its strategy following a
The Mesh investment boosts PayPal’s stablecoin by making it one of the stablecoins used to settle crypto token transfers and payments on Mesh, which connects to other crypto exchanges and uses APIs to connect to other financial platforms.
“In this way, it is like other embedded finance companies, just focused on crypto,” said Aaron McPherson, principal at AFM Consulting.
The move also suggests to other investors that PYUSD can be used to invest in crypto exchanges as a native asset, rather than using ordinary dollars in a bank account, McPherson said, adding that this enables PayPal to take on the role of a bank, issuing its own currency and redeeming it for cash when needed.
“I think the hope, however, is that the stablecoin is not redeemed, but provides liquidity for exchanges in much the same way that Tether and USDC do,” McPherson said.