Payment giant PayPal and cryptocurrency custodian Anchorage Digital are partnering on a stablecoin rewards program that will pay out rewards. Paypal US Dollar korean:
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Tokens held by cryptocurrency-based banks or tokens stored in Porto, Anchorage’s institutional custodial wallet.
These companies are promoting this model as a way for users to earn money from their PYUSD balances without having to stake, lend, or re-collateralize their funds. Since the stablecoin is completely separate from the on-chain account, Anchorage and PayPal do not lend out their customers’ assets to pay for the program.
The launch of the rewards program for Anchorage’s authorized institutional customers comes amid the rapid growth of PayPal’s branded stablecoin, which has yet to reach a market cap of $1 billion a year after its launch.
In August, the circulating supply of the Solana-based PYUSD stablecoin caught up with its Ethereum counterpart. PayPal’s stablecoin overtook the Justin Sun-backed USDD to become the sixth-largest USD-backed token by market cap. Total supply has grown by more than 64% over the past 30 days.
Anchorage CEO Nathan McCauley said the program could accelerate adoption of PYUSD as it is the first of its kind.
“This program will help increase institutional adoption of stablecoins and bridge the gap between traditional finance and the digital asset ecosystem,” he said in an email.
McCauley explained that the program is funded by Anchorage Digital and that revenues will come from underlying holdings. It’s unclear exactly how this will work, but McCauley reiterated that “there is no re-collateralization, equity or loans involved.”
To put that into context, Coinbase treats its yield program for USDC stablecoins held on the exchange as a marketing line item on the company’s balance sheet.
Rewards will be paid in PYUSD and will likely vary depending on the size of the deposit. “Rewards may vary,” McCauley said.
Are you having legal issues?
Anchorage is one of the most heavily regulated entities in the crypto space. In 2021, the Office of the Comptroller of the Currency granted it the first and so far only federal charter to become a digital asset bank. While it has been willing to experiment with new methods such as staking, the move to stablecoins is somewhat of a first.
The current regulatory landscape for stablecoins is unclear at best, with regulators such as the U.S. Securities and Exchange Commission treating some assets as securities while others are Ask for The Commodity Futures Trading Commission is stepping up oversight of asset classes.
Meanwhile, a bipartisan stablecoin bill appears to have stalled in Congress.
Agencies like the SEC or banking regulators like the OCC may view these interest-bearing quasi-bank accounts as under their jurisdiction, either because they appear to be securities or because they fall under bank protection.
But in an interview with Fortune, McCauley explained that the program could have loopholes because it is only available to accredited investors, so companies can seek a Reg D exemption that allows them to sell securities without registering.
He also explained that it is not Anchorage itself that is profitable, but rather a company called Anchorage Digital Neo based in the Cayman Islands.
In any case, McCauley seems to suspect that this is just the beginning of a foray into the stablecoin space.
“Anchorage Digital is excited to announce the launch of our first stablecoin rewards program that will enable institutions to earn competitive rewards on certain eligible stablecoin balances held at Anchorage Digital, starting with PayPal USD,” he told The Block.
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