Coinbase ends fee on PayPal USD purchases as stablecoin race heats up

Coinbase is removing fees for purchases of PayPal‘s stablecoin as part of a broader effort to increase the use of the coin, and an attempt to boost on-chain payment opportunities for consumers and institutional users. 

In a blog post Thursday, Coinbase said it aims “to accelerate the adoption, distribution, and utilization of the PayPal USD (PYUSD),” the U.S. dollar-pegged stablecoin that has lagged the market since it launched in 2023. With a market cap of only about $730 million, it PayPal USD controls less than 1% of the market for stablecoins tied to the dollar. Tether’s USDT and Circle’s USDC, dominate the market with 66.5% and 28.3% shares, respectively, according to CryptoQuant.

PayPal said the companies will also collaborate on “stablecoin based solutions” for “moving or managing money around the world, particularly in commerce,” as well as potential use cases for PYUSD in decentralized finance and other on-chain platforms.

“We are excited to drive new, exciting, and innovative use cases together with Coinbase and the entire cryptocurrency community, putting PYUSD at the center and driving further utility and adoption for digital currencies among developers, customers, and other users,” said Alex Chriss, PayPal president and CEO.

Stablecoin race

The race for payment stablecoins has been heating up on expectations that Congress will pass its first piece of crypto legislation, focused on stablecoins, in the third quarter. Historically, stablecoins are primarily used for trading and borrowing in the crypto market. More recently, stablecoins have become more appealing to institutions aiming to transfer value, particularly in dollars, across the globe more cheaply and efficiently outside the traditional financial system.

Earlier this week, USDC issuer Circle – which earlier this month filed to go public – debuted a payments and remittance network aimed at financial institutions, challenging a major part of PayPal’s business. Ripple, the cross-border payments company and creator of the XRP cryptocurrency, launched its Ripple USD stablecoin (RLUSD) in December. 

PayPal’s two-sided network of more than 430 million consumers and merchants, “offers an unprecedented opportunity to increase stablecoin adoption globally,” Coinbase CEO Brian Armstrong said in a statement.

The crypto exchange operator has long set its sights on building a global economy that runs on cryptocurrency, using stablecoins as a means to diversify its revenue away from crypto trading. Coinbase has an agreement with Circle to share 50% of the revenue from the USDC stablecoin — and Armstrong said on the company’s most recent earnings call that it has a “stretch goal to make USDC the number 1 stablecoin.”

Crypto payments integration

Coinbase also has big ambitions for Base, its self-built network for Ethereum-compatible applications.

“We’re moving with haste to integrate crypto payments across our entire suite of products – we think that will be a big business over time – and we’re also solidifying Base as the number one chain … for start-ups to build on-chain,” Armstrong said on the earnings call.

“We can really fuel a lot of [stablecoin] growth by driving more partnerships with global and local players like Stripe and Yellow Card to do more global adoption,” he said on the same call with analysts and investors. “We’ve been adding a number of additional stablecoin trading pairs on our platform.”

As part of Thursday’s update, Coinbase users will also be able to redeem their PYUSD for dollars directly on the Coinbase platform, mirroring a USDC capability. Previously, users were required to move their PYUSD onto one of the PayPal platforms (PayPal, Venmo or Paxos) for redemption.

On Wednesday, PayPal introduced a 3.7% annual rewards rate on PYUSD balances, paid in more PYUSD, to boost adoption of the stablecoin.

Get Your Ticket to Pro LIVE
Join us at the New York Stock Exchange!

Uncertain markets? Gain an edge with CNBC Pro LIVE, an exclusive, inaugural event at the historic New York Stock Exchange.

In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12.

Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!