Payments giant PayPal, which was founded by Elon Musk, Peter Thiel, Yu Pan, and others, announced on Monday that they are launching a stabelcoin pegged to the U.S. dollar. This makes PayPal the first major financial technology firm to incorporate digital currencies for payments and transfers. The news had a positive impact on the company's shares, lifting them by 2.66 per cent.

Stablecoins, a type of cryptocurrency designed to mitigate volatility by pegging their value to a stable asset, have been in existence for several years. However, they have yet to gain significant traction in mainstream consumer payments, mainly serving as a means to trade other cryptocurrencies such as Bitcoin and Ethereum. Tether remains the largest stablecoin, followed by USD Coin, issued by crypto provider Circle.

PayPal's stablecoin, named PayPal USD, is backed by U.S. dollar deposits and short-term U.S. Treasuries and will be issued by Paxos Trust Co. Its gradual availability will be limited to PayPal customers in the United States. An advantage of this stablecoin is that it can be redeemed for U.S. dollars at any time and can also be used to facilitate the buying and selling of other cryptocurrencies offered on PayPal's platform, including Bitcoin.

Previous attempts by major mainstream companies to introduce stablecoins have encountered resistance from financial regulators and policymakers. Meta's plan to launch Libra, a stablecoin, was thwarted in 2019 due to concerns about potential disruptions to global financial stability.

In response to the growing interest in stablecoins, several major economies, including the European Union and Britain, have recently established regulations to govern these digital assets, with the EU's policies scheduled to take effect in June 2024.

It is worth noting that in 2002, PayPal was acquired by eBay for $1.5 billion in stock. Musk, the founder and the largest shareholder of the company with 11.72 per cent holding, received $175.8 million from the buyout.