Facebook Picks Paxos Stablecoin for Its Newly-Launched Crypto Wallet

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Facebook has entered the crypto industry officially with its new digital currency wallet dubbed “Novi.”

However, the announcement has appeared with a surprise. Earlier, Facebook had plans to include its native cryptocurrency Diem in its wallet service. But the pushback from U.S. regulators forced the social media giant to choose an existing player. Thus, it picked Paxos Dollar stablecoin.

In detail, stablecoins are U.S. dollar-backed digital currencies. They assist users in gaining on-the-go liquidity across crypto exchanges and wallets without needing to go through the slow banking process by trading the real dollars. For example, Paxos is the eighth-largest stablecoin that makes up less than one percent of the overall crypto transactions.

Nevertheless, it is still more regulation-friendly than its top rival, Tether, which has lately run into issues with the U.S. regulators for not always backing its stablecoin issuance with the dollar reserves. Moreover, unlike Tether, Paxos has received a “preliminary conditional approval” from the Office of the Comptroller of the Currency.

“Paxos has paved the way in crypto by building regulated solutions within established frameworks,” Walter Hessert, head of the strategy at Paxos, wrote in a blog post.

Warnings to Facebook

David Marcus, the head of the Novi wallet, said Facebook chose Paxos because its reserves remain 100% backed by cash and cash equivalents. That would allow Novi users to withdraw money in their local fiat easily. Nevertheless, Facebook’s foray into the crypto sector has met with a sore response from some U.S. lawmakers.

For instance, Democratic senators Brian Schatz, Sherrod Brown, Richard Blumenthal, and Elizabeth Warren asked Facebook to close down Novi. They wrote in a letter to the social media firm’s co-founder and chief executive, Mark Zuckerburg, that their plans “are incompatible with the actual financial regulatory landscape,” adding:

“Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient.”

The lawmakers have long argued against Facebook’s foray into the financial sector. However, in 2019, they successfully stopped the company from launching Diem — then called Libra — a cryptocurrency that was supposed to be backed by different fiat currencies and received backing from Paypal, Andressen Horowitz, Uber, and others.

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