Paypal better have something unique to offer to get ahead of the game in my opinion. Does not matter whether you joined the cryptocurrency train, if you are just another platform that offer the same services, time will come for you eventually. I have my hopes on Paypal that they will do something because as OP said, the race is on. You need to use what you can to get ahead of the game.
They have the popularity and influence. That is enough for them to stick with this industry. More people would be exposed to this technology because of PayPal which is a network on mainstream. Other big exchangers will surely have advantages over paypal when it comes to fees and convenience but since they offer more "assurance" and popularity, there will be people who will engage to them than other platforms for this technology. Further developments are another side of the story.
i heard all they are going to do is hold it on paxos exchange.... so if paxos gets hacked( probably a big target considering itll be paypals(mainstreams) btc holding spot) paypal takes no responsiblilty for your losses...... i think this isnt going to last long once news gets out, unless they change things and maybe take some liability.
Do you have any proof for this? I don't think that they will be stupid enough to store their coins in some shitty exchange, after all the exchange robberies and hacks we had in the past. But I know one thing for sure. For PayPal, insuring the cryptocurrency deposits is not going to be a big thing. They have billions of $$$ in cash reserves and even if all of their coins get hacked, they can easily reimburse their users (unlike the cryptocurrency exchanges).
They are a huge network already and indeed, they won't just allow such thing to happen that may ruin their reputation. They would more likely secure that aspect.