Source: Unchained Podcast (Youtube); Compilation: Kaori, Luccy, BlockBeats
On August 7, PayPal announced the launch of PayPal USD (PYUSD), a U.S. dollar stablecoin for transfers and payments. The stablecoin is issued by Paxos and backed by U.S. dollars, short-term treasury bonds and cash equivalents, and will gradually be available to PayPal customers in the United States. Although PayPal has been involved in a lot of business in the encryption field in the past few years, the launch of its official stable currency can still be regarded as a major event in the development of encryption.
Recently, Laura Shin interviewed José Fernández da Ponte, PayPal's senior vice president of cryptocurrency, to discuss in depth how the financial technology giant is developing a long-term strategy around blockchain-based payments. BlockBeats compiled and organized the interview, the full text is as follows:
**Laura Shin: This week, PayPal launched the stablecoin PYUSD on Ethereum. What is PayPal's vision for PYUSD and how will it be used? **
José Fernández da Ponte: We have been active in the encryption field for the past four years, and PayPal's overall vision has always been to become a bridge between fiat currency and Web3, bringing mainstream applications to the payment system. We are a payments company that cares deeply about payment applications, and the launch of PYUSD is a natural progression of that process. This is the culmination of Phase 1, starting with the use of traditional crypto tokens in applications, then moving to on-chain transfers, entering international markets, and now adding a fully supported and regulated stable value instrument that can be used for payments. We do think that stablecoins are the killer app for blockchain right now, they are very close to the payments market that we care a lot about.
**Laura Shin: So how do you expect it to be applied, such as which industries do you think will use it, DeFi? Or do you see it as simple payment? **
José Fernández da Ponte: We do believe that the fundamentals of digital currencies are well suited for payments, with some inherent advantages such as cost, programmability, and settlement times. Interestingly, a lot of the discussion focuses on cost per transaction, whereas I'm more interested in settlement time.
We tend to say they are faster and cheaper, but when you pay, speed is cheap, and the advantage of settlement time is very clear. But it will take time, this revolution will not happen overnight, and the mainstream use of stablecoins in everyday payments is still a few years away. But now some industries are already very suitable for using stablecoins. There are $122 billion in stablecoins today primarily for crypto transactions and Web3 use cases, including the DeFi you mentioned, where we expect PYUSD to be used as well. We're seeing some early use cases like remittances, which is an area of great interest to us.
A company that PayPal acquired a few years ago called Xoom has been very active in the remittance space, so we do have the right to play in that space, and the convergence between remittance and digital currencies has already begun. In the B2B payments space, we are seeing increased adoption of stablecoins, which makes perfect sense when you think about it. If you're a company exporting to a foreign country looking to get paid, rather than getting a wire transfer that takes three to five days to clear, that timely settlement time can really be powerful.
Possibly in addition to cryptocurrencies, the fourth market segment that we believe will be the first to adopt stablecoins is digital goods. In an economy like Minecraft or Roblox, about a hundred billion dollars in digital goods are traded every year. If you're a developer selling in-game digital goods on the current payment system, it can take up to 15 days to get your money. Therefore, if you can do some in-game digital native and instant settlement things, then the advantages are very obvious.
Likewise, I think we're still a few years away from mainstream use cases in domestic e-commerce or retail, but there's already a very large commercial market for stablecoins.
**Laura Shin: So you mean DeFi will go further? **
José Fernández da Ponte: I think DeFi will be part of the first wave, and today you can only get PYUSD on your PayPal wallet. We are adding that product, but for sure the major exchanges will also offer PYUSD at that time, when people can use it for traditional use cases as well.
**Laura Shin: Saw some news that PYUSD can be sent to "compatible external wallets", there are some regulations that may prohibit transactions to self-hosted wallets, but I want to confirm, does this include self-hosted wallets? **
José Fernández da Ponte: Yes, exactly. Regarding compatibility, I would say that PYUSD is an ERC-20 token that is deployed on the Ethereum blockchain and can be sent to external wallets that support ERC-20 tokens, that's what it means to be compatible.
**Laura Shin: There is something in the user terms that PayPal can reverse transactions, but I imagine this only applies to certain transactions, such as within the PayPal/Venmo system. **
José Fernández da Ponte: I don't know exactly which part you're referencing, but there are definitely deals that are related to being a fully backed and regulated stablecoin. Our offering is approved by DFS in New York, Paxos is the issuer, and New York has very clear and strict requirements in terms of KYC and anti-money laundering regulations, which requires the ability to implement appropriate controls.
**Laura Shin: There are already some very popular stablecoins designed very similar to PYUSD, such as USDT and USDC, how do you plan to differentiate PYUSD from other similarly designed stablecoins? **
José Fernández da Ponte: Yes, I think there are several different factors that make PYUSD a very strong value proposition. The first is obviously the PayPal ecosystem, PYUSD is the only stablecoin that is accepted by the PayPal ecosystem, which includes PayPal now, and soon Venmo, and our two-sided network. As a result, millions of consumers and merchants will have access to it and can use it as a funding tool for PayPal transactions. This means that if you shop at one of PayPal's millions of merchants, and you have a PYUSD balance on hand, you can use PYUSD as your funding instrument for payments, something I don't think anyone else can do.
The second aspect has to do with fiat currency connections, and PayPal leverages the banking connections we've built over the years. Switching from fiat to stablecoins is a clumsy process that sometimes requires moving wallets to exchanges to pay fees and then withdrawing cash, a process that can take days. Whereas at PayPal you can transfer PYUSD and sell it, then withdraw to your bank account. We see this as an inherent advantage, both for the uplink and downlink.
The third point I want to talk about is compliance and regulation. PYUSD is issued by New York Trust and draws on our 20 years of experience in tackling and preventing online financial crime.
**Laura Shin: Speaking of regulation, the current stablecoin legislation has passed the preliminary committee stage in the House of Representatives. Is the timing of your release a coincidence, or is it because this gave you some confidence to start? **
José Fernández da Ponte: We have been following the legislative process for a long time. Obviously, the parties are still divided on the content of the legislation, but this is a democratic process. In general, passage of these bills for consideration is not necessarily a trigger for our publication. A definite trend is happening today regarding stablecoins, a few months ago was MiCA in Europe. There are clear regulations around stablecoins in many markets, and now the US is catching up, which is why we went to New York, because this is the strictest, strongest, most rigorous framework for stablecoins available today.
**Laura Shin: House Representative Maxine Waters issued a statement stating, “She is deeply concerned that PayPal has chosen to launch its own stablecoin without a federal regulatory, oversight and enforcement framework for these assets.” What is your response to that? **
José Fernández da Ponte: I saw the senior member’s statement, and from the statement, I understand that her main point is that she wants to legislate for federal regulation of stablecoins, as we just said, this is an ongoing debate in Congress. There are other members of Congress, both Republicans and Democrats, who have different views as part of the legislative process. We are very supportive of regulation through legislation, as I said, this is the most stringent framework in place, and we will abide by and comply with any legislation that comes out of Congress.
**Laura Shin: Does PayPal think federal regulation is necessary, or does it think state regulation of stablecoins is sufficient? **
José Fernández da Ponte: We are a payments company in a country where payments are regulated at the state level. I think different places regulate it in different ways. For example, in places like MiCA, it has a very clear definition of payments in stablecoins. In our view, if stablecoins are related to payment activities, then it makes sense to include them in the payments framework, which is now regulated at the state level.
**Laura Shin: A few years ago, when Facebook (now Meta) launched Libra, it was trying to create a stable currency that was not directly pegged to the value of the US dollar. But I wonder how the company's failure, largely for regulatory reasons, has affected PayPal's strategy for this launch. **
José Fernández da Ponte: We had discussions about Libra, four years ago. But I don't think it's going to affect how we do it because we've grown in this area the same way we've done other businesses. We are both a technology company and a 20-year-old regulated financial institution. Our approach has always been to put regulation first, and sometimes that means we can move slower than other companies, but we care deeply about the regulatory and compliance framework and our relationship with regulators. As we've said in the past, we're one of the few agencies that can do that, with operations in 200 countries. We have always stressed that we will always be in coordination with regulators as we explore this area. So I don't think it's Libra's influence, it's just our nature.
**Laura Shin: How do you plan to expand this to the rest of the world? Also, will you launch stablecoins anchored to other fiat currencies? **
José Fernández da Ponte: We are already live in the PayPal wallet, and the next step is to make this function in the Venmo wallet, so it will still be based in the United States, but we will also consider international expansion. We have not yet considered other local currency-denominated stablecoins, the current priority is to ensure the success of this launch and make it beneficial to the crypto ecosystem.
Laura Shin: But I believe you must have a general idea in your mind whether you plan to launch a euro stablecoin or a British pound stablecoin.
José Fernández da Ponte: No plans at the moment.
Laura Shin: So what does your upcoming monthly reserve report look like, will it also show proof of reserve?
José Fernández da Ponte: As part of the New York framework, Paxos is the issuer of the token. Periodic audits must be carried out as required. So this will be similar to other stablecoins issued by Paxos like USDP etc. Users can see an audit report verified by a third party, which shows the amount and composition of the reserve.
Laura Shin: But it's not an address-identifying thing, and people can't use certain functions to prove that their own coins are still held in the reserve.
José Fernández da Ponte: I think for the benefit of all parties, the best way is to visit the Paxos website, which provides reports on other stablecoins, and you can clearly understand the information provided by our side.
Laura Shin: PayPal hopes to build in some digitally native environments such as online games, which seems to be different from PayPal's existing user base, how do you plan to attract these users.
José Fernández da Ponte: I am very interested in payments in the video game industry. If you think about video games, sometimes to outside observers they might be considered only for the young crowd. But in reality, the audience for video games is very much in line with the general population, and it's a very large industry with very stringent and constrained computing needs. From the perspective of solving difficult technical problems, this is a very difficult computational problem.
Many computing innovations were born in video games, and I think many innovations in payments will also be realized in video games. We envision some payment use cases that are not currently possible, and stablecoins may make these use cases possible, such as streaming payments. Imagine paying by the second or the minute when you watch a video instead of paying for the entire video? Or can you buy digital items in the in-game environment and take them away? I think we've seen some really exciting experiments with in-game NPCs (non-player characters) or AI agents that can connect to a wallet and carry value, and then this autonomous agent within the game can Buy and sell things.
We can't imagine these things out of thin air. What we do is to release a platform product and then developers will develop on it.
Laura Shin: This is one of the reasons why PayPal decided to design PYUSD as an ERC-20 token, and it sounds like it is planning smart contracts and other functions that make money more programmable.
José Fernández da Ponte: Yes, in the beginning process we had to think about whether we were going to go the way of open source licenses and traditional permissionless environments, or whether we were going to do something proprietary. Then we quickly chose the open approach because we believe in following the developers. Instead of telling developers what to do, let them tell you what to do. Choosing Ethereum was a very clear decision because the developer community was already there.
PYUSD is designed to be a multi-chain, so there is absolutely no reason why we shouldn't expand on other protocols or other layers of the same protocol in the future. Even though Ethereum has higher fees compared to other protocols, it also has many advantages. For some use cases, like let's say micropayments or high-speed, high-throughput, it can be expensive, so we'll definitely scale from there, but Ethereum is clearly the platform of choice for deployment.
**Laura Shin: This undoubtedly opens up a new source of income for PayPal. First of all, PayPal can make money from deposits such as government bonds. The handling fee is 1.5% of the deposit or transaction? **
José Fernández da Ponte: Traditionally the monetization mechanism for stablecoins is through reserve earnings, but in the current interest rate environment, this has become a considerable source of profit for the industry, but we don't think it should be the only monetization mechanism. The interest rate environment may change, so our assumption is that when these stablecoins are adopted, we will monetize through instruments that are closer to traditional payment operations. That is, when merchants wish to accept stablecoin settlements, they need to pay merchant discount rates.
In addition, people may convert stablecoins of one currency into other types of stablecoins, which may involve certain processing fees. Regarding the fee, there is no fee when buying PYUSD on the PayPal app, and there is no fee when selling PYUSD, you can buy $1 for $1 with no fees involved, or you can sell $1 and your PayPal balance will receive $1, and of course transfers are also possible, and we do not charge any PayPal fees for these transfers. The only fees that need to be paid are the ones that the Ethereum protocol requires you to pay. In the PayPal ecosystem, we do charge transaction fees, but not for stablecoins.
**Laura Shin: Going back to my earlier question about PayPal's revenue stream, how big does PayPal think this potential line of business can get? **
José Fernández da Ponte: It could be very important in the long run, but our expectations for next year are modest. Interestingly, it's often a very polarizing environment. Stablecoins exist for evidence, right? There are $120 billion in stablecoins in the market right now, and we hope to capture some of that market share, and at the same time help expand the market as a whole.
I saw an analyst report a few days ago, and it said that stablecoins will grow from $122 billion now to $2.8 trillion in five years, which is a huge increase, meaning a 22-fold increase in five years, but I Think of it as a project that will take years to develop. We want to build the right use cases and roll out. Growth will definitely happen, but we have a long-term mentality. It will be a journey that spans many years.
**Laura Shin: How does the app present this payment method to the user? Is it an option among all payment options, or are there any incentives for people to try it? **
José Fernández da Ponte: There are two different places where it shows, the first one is when you go into the app, there is a cryptocurrency section in the app, you will see it as an additional token, you will see that we support , Bitcoin, Ethereum, Litecoin and Bitcoin Cash, as well as PYUSD, where they can be bought, sold and transferred to external wallets.
In a checkout transaction, we provide consumers with choices without pre-defining or directing them to any particular payment method. So it will appear as another payment option, but will not be given any more priority at checkout. If you decide to use PayPal and pay with a credit card, your credit card will be shown first, and others will be shown after that, including PYUSD.
**Laura Shin: Okay, this was a very interesting discussion. Anything else about PYUSD that I didn't ask but you want to mention? **
José Fernández da Ponte: As I said at the beginning, we do believe that stablecoins are the killer app in this space. The advantages in terms of settlement time, cost and speed are very important, but it will take some time for mainstream payment adoption. So we took a crypto-first approach and started exploring some retail use cases. When it comes to competition, I believe we're going to have some market share here, but also believe there's a lot of demand in the market for more fully backed and regulated stablecoins, which is a boon for the industry as a whole Good development.
