On May 31, 2024, PayPal announced the launch of its stablecoin PayPal USD (PYUSD) on the Solana blockchain. This marks another significant milestone since PayPal introduced PYUSD on the Ethereum mainnet in August last year, providing its users with a new, efficient payment method and offering important insights into the future trends of the entire payment industry.
In the process of writing a Web3 payment research report and engaging in discussions with industry companies, one question has always been on my mind: is stablecoin payment really necessary? With the launch of PYUSD on Solana, PayPal, from a very practical perspective, has provided an answer about payment freedom:
“People want to pay as they please, and the current payment networks struggle to meet these needs. Crypto can meet these demands and is practical. Therefore, as a financial technology company dedicated to promoting payment innovation, we are introducing a stablecoin payment solution to cater to people’s current desire for flexible payments.”
With this in mind, this article will attempt to analyze the underlying logic of PayPal’s shift towards Crypto, the stablecoin payment solution introduced with the launch of PYUSD on Solana, and the evolutionary path towards Mass Adoption for PYUSD. I hope this can serve as a reference for the industry, and I welcome further discussions.
I. Why PayPal is turning to Crypto
As a global leading payment company, PayPal has over twenty years of global payment experience. Throughout these two decades, alongside the mature development of e-commerce, PayPal has not only established itself as a beacon of trust, providing users with the endorsement of transactions but has also achieved the widespread application of Internet digital payment networks.
PayPal’s original intention has always been the same – to promote payment innovation and enable everyone to pay as they wish.
However, so far, payment innovation has been built on the same basic financial track as when the Internet emerged. While the industry has been striving to provide global, instant, and seamless transactions, reality often reveals its shortcomings:
Settlement times for online payments are still long (averaging 2-3 days in the US), and markets, banks, and service providers need to operate on business days, further prolonging settlement times; Employers struggle to pay an increasingly distributed workforce; The increasingly global population finds it difficult to make cross-border remittances in a cheap and efficient manner; Businesses are most affected by this friction, while consumers still wait in what they perceive to be a slow payment environment.
In short, people today cannot pay as they wish.
This is the reason why PayPal is turning to Crypto – the answer is simple: it meets the demand and is practical.
Cryptocurrencies and blockchain technology bring people closer to realizing their payment desires: fast, inexpensive, global payments. This new generation of financial/payment infrastructure can help PayPal better serve its 40 million users, allowing everyone to pay as they wish.
Therefore, over a decade after the emergence of cryptocurrencies and blockchain technology, PayPal has once again come to a crucial moment in payment history, a moment filled with potential and opportunities, much like the early 2000s of the Internet.
Just as PayPal brought payments online before, PayPal is now bringing payments onto the chain.
II. Global Payment Challenges Await Improvement
The current payment channels and information transmission protocols (such as ACH, SEPA, and SWIFT) constitute the global payment network. They enable us to conduct large-scale transactions across regions and time zones, ensuring relatively smooth payments. However, current payment technologies also force us to make trade-offs between 1) payment settlement speed and 2) cost-effectiveness, such as:
The flow of funds incurs costs, and there needs to be prearranged cooperation and liquidity requirements between the various intermediaries; Cross-border operations time limits (business days) and batch processing mean that payments may need to wait several days to settle; The arrangements for net settlement do not meet the needs of small, high-frequency transactions.
However, as adults, we don’t want to choose – we want both: low-cost, efficient settlements.
People want to pay more easily. Businesses want to pay suppliers without worrying about settlement times; individuals want to remit money to distant family members without high fees and waiting days. Today’s financial infrastructure cannot quickly meet people’s needs for fast transactions, and PayPal does not want users to lose value in this waiting process.
Today, cryptocurrencies and blockchain technology offer a new payment channel that can simplify payment clearing processes, making payments fast, inexpensive, and easily accessible.
Therefore, we need to use cryptocurrency and blockchain payment technology solutions to address the legacy issues of traditional payments: 1) slow settlement times; 2) high transaction costs; and 3) incompatibility with under-banked and unbanked regions that the current financial system cannot cover.
III. PayPal’s Stablecoin Payment Solution
Stablecoin Definition: Most cryptocurrencies have significant price fluctuations, making them unsuitable for payments, as Bitcoin can experience large swings within a day. Stablecoins are a type of cryptocurrency designed to solve this problem by maintaining a stable value, usually pegged 1:1 to a fiat currency (such as the US dollar). Stablecoins offer the best of both worlds: they maintain low daily fluctuations while offering the benefits of blockchain – efficiency, cost-effectiveness, and global usability.
The stablecoin PYUSD introduced by PayPal is a new stablecoin payment solution aimed at achieving next-generation financial technology innovation. Built on PayPal’s deep industry experience and the high-performance Solana blockchain, PYUSD enables efficient instant settlements, reduces transaction costs, provides high security, and enables truly global payments.
PYUSD is a stable value storage tool (1:1 USD exchange) established by PayPal on the blockchain, and its introduction will address the above-mentioned problems in the global payment industry. Eligible US users can buy, sell, send, receive PYUSD and use it for payments:
Buy, transfer PYUSD within the PayPal and Venmo ecosystem, achieving a seamless deposit and withdrawal experience; Use PYUSD as a payment method for online transactions, such as checkout and payments for millions of PayPal businesses worldwide; Cross-border P2P payments on Xoom (cross-border payment tool); Outside the PayPal ecosystem, PYUSD can be used on cryptocurrency exchanges (such as Crypto.com) and wallets (such as Phantom); PYUSD can also be used for various innovations, such as serving as a quick, low-cost financing tool for risk investments like Mesh.
PYUSD is building a truly stablecoin business scenario, providing mainstream consumers and businesses with a nearly frictionless and trustworthy payment experience.
IV. The Evolutionary Path of PayPal’s Stablecoin Payment towards Mass Adoption
Based on PayPal’s nearly 20 years of global payment compliance experience and PYUSD’s highest compliance standards, the combination of PayPal + PYUSD can elevate stablecoin transactions to become stablecoin payments that we truly need.
At its inception, PayPal’s responsibility was not only to promote payment implementation but also to introduce and disseminate a new technology – digital payments, which have now become ubiquitous in our lives. This successful experience can provide guidance and novel insights for the introduction of PYUSD stablecoin payments. Specifically, PayPal outlines the evolutionary path towards Mass Adoption in three stages:
Awareness through Introduction;
Utility in Payment;
Ubiquity everywhere.
4.1 Awareness through Introduction
As mentioned earlier, payments are everywhere and deeply rooted in habits and practices, so transformation needs to be gradual and stable, not an overnight change. Introducing a new payment method involves both a behavioral and a technological or financial shift.
The first step towards Mass Adoption is awareness through introduction – simply informing people of the existence of new technology.
At this stage, early adopters are the target audience, namely cryptocurrency holders – a group that accounts for about 15% of the global population and is relatively easy to reach. This is also the reason why PayPal launched PYUSD on Ethereum in late 2023, ensuring early adopters’ awareness.
Today, on Solana, the second-largest cryptocurrency by market capitalization, PayPal’s stablecoin payment solution is poised to lead the crypto industry towards mainstream adoption.On a high-performance blockchain, PYUSD has been launched, catering to the most active and enthusiastic individuals in the crypto ecosystem, announcing to the world, “PYUSD is finally here.”
Additionally, the integration of PYUSD with the PayPal and Venmo applications will introduce it to over 100 million users in the United States. Moving forward, there will be continuous efforts to expand PYUSD’s influence beyond the PayPal ecosystem in collaboration with cryptocurrency exchanges and payment partners.
PayPal understands from past successful experiences that a cognitive awakening is the necessary first step to introduce a new payment mechanism to the masses.
4.2 Utility through Integration
The next step in adopting new payment technologies is to achieve utility through payments, transforming the initial cognitive awakening into practical payment utility in everyday life, much like how PayPal built a trusted platform for transactions between unfamiliar parties early on through eBay.
Today, people require payments to be fast and inexpensive. While the launch of PYUSD on the Ethereum mainnet by PayPal has provided it with significant visibility, it does not entirely meet all the standards required for PYUSD to fulfill its mission as a digital commercial payment tool – efficient, cost-effective, and globally universal.
Therefore, PYUSD has turned to Solana to achieve payment utility.
Solana is a high-performance blockchain network built for finance, payments, loyalty programs, and is one of the most widely adopted blockchains. In the fourth quarter of 2023, it processed an average of 40.7 million transactions per day, with 2500 active developers in its ecosystem. Furthermore, its open-source, programmable, and composable nature brings significant space and network effects.
Solana brings PYUSD faster settlement speeds, lower transaction costs, stronger scalability, and global network support compared to other blockchains. Combining Solana’s advantages, users can truly experience payment utility when using PYUSD:
Real-time settlement: Most PYUSD transactions settle efficiently within seconds.
Low transaction costs: Transaction costs on the Solana network are only a few cents, regardless of the transaction amount.
Transaction finality: Merchants need not worry about customers canceling payments due to insufficient funds or other reasons.
24/7 trading: Available round the clock, all year round.
Interoperability: PYUSD can be used outside the PayPal ecosystem, enabling interoperability with other gateways, networks, and wallets.
Programmability and composability: PYUSD is developed on the widely adopted SPL token standard. This means any product supporting this standard will automatically support PYUSD. Developers can freely experiment and build within and outside the PayPal ecosystem. Consumers, merchants, and institutions can enjoy a wide range of third-party developer experiences, using PYUSD for payment and financial use cases.
Large user base of PayPal: PYUSD is available for existing eligible PayPal customers in the United States.
Therefore, launching PYUSD on Solana will help drive the long-term adoption of stablecoin payments, transitioning PYUSD from the cognitive awakening stage to the practical payment utility stage.
With PYUSD launching on Ethereum and Solana, more developers and ecosystem partners will join in, and combined with the utility on PayPal and Venmo applications, PYUSD will offer users more practical and user-friendly use cases.
4.3 Ubiquity through Assimilation
The final stage in adopting any new payment technology is ubiquity, where the technology seamlessly integrates into daily life. In this stage, people can effortlessly use the new payment technology without even noticing – they are simply paying at their convenience.
For PayPal, it has made digital payments a way for people and businesses in over 200 countries to transfer funds securely, reliably, and standardized as a P2P, B2B, and B2C payment method, becoming ubiquitous as digital globalization advances.
PYUSD Stablecoin Payments Use Cases on Solana
Turning dreams into reality and enabling people to pay at their convenience requires more than just slogans. Let’s take a look at some real-world scenarios for PYUSD.
5.1 Cross-border Peer-to-Peer Remittances (P2P)
Today, economic connections between individuals globally are tighter than ever. However, cross-border money transfers between individuals represent a vast and growing market full of opportunities. Legal remittances to low- and middle-income countries reached a volume of $669 billion in 2023 (World Bank data), but cross-border transfers are not cheap.
With PYUSD, payers can transfer funds directly to recipients using a Solana wallet, settling almost instantly and with near-zero costs.
Even for recipients without a Solana wallet, payers can collaborate with PYUSD payment service providers to save costs on cross-border money transfers. Payment service providers connect local partner banks to the fiat cash network through PYUSD, allowing recipients to easily convert PYUSD into bank deposits or cash, enjoying nearly instant, low-cost global transfer services.
5.2 Business-to-Business Transfers (B2B)
Due to the complexity of cross-border payments involving multiple intermediaries and transnational agent bank networks, most B2B payments may take several days to settle. Moreover, depending on the method of cross-border fund transfer, payment costs can be high.
By leveraging the programmable features of PYUSD, businesses can build their services, seamlessly creating near-instant, cost-effective cross-border transfer methods with relatively low technical requirements. Teams can also create smart contracts to manage the flow of PYUSD between accounts, speeding up and ensuring the accuracy of supplier payments (or any other B2B payments governed by contract agreements).
Furthermore, using PYUSD for transfers does not necessarily require businesses to own or interact with PYUSD. Payment service providers can build B2B payment products to provide end-users with fiat experiences.
5.3 Global Payments (B2C)
PYUSD can significantly simplify global payments. PYUSD does not need to navigate through complex networks (including unique regional bank accounts, different currencies, agent banks, and digital wallet tracks) but can be paid to any compatible wallet address. Additionally, using PYUSD’s programmable smart contracts can enable business payers to automate payment processes more efficiently, even facilitating real-time wage payments.
5.4 Microtransactions
Traditional payment processing systems struggle to support microtransactions due to high transaction costs. Therefore, platforms processing microtransactions typically batch payments, involving complex payment engineering, increasing risks, and preventing platforms from accepting microtransactions.
However, PYUSD on Solana will enable merchant platforms to easily handle microtransactions in near real-time and at low costs. Microtransactions support various use cases, such as tips, in-game purchases, and paying content creators based on reads or views.
5.5 Web3 Payments
Many Web3 businesses (such as NFT markets and blockchain-based gaming platforms) lack connections to traditional fiat bank accounts and require robust, non-volatile payment solutions, which PYUSD + Paypal can provide.
In Conclusion
Jose Fernandez da Ponte, Senior Vice President of PayPal’s Blockchain, Cryptocurrency, and Digital Currencies Group, says, “The creation of PayPal USD is aimed at providing a fast, simple, and cost-effective payment method for the next wave of digital economy development, once again revolutionizing business. Launching PYUSD on the Solana blockchain further achieves our goal of creating a stable digital currency designed specifically for business and payments.”
We have seen that since the launch of PYUSD on Ethereum last year, it has been steadily gaining traction, primarily operating in PayPal’s Super App. Whether it is to break barriers or further explore, the launch on Solana undoubtedly marks the arrival of a killer application for Web3 – payments!
As we mentioned in our previous Web3 payments research report, the greatest opportunity in cryptocurrencies may not be to view them as cryptocurrencies but as a new set of payment methods.
Payments bear the significant mission of bridging the gap between the on-chain cryptocurrency system and the off-chain fiat currency system. Through tokenization transformation using blockchain technology, it will give new value to traditional monetary systems, overcome previously insurmountable boundaries, and potentially change the world economy forever.
