Inside PayPal's Blockchain Strategy Insights from the Head of Crypto

PayPal's journey into crypto began with a vision to revolutionize payments, leveraging blockchain technology to make transactions cheaper and more efficient.

Here we are with Jose Fernandez, head of crypto and blockchain at PayPal. Jose, it's so great to have you here at the Defined Podcast. Welcome!

Thank you, Camila. Hello! Thank you for having us. It's fantastic to be back with you. Just a heads up, Jose and I last spoke at South by Southwest, where we did a great panel. I'm excited to bring this conversation to the podcast.

To provide a bit of history regarding PayPal's involvement in crypto, I would love for you to take us through how the process was for PayPal to seriously start considering crypto. Around what time was this, and what prompted this decision?

Absolutely! We have been involved with crypto for the best part of the last four or five years. I myself have been involved with crypto since 2015. I came back to PayPal in 2019, and that has been most of my tenure here, helping to drive this initiative. The reason that we got involved in 2019 was that we were looking at ways to do payments and explore next-generation payment rails.

It's very important to understand that from a PayPal perspective, we are interested in the blockchain space because we are focused on payments. The "aha moment" came when we were tinkering with blockchains and protocols back in 2019. We started to run transactions at 100 of a penny per transaction. If you can do that, we were well aware that when we were doing this on layer one, five years ago, we were convinced that when we do this in production, it is not going to be as cheap as we hoped. It’s unlikely to be a thousand times cheaper than moving money around on traditional rails, but if it is 10 times cheaper, we would consider that a success.

The overarching principle for us was that we are in the payments business. If you look at a lot of the fintech innovation that has happened over the last 20 years or so, or maybe even 50 years, since the advent of the networks and credit card payment rails, much of the innovation has either been on the front end, focusing on user experience, or on fraud prevention mechanisms. PayPal has been a significant part of those two areas. However, most of the innovation in the last 30 years still uses the same underlying rails to move money around.

We were squinting really hard at this technology and saying, "You know what? I've been in payments for the best part of the last 20 years." PayPal has obviously been around for longer than that, and many of us on the team were looking at the technology and realizing that this is the first time we are seeing technology that can actually radically transform the way we move value around.

We started with that concept. It began very small, with a blockchain research group consisting of a few engineers and some team members who were tinkering with the technology to figure out what was doable. When we saw the promise of it, we said, "You know what? This is something where we can help bring digital currencies to the mainstream." That’s why our first product that went live in 2020 was the ability to buy some crypto tokens on the PayPal app.

We opened this feature for a lot of new users—those who were crypto curious and wanted to experiment with the ecosystem but were not experts in self-custody. They didn’t want to deal with hosted wallets or have to understand elliptic curve cryptography. They wanted their first crypto experience with a brand they knew and trusted.

Since then, it has been a bit of a roller coaster. We went live in PayPal with four tokens: Bitcoin, Ethereum, Bitcoin Cash, and Litecoin in 2020. We launched VMO in early 2021 and began to go international. We expanded to the UK and the European Union. An important moment for us was when we enabled on-chain transfers in 2022. This feature allowed users to deposit and withdraw crypto tokens from PayPal to external wallets, enabling them to interact with the Web3 ecosystem from their PayPal accounts.

This change significantly altered the profile of our users. We still have those crypto novices who are having their first experience in crypto with us, but increasingly, we are attracting more sophisticated users who appreciate the idea of having easy on-ramps and off-ramps through PayPal for their Web3 activities.

Importantly, we launched our stablecoin, PYUSD, in the summer of 2023. It has grown very nicely and is gaining good distribution across many exchanges and wallets. We are continuing to push forward on payment innovations.

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The future of payments is here, and it's all about making crypto accessible and practical for everyday transactions.

In 2022, we enabled onchain transfers, which essentially provided the ability to deposit and withdraw crypto tokens from PayPal and external wallets. This functionality allows users to interact with the Web3 ecosystem directly from their PayPal accounts. This change significantly altered the profile of our users. While we still cater to crypto newcomers who are experiencing cryptocurrency for the first time, we are increasingly attracting more sophisticated users. These users appreciate the convenience of having easy on-ramps and off-ramps through PayPal for their Web3 activities.

In the summer of 2023, we launched our stablecoin, PYUSD, which has seen impressive growth and is gaining good distribution across various exchanges and wallets. We are actively pushing for more payment use cases for this stablecoin. Remember, our primary motivation in this venture is to transform payment rails. We believe that very few entities, like us, are positioned to drive this transformation into the mainstream, particularly in the C2C (customer-to-customer) space, as we are doing with our remittance product, Zoom, as well as in B2C (business-to-consumer) and B2B (business-to-business) payments.

We are thrilled with the progress of our stablecoin and are excited to see it integrated into more PayPal experiences. Recently, Zoom went live with a feature that enables zero transaction fees on remittances funded by stablecoin, which has been met with very good traction in the market. Reflecting on our journey, it has been quite a trip down memory lane, and this is how we arrived at our current position.

The main reason we ventured into crypto was to enhance payment options. We announced crypto payments back in 2020, and since then, we have evolved significantly. We have enabled what we call crypto checkout, which allows users to utilize their crypto balances as a payment method at millions of merchants. When making a purchase, users can select how they wish to pay—via credit card, debit card, bank account, or their crypto balance, which includes Bitcoin or PYUSD. If a user chooses Bitcoin, we convert it to fiat currency and settle with the merchant in fiat, meaning the merchant does not need to handle crypto directly or deal with its volatility.

However, we have observed that consumers generally view their crypto as assets rather than payment instruments. Many hold Bitcoin because they believe in its potential value increase, rather than considering it a viable payment method for commerce at this time. We believe several factors will contribute to changing this perception.

First, the transformation of payments will take time; I often remind the team that we are in year four of a 10-year journey. Second, we should not expect immediate adoption of stablecoins or more volatile assets for mainstream commerce in the U.S. or Western Europe. It is unlikely that you will visit your favorite merchant next year and see a button that says "pay with stablecoin X." However, we are beginning to see emerging payment use cases that we want to nurture, particularly in areas like cross-border payments. Remittances represent a clear pain point that digital currencies can address, particularly concerning cost and settlement speed, as well as the ability to send tokens efficiently.

=> 00:09:08

Crypto payments are set to transform cross-border transactions and B2B settlements before making waves in mainstream consumer purchases.

In the current landscape of digital currencies, it is clear that adoption for mainstream commerce in the US or Western Europe will not occur in the very short term, particularly not for more volatile assets. For instance, I don't think that you're going to go to your preferred merchant next year and see a button that says "pay with a stable coin." The prevailing pain points in payment systems today do not align with such a shift just yet. However, there are a few emerging payment use cases that we want to nurture and be a part of, particularly those related to cross-border payments and remittances.

Remittances represent a very clear pain point that is highly addressable by digital currencies. This is primarily due to the cost and settlement speed associated with these transactions. The ability to send tokens that can be received on the other side in just 10 to 15 minutes is a significant advantage. We believe that the cross-border payments between individuals, particularly in the consumer-to-consumer (C2C) space, are already primed for transformation through digital currencies.

Moreover, in the realm of cross-border e-commerce, most of the activity we observe involves consumers in one country who lack access to an international credit card and wish to purchase from merchants in another country. This highlights the demand for crypto assets in these transactions.

B2B payments also present an interesting opportunity. In this context, the question often revolves around settlement time and access to hard currency rather than just the cost of transfers. If a business can pay a supplier in a different country using an instrument that can be purchased with local currency and settles in 10 minutes, available 24/7, this creates a compelling use case.

Another area worth mentioning is digital goods. For creators engaged in microblogging or other forms of creative work, charging small amounts—like $1 per blog read—can be challenging due to current payment rates. For those unfamiliar with the payment space, transaction costs are typically denominated as a percentage with a minimum fee. For very small transactions, this minimum fee can represent a disproportionate percentage of the payment. Thus, if we can facilitate transactions with really low costs and eliminate that fixed component, it becomes a much more efficient payment instrument for digital goods, items in video games, and microblogs.

In summary, we anticipate seeing payments emerge in cross-border transactions, digital goods, and B2B interactions before we witness mainstream adoption in B2C scenarios. While I might be mistaken, I would be pleased to be proven wrong.

To summarize my view on crypto payments today, we can categorize them into three buckets: C2C, which includes remittances and services like sending PUSD via Zoom; B2C, which involves payments to businesses for purchasing goods; and B2B, where businesses transact with each other. There is a more significant need for crypto in C2C and B2B transactions, primarily due to the importance of settlement times. For businesses, time is indeed money, and having immediate access to cash is crucial. In contrast, for B2C, there are numerous alternatives available for digital purchases, and crypto isn't typically the first option that comes to mind.

While there is a clear advantage for merchants in terms of faster settlement and lower costs, the adoption of crypto in B2C will likely follow consumer adoption. It remains unclear why a user in the US should opt to pay with a stable coin when other payment instruments are available. Although the value creation in terms of lower costs and higher speed is evident, the value capture between the consumer and the merchant still needs to be defined. As previously mentioned, the most evident use case for C2C transactions is in remittances.

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The future of payments lies in blockchain technology, enabling true wallet interoperability and lower transaction costs, making it easier for consumers and merchants to connect.

In today's financial landscape, there is a growing perspective that things should be viewed as assets to invest in rather than merely for payments. This shift is particularly evident in the business-to-consumer (B2C) sector, where there is a very clear advantage for the merchant. If merchants can offer faster settlement and lower costs, the adoption of such payment methods is likely to increase. However, it is essential to recognize that consumer adoption will follow. The question arises: why should a user in the US opt to pay with a stable coin when other payment instruments are available? While the value creation—in terms of lower costs and higher speed—is apparent, the value capture between consumers and merchants still needs to be clearly defined.

On the consumer-to-consumer (C2C) side, cross-border transactions present the most evident use case, particularly in remittances. It is anticipated that we will also see stable coins being utilized in domestic payments. One significant challenge that has yet to be resolved in the payments landscape is wallet interoperability. For instance, if I am using a PayPal wallet and you are using a different wallet, sending money has historically been complicated. Before the advent of digital currencies, it was unclear how to transfer funds without both parties using the same app or wallet. Now, with the introduction of stable coins, as long as both our wallets support a particular blockchain—such as Ethereum—we can move tokens between unrelated wallets, achieving the much-needed interoperability.

To illustrate this, consider the evolution of mobile phones. There was a time when you could only send SMS messages to individuals on the same mobile network. Today, we take for granted that we can send messages regardless of the carrier. This is one of the promises of blockchain technology: achieving true wallet interoperability.

For example, imagine a scenario where we have both a PayPal wallet and a Venmo wallet, which are part of the PayPal ecosystem but operate as distinct wallets. Until recently, it was impossible to send money directly from a PayPal account to a Venmo account. However, with stable coin integration on both platforms, users can now send stable coins seamlessly between these wallets. One of the companies we are collaborating with is a significant wallet provider in Africa, and they are witnessing users in the US sending stable coins directly from their Venmo wallets to this African wallet.

There are various reasons for this shift. In discussions, some people question the necessity of blockchains for achieving wallet interoperability, suggesting that it could be done without them. While it is true that there are alternative methods to achieve interoperability, the fact remains that until we deployed blockchains, we lacked a viable solution for this issue.

This development is significant, particularly coming from PayPal, as it highlights a specific use case for payments and transfers that is not feasible without this technology.

Returning to the topic of payments, particularly concerning the example of a digital creator in the US who might want to accept micro payments on their site, it raises the question of whether PayPal would impose its own fees on these transactions. When considering micro payments, there are two critical components of cost that need to be addressed. The first is the pure cost of payment. If we can eliminate the fixed fee associated with transactions, it would be beneficial. While there will always be a fixed fee, it is essential for payment providers in the digital currency ecosystem to monetize through transaction fees.

In conclusion, the logical and rational approach for monetizing stable coins as a payment instrument is through transaction fees, which can facilitate a more efficient payment process for both consumers and merchants.

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Empowering creators to monetize directly with consumers is the future of digital payments, cutting out middlemen and lowering transaction costs.

In discussing the topic of micro payments, it's important to recognize that there are two key components of the cost that can be addressed, both of which are significant. The first component is the purely the cost of payment. This involves a percentage and a fixed fee. If we can move towards a model that eliminates the fixed fee, it would be beneficial. However, I believe that having a fixed fee is actually healthy, as it allows payment providers in the ecosystem, particularly those dealing with digital currencies, to monetize through transaction fees.

We can explore the monetization model for stable coins in a moment, but I firmly believe that the logical and rational approach to monetizing stable coins as a payment instrument for a payment player is through transaction fees. Ideally, we should aim to make these transaction costs lower and faster than they are today, but I still think that charging for their use through transaction fees makes sense.

The second component is somewhat unrelated to payments. It pertains to how creators have traditionally viewed their apps, downloads, blogs, and other products through platforms, marketplaces, and app stores, which often capture a portion of their earnings. There is a growing movement towards enabling these creators to monetize their art, products, or literature more directly. Establishing a direct connection between the creator and the consumer, facilitated by a payment instrument that allows funds to flow straight from the creator to the client, is something that can be enabled in this space. While platforms do add significant value, we believe in offering choice, a principle we have been advocating for many years. We think there should be multiple avenues for creators to take their work to market.

Additionally, Protocol 20 introduces Soron, which is Stellar's cutting-edge smart contracts platform. This development creates new opportunities for innovation and allows developers to build protocols and products that provide access to everyday financial services. It signifies a gradual increase in transaction capacity and offers a chance to fine-tune applications, marking it as the most transformative upgrade to the Stellar Network to date.

I wanted to get your thoughts on Stripe's recent announcement regarding crypto payments and how it compares to our solution. One notable difference is that with our system, you can fund the payment with an external wallet, whereas it seems that at PayPal, you need to have crypto within the PayPal wallet to fund transactions. Is this one of the main differences, or are there others? I would love to hear your insights on their move.

First of all, I must clarify that I'm not an expert on Stripe's product; that would be a better question for their team. However, from a general perspective, I believe that the advent of digital currencies for payments is a positive development. The more payment providers that enter the digital currency space, the better it is for the industry and the ecosystem as a whole.

At PayPal, we have our crypto checkout product, which is part of our branded checkout. As you mentioned, you need to have crypto in your PayPal wallet to utilize it. However, you don't necessarily need to purchase your crypto through us. For instance, if you have a non-custodial wallet and some crypto there, you can decide to use that for payments. If you are holding our POSD stable coin in your non-custodial wallet and you want to use part of that for commerce, payroll, or to pay a supplier, you can transfer that stable coin to your PayPal wallet. This is part of our on-chain transfer capability, allowing you to send the stable coin into your PayPal wallet, which you can then use anywhere PayPal is accepted.

I believe this feature represents a significant advantage for us compared to other solutions that provide funding with stable coins and crypto. Most of our merchants already accept crypto by default, so there is no need for them to specifically state that they will accept it.

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PayPal's new stablecoin, PUSD, is designed for seamless integration into everyday commerce, allowing users to easily convert and spend their crypto without needing merchants to adapt.

A noncustodial wallet allows users to manage their own digital assets without relying on a third party. For instance, if someone sells an NFT and receives the proceeds in PayPal dollars, they can choose to use part of that for various purposes, such as making payroll or paying suppliers. By utilizing the onchain transfer capability, users can move stable coins into their PayPal wallet through an onchain transaction. Once the stable coin is in the PayPal wallet, it can be used anywhere that PayPal is accepted. This feature represents a significant advantage over other solutions that provide funding with stable coins and crypto, as most merchants already accept crypto by default through PayPal's integration.

Additionally, there was considerable thought given to whether to deploy a custom stable coin or utilize existing ones available in the market. The decision to create their own stable coin stemmed from the desire to customize it specifically for payment purposes. This led to the launch of PUSD, which was introduced in August 2023 and has since grown to a market cap of 300 million. For context, the two largest stable coins, Tether and USDC, have market caps of 100 billion and 30 billion, respectively. PUSD is a fiat-backed stable coin, utilizing Paxos as the issuer and custodian, making it an interesting move for PayPal to issue a stable coin on Ethereum that is backed by fiat and is interoperable.

The decision to launch their own stable coin rather than using existing ones was driven by the need for greater flexibility in designing features specifically for payments. PUSD, as a fiat-backed stable coin, has become a top five fiat-backed stable coin by assets, with on-chain volumes reaching around 100 million per month within just six months of its market presence. Importantly, users do not need a PayPal account to engage with PUSD, as it is an ERC20 token that can be utilized in any ERC20-compatible environment. It can also be purchased on many large exchanges and non-custodial wallets.

The vision for PUSD is to be multi-chain. Early on, the decision was made to avoid competing in the blockchain or protocol arenas. Instead, PayPal aims to focus on the user experience (UX) and application space, acknowledging the importance of open-source and permissionless ecosystems. They do not wish to take on protocol or blockchain risks, believing that developers will ultimately shape the future of the ecosystem. Starting with Ethereum was a strategic choice, given its volume and developer ecosystem, but plans to deploy on other chains are in place as well. The overarching goal is to support developers and adapt to where the ecosystem evolves.

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Embrace the future of finance by bridging the gap between fiat and web3 with a stable coin that prioritizes regulation, transparency, and seamless transactions.

We didn't want to be in a permission environment. We believe that the value of this ecosystem lies in its open-source and permissionless nature. Our goal is to support the ecosystem in this way, and we also want to avoid taking protocol risk or blockchain risk. We trust that developers will ultimately decide the direction of this ecosystem, and we aim to support them in their endeavors. Therefore, we will follow where developers lead us, rather than trying to influence that direction.

We started with Ethereum because that is where most of the volume and developer ecosystem currently exists. However, we plan to deploy on other chains as well. To address your question about why we decided it made sense for us to have our own stablecoin, we believe that you should use our stablecoin if you want one that is highly regulated. It is regulated by the New York Department of Financial Services, issued in the US, and backed by Paxos, a limited-purpose trust registered in New York. This stablecoin is also supported by a strong financial brand, which provides easy on-ramps and off-ramps into fiat.

We see PayPal's role in this ecosystem as a conduit between fiat and Web3. We care deeply about providing the ability for individuals who hold a stablecoin to withdraw it into a bank account quickly, if needed. Conversely, we also want to facilitate those who have fiat currency and wish to pay a supplier in Southeast Asia using a stablecoin. We believe that our superpowers include strong regulation, transparency regarding the assets in reserve, monthly attestations on what is held in that reserve, and the backing of a reputable financial brand. Additionally, we have connectivity to the PayPal Network, which encompasses both banking rails and access to fiat currency.

Moreover, we have a robust ecosystem with over 400 million consumers worldwide and more than 35 million merchants. We believe that opening this ecosystem to those building on a stablecoin is something that only we can achieve at this stage.

There are also two philosophical underpinnings to consider. First, I believe we will see changes in the monetization model of stablecoins. Currently, most of the volume, approximately $150 billion, occurs in crypto markets, largely driven by institutional trading. Traditionally, issuers have monetized stablecoins through interest on reserves, where fiat backing is invested in assets that generate yield. However, I think this monetization model is somewhat of an artifact of the current interest rate environment. Looking five years ahead, I expect interest rates to be lower, and I also anticipate significant developments in the asset management space with firms like BlackRock, Franklin Templeton, and Fidelity leading the way.

I foresee a decoupling between the yield component and the payments component. My vision for the future is that if you are the CFO of a large corporation engaged in digital currencies and have excess cash, you will likely keep that in a tokenized money market fund or a similar vehicle. When you want to make a payment, you would convert that tokenized money market fund into tokenized money, which is what a stablecoin represents.

In my view, a stablecoin is an imperfect instrument for yield, while a tokenized money market fund is an imperfect instrument for payments. Each of these instruments should serve its intended purpose. Consequently, I believe that stablecoins will not be monetized based on reserves but rather through transaction fees. This is why we focus on optimizing aspects that are specific to payments, such as KYC compliance, throughput, and scalability.

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The future of finance is about transforming how we think about stable coins and payments—it's not just about yield anymore, it's about creating a seamless transaction experience.

A tokenized money market fund or similar will allow you to get your geld from that point. When you want to make a payment, you will convert that tokenized money market fund into tokenized money, which is what a stable coin is. You will then send the stable coin.

I do think that a stable coin is an imperfect instrument for geld, and a tokenized money market fund is an imperfect instrument for payments. These instruments should be what they are meant to be. The stable coins will not be monetized on the reserve; they will be monetized on transaction fees. That's why we were saying, "look, we optimize for things that are specific for payments." We care about KYC on our network, we care about throughput, and we care about scalability.

It makes sense when you put all those things together, combined with our unique assets, the capillarity into fiat rails, and the consumer base and user base. We felt compelled to launch our own because we believe that we have a right to play and an ability to serve consumers and merchants there. We believe in choice. We need to remember those 150 billion in stable coins that are out there. I think that we are in the first inning of how this is going to evolve; maybe we are at the top of the first inning. So, I don't think that we should assume that the market is settled. Hopefully, we will see trillions in assets and management on stable coins, and the market will benefit from more entrants and from strong companies that want to have a presence in the market.

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This is a super interesting take, and I have a few follow-up questions. This take on a shift in the monetization model for stable clients—from yield on assets held to fees—raises some important points. So far, how much have you made on transaction fees? We don't disclose the specific numbers on our products, and definitely not on the stable coin yet. It is not a large amount, but as I told you, we are in the earlier year of a 10-year journey. I think that we are all on our side, planting the seeds for something that we believe is going to be transformational.

So, how much are the fees for transfers with PUSD in our system? There are no fees to move fiat into a stable coin or from a stable coin to fiat. If you bring your stable coin to the PayPal side and you want to withdraw, we don't charge any transaction fee for that. There is no spread; it converts one to one. If you choose to move it on-chain, whether you are bringing it from or sending it from a PayPal wallet or a VMA wallet outside, you will need to pay the Ethereum network fee, but we don't charge additional fees for that.

What about when you're using PUSD for payments at checkout? When you use it as a consumer, if you're buying something with your PayPal account and you choose to pay with your stable coin, we don't charge you. We monetize the merchant side. In the payments industry, merchants pay something called the take rate, so the consumer doesn't pay. The merchant will be paying a take rate, but the consumer will not pay for anything in the remittance use case. Again, if you choose to fund a remittance with PUSD, we will not charge a transaction fee for that.

The way that the flow of funds works is we will get your stable coin; we will not charge any transaction fee. We will convert that to fiat and then send that fiat to your recipient in the other country. More likely than not, that's going to be a country that is not dollar-denominated. We will monetize that Forex spread between the currencies, but for the sender using the stable coin, they will not pay any transaction fee either.

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Stable coins are revolutionizing payments by eliminating transaction fees for consumers while monetizing through merchant take rates and foreign exchange spreads.

The concept of the take rate is important to understand in the context of remittances. In this model, the consumer does not pay; instead, the merchant will be paying a take rate. Specifically, if you choose to fund a remittance with PUSD, we will not charge a transaction fee for that. The flow of funds works as follows: we will receive your stable coin, and we will not charge any transaction fee. We will then convert that stable coin to fiat currency and send that fiat to your recipient in another country, which is likely to be a country that is not dollar-denominated.

In this process, we will monetize the Forex spread between the currencies, but for the sender using the stable coin, there will be no transaction fee incurred. Thus, the way that PUSD monetizes is through the merchant take spread and the foreign exchange conversion in remittances. While I am not suggesting that there is no reserve component today, we believe that in the long term, digital currencies will be monetized for payments in a manner similar to how fiat currencies are monetized today.

It would be quite unusual to think of a PayPal balance as a primary function; rather, we built PayPal to grow transaction volume and facilitate utility in making payments and sending money. Our perspective is that there will be tokenized versions of various assets, including store value or e-money, commercial bank money, and central bank money. We see stable coins as the tokenization of store value. Although it is not technically the tokenization of your PayPal balance, that is how we conceptualize it.

Many colleagues in the banking sector are discussing tokenized deposits, which would represent the tokenization of commercial bank money. Additionally, there are discussions around Central Bank Digital Currencies (CBDCs), which represent the tokenization of central bank money. If everything is going to have a tokenized version, it changes the nature of transactions, but it does not necessarily alter the monetization mechanism. We hope to make transactions faster and cheaper, but we still believe that monetization will primarily come through transaction fees, particularly in the context of cross-border transactions where the foreign currency aspect is relevant.

One innovation we have observed with stable coins is that some users have begun passing on the yield held in their reserves to their users, similar to what some platforms like Ethena and others are doing. This presents a very different model. My question is whether this is something we would consider as well. Even as interest rates hopefully come down over time, could a smaller return still be attractive to holders of stable coins?

Currently, we are not contemplating this approach. There are numerous regulatory components that vary across different markets. As we view our stable coin as a payment instrument, it makes less sense for people to hold it long-term. They should ideally use it for making payments and move it around as needed. Therefore, we are not considering this model at the moment due to the regulatory implications that would necessitate specific structures.

As for the integration of PUSD in decentralized finance (DeFi), it has been progressing well. For instance, there is a Curve Vault that has integrated PUSD, and it has also been incorporated into Moro. We are monitoring the use of stable coins closely and can observe trends just like everyone else, including analyzing the main wallets and their activities.

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The market is hungry for trustworthy alternatives in stablecoins, and the rise of pyUSD signals a shift towards more regulated options that resonate with both institutions and individual users.

We are currently planning to make a payment and move it around, but we are not contemplating that right now. There are a number of regulatory implications that imply the structures that would be required to put in place.

At present, PY USD has been integrated into DeFi quite well. As I mentioned earlier, there is a curve vault that has PY USD, and it was integrated into Moro. I am not sure if there are other places where it has been used as collateral. Do you think most of PY USD growth has come from DeFi? We monitor the use of stablecoins and keep an eye on various metrics. We can look at etherscan as much as everyone else can and see what the main wallets are. We are observing growing adoption in DeFi, which I think is a good sign. It shows that the market has an appetite for alternatives, and people want to see other stablecoins.

There is also a sizable amount of activity that happens on centralized exchanges. If you look at it, again, these are still early days. $300 million is a good place to be in six months, but in absolute terms, it is still a relatively small market cap. Therefore, there is still some concentration there. I hope that we will see more activity on the centralized side, and I absolutely believe that we will see more activity on the DeFi side. People who are active in that space are looking for alternatives. Additionally, I think we will see more and more PY USD held in wallets that are engaged in specific use cases, particularly in B2B and C2C transactions. We are very happy with the adoption from users in the DeFi ecosystem. I believe this signals that there is an appetite and space for more players in the market.

Why do you think DeFi users might prefer PY USD? To me, it was a bit of a watershed moment when USDC de-pegged, and all of a sudden, Tether started gaining market cap. It was surprising because, after covering crypto for many years, Tether was always viewed as the less trustworthy of the fiat-backed stablecoins. There have been numerous questions about its reserves and the lack of transparency. However, the market seemed to choose Tether as the lesser of two evils. At the same time, decentralized stablecoins started adopting USDC, so not even DAI was a good option if you were looking for a fully uncensorable alternative. All of a sudden, Tether emerged as a viable option.

Do you think PY USD can offer a kind of third, regulated, trustworthy fiat-backed alternative when comparing Tether and USDC? I do think that the market wants more alternatives, and I believe that is healthy for the ecosystem. However, I do not think we will move towards a world with 35 different fiat-backed stablecoins. Instead, I think we will see a few stablecoins for general purposes that will be deployed on different chains. Additionally, we might see some stablecoins tailored for specific use cases, such as one fine-tuned for video games or another for invoicing across countries.

The future will likely consist of a few general-purpose stablecoins, perhaps in single digits, alongside a number of those customized for specific use cases. Some of these may cater to DeFi or specific niches within the market. Markets always start somewhere, and it makes sense that, at the beginning, there is a disproportionate concentration of the market held by the initial players. However, I believe that having more alternatives will ultimately benefit everyone.

When you ask why people are using PY USD in DeFi, I think it is for two main reasons. First, there is an appetite for alternatives, and second, our pitch of well-regulated transparency on reserves issued in the US, along with easy connectivity to fiat, resonates with people. This message particularly resonates with the institutional space, but it also appeals to individual and retail-focused users in the DeFi ecosystem. I believe we are still in the very early innings of this market, and everyone should focus on growing the pie rather than being obsessed with competition at this moment.

=> 00:43:51

The future of finance is about expanding utility, not just chasing market share.

The market is currently held by the initial players, but I think that is going to be good and will benefit everybody to see more alternatives. You asked me why people are using it in DeFi. I think there are two main reasons: first, there is an appetite for alternatives, and second, our pitch of well-regulated transparency on reserves issued in the US, along with easy connectivity to fiat, resonates with people. This resonates especially well with the institutional space, but I believe it also appeals to some of the more individual and retail-focused participants in the ecosystem.

I think we are still in the very early innings of this market, and everyone's work should focus more on growing the pie rather than being obsessed about market share. It is important that the asset category grows, and especially crucial that we see more utility. One of the interesting questions in the sector is how much of that $150 billion is involved in transactions that have utility in the real economy, and how much is just sitting on top of assets. I prioritize asset velocity and the on-chain transfer volume that you see, rather than assets under management per se. I don't think that assets under management is a metric that is especially important in the long term.

Regarding PUSD and its role within PayPal, we are definitely deploying it internally and in as many payment use cases as we can. Crypto checkout is an early example, and Zoom is another one. One thing we are working hard to enable is that, if you look at our crypto products, this definitely includes the PUSD franchise. Now, consumers are able to hold digital currencies in their PayPal wallets, and we want to increase that capability. We also want to ensure that the businesses interacting with us can hold digital assets in their accounts.

There are numerous use cases to consider. For instance, when thinking about the beauty of working in the PayPal environment, we can look back at C2C, B2C, and B2B verticals. On the B2C side, we talk about cross-border payments and digital goods. If you consider that C2C is an important use case, we have Zoom, where we can deploy the stable coin, and we are doing that now. For cross-border payments for SMBs, we have a company called Hyperwallet that facilitates payouts to a number of countries.

With 35 million merchants having wallets with us, I believe that nobody can beat our presence in terms of building that connectivity. We absolutely want to use PUSD in more of our consumer and merchant use cases, as well as in our internal operations as a company. It is also important that, as they would say, with our "dog food," we see more and more utility. For instance, if you look at our PayPal Ventures team, the venture investment activity that PayPal has is starting to include equity checks that are deployed in stable coin.

We made an investment in a company called Mesh a few months ago, and our equity investment was denominated in stable coin. There are opportunities to start paying vendors who will accept that. As you can imagine, with a company that operates in more than 200 countries, our treasury operation is complex and highly sensitive. The ability to move treasury around between countries in 15 minutes instead of five days is something that is really exciting for our financial team.

We believe it is important to capture the full advantages of stable coins in our operations and to signal to the market that we are invested in their success and are seeing real utility for ourselves. So, beyond the integrations we have right now with our stable coin, which include cross-border payments, we will likely see the stable coin also deployed across B2B transfers. Without discussing the specifics of those, I think the general thought is clear.

=> 00:48:31

Stable coins are revolutionizing cross-border payments, making transactions faster and more efficient than ever before.

The ability to transfer treasury around between countries in 15 minutes and not in five days is something that is really exciting for our financial team. We believe it is important that, first, we capture the full advantages of the stable coins in our own operations. Additionally, we want to signal to the market that we are invested in the success of these stable coins and that we are seeing real utility for ourselves.

You mentioned that, beyond the integrations you currently have with your stable coin, which focuses on cross-border CDC payments, we might see the stable coin also deployed across H B2B transfers. While I cannot discuss the specifics of those transfers, I can share that the general thought is you will indeed see our stable coin deployed in more payment use cases inside of PayPal, and you will see some of those before the end of the year.

Regarding the multichain aspect of PUSD, it is currently on Ethereum. While I cannot disclose specific chains we are looking at next, I can say that there are two reinforcing factors guiding our decisions. First, we want to be blockchain agnostic; we want to be where developers are and where the ecosystem is thriving. Second, we care deeply about payment use cases, which require certain levels of throughput and scalability. For retail payments, it is crucial to be able to handle at least a thousand transactions per second. It is difficult to operate in the retail payments business if you cannot meet that threshold.

Additionally, there are several features that are important for a payment protocol, which relate to the smart contract platform and the capabilities we can implement. As we discussed earlier about blockchain protocol application UX, some features are easier to implement at the protocol level in certain protocols than in others. For instance, when dealing with B2C transactions, it is essential to have mechanisms in place to resolve disputes between consumers and merchants.

We absolutely want to be on more than one chain, and we are very close to announcing our second chain. While I cannot disclose the name at this moment, it is something we will reveal in the very near future. Beyond that, we want to continue expanding our presence. It is important to stay observant of where the ecosystem is heading.

In the last five years, there has been significant evolution. When I looked at this in 2019, we were just starting to consider Layer Two solutions. I hope and expect that we will have multiple Layer Ones, but I cannot predict whether we will have six, seven, eight, or even 25 relevant ones. The evolution of Layer Twos will also be highly relevant for this space.

There are many smart individuals working diligently on these developments. I have the luxury of not needing to work as hard on that; instead, I need to remain expectant of what is happening and ensure we can follow the progress of developers and technology. It is crucial that we signal our intention to be multi-chain as soon as possible, which is why we are excited about deploying on the next chain. I am eager to share more, but I cannot do so just yet.

As for a timeline regarding announcements, I can say that it is measured in months, not years. It is coming soon. I have one quick follow-up question based on what you were saying.

=> 00:52:26

The future of payments isn't just about technology; it's about making consumers see the real benefits in their everyday lives.

There are a lot of smart people who are working really hard on the developments in the technology space. I have the luxury that I don't need to work that hard on it; instead, I need to be expectant about what is happening and ensure that we can follow the developers and the technological progress. It is important that, from as soon as possible, we signal and deploy our intention to be multi-faceted. That’s why we are super excited about being able to deploy on the next one. I’m jumping at the bit to say more, but I can’t yet.

Regarding timelines, I can say that it is measured in months, not years; it's coming soon. A quick follow-up question relates to what you mentioned about integrating PayPal USD across various PayPal use cases and within PayPal itself. Does that exclude other stable coins from your different payment use cases? There seems to be a potential conflict of interest since you have your own stable coin and may want to add other stable coins to your payments and transfers.

I wouldn’t call it a conflict of interest, but obviously, we are very invested in the success of our PayPal USD stable coin. This is a product we have spent a significant amount of time building and can stand behind. For the time being, we want to ensure that we can support and grow that ecosystem. Yes, PayPal USD is a stable coin that is supported within the PayPal universe, and that’s how we want to continue to act.

We've been discussing how important it is for stable coins to gain adoption in more real-world use cases. You mentioned various examples before; what do you think is missing for this to happen? You indicated that it might just be a matter of time, but what are some of the enablers you are looking at? That’s a really good question. I think there are several things in terms of the value proposition. As an industry, we need to help consumers have a clearer understanding of what’s in it for them. What is the value? All those things we say about transaction speed, lower cost, and settlement time—how do they benefit the consumer?

Consider someone walking around the U.S. or Western Europe with a debit card, a credit card, a Venmo account, and a PayPal account. What is the need for them? Why would they want to use this? Sometimes, I am asked a variant of that question, such as why we need something different when we live in the best of possible worlds. My reply is that it’s not that the revolution is not being televised; it’s that some folks are watching a different channel.

It is very narrow to look at the world solely from a U.S. or Western European perspective. This year, I have spent time in Central America, just returned from India, and I’m headed out to Southeast Asia next. Getting on a plane and moving around is very useful to see the promise of what better payments can do in some countries. I’m not saying that blockchain is the Swiss knife that will solve everything; there is a ton of innovation happening in some of these markets.

If you spend time in India or Brazil, you will see significant innovation that has nothing to do with blockchain technologies. However, you gain a very acute view that payments can be better. The ability to move money around at low cost, with fast settlement and finality for consumers and merchants, has relevant promise. Where I don’t think we are doing a fantastic job is in making that tangible for consumers.

We can make the case for investors and the Web3 community, and I feel confident that we can make a strong case for companies, merchants, SMBs, and creators. However, what we are lacking is a message for someone who is not crypto adept, someone who does not have "laser eyes," and someone who is not interested in the technical side of cryptography. Why should they be using it? That’s part of the reaction we are seeing, for instance, when we deploy PayPal USD on Zoom. Maybe people are not concerned about whether they...

=> 00:56:36

To drive mainstream adoption of crypto, we need to focus on delivering clear value—like faster, cheaper transactions—rather than getting lost in the technical details.

Finality for consumers and merchants is something that holds relevant promise. However, I don't think we are doing a fantastic job of making that tangible for consumers. While the case has been made for investors and the web3 community, I feel very confident that we can also make a strong case for companies, merchants, small and medium businesses (SMBs), and creators. What we are currently lacking is a clear explanation for someone who is not crypto adept—someone who does not have laser eyes or an interest in the technical side of cryptography. The question remains: why should they be using it?

This challenge is evident, for instance, when we deploy PD on Zoom. Many people may not be concerned about using stable coins because they are committed to the sector of digital currencies or crypto. Instead, they might be sending money to their family in Guatemala and thinking, "Hey, I'm going to get zero transaction fees if I use this." They don't need to understand what happens under the hood; they just need to trust the instrument they are using and see value in it. This is similar to how users should not need to understand TCP/IP and HTML to use a website.

I believe we need to spend less time explaining the technical benefits of the protocols and blockchains to end users and focus more on explaining the value and providing them with reasons to adopt these technologies. This is probably the most important barrier to adoption. Adoption is indeed happening; we've been running a study for over two years, asking a cohort of people in the U.S. about their interaction with web3 and digital assets. We consistently find that almost a quarter of adults in the U.S. have interacted with cryptocurrencies at some point. The number for stable coins is around 12%, while the number for NFTs is about 15%.

While I wouldn't claim that it is mainstream by any means, we are breaking out of the hardcore of early adopters. However, to reach the next wave, we need to do a better job. Mainstream users generally will not be interested in the decentralization aspect; they want to see value and understand how a digital currency or asset can help them accomplish their tasks. This aligns with the jobs to be done framework, which is one of the pillars of product design as the industry grows. As more people get involved and we see cross-pollination from other parts of the tech industry, I expect and hope we can contribute to making this a larger part of how we design products in the space.

Would it be fair to say that the way crypto achieves mainstream adoption is through the value it delivers—cheaper, faster money transfers? The usability aspect comes from interfaces like PayPal, where our role as a company is to deliver this value proposition: cheaper and faster money transactions in a more user-friendly and understandable way.

There’s a lot to unpack in this question, so let me break it down into three levels. At a very high level, you need to understand the overarching principle of the value of decentralized protocols. The way I think about it is primarily an economic argument. Activities can either happen in a market or in a centralized way within a company. Centralized things tend to become centralized because transaction costs are high. For example, why do I work inside of PayPal instead of bargaining for my job every day? That would be untenably expensive. When the cost of enforcing a contract is too high, things tend to get centralized.

The value of this technology is that it reduces the cost of transactions, making it easier to move money around and enforce contracts. Essentially, the contract is enforced by the protocol through smart contracts, so there’s less need for policing. Chris Dixon, whom you interviewed recently, often refers to the idea of "can't be evil," meaning the contract will be enforced by the platform.

To justify a good use case for a decentralized protocol, you need to demonstrate that it reduces transaction costs. If it doesn’t, it’s probably not a good use for blockchains. When we put this in the context of payments, the underlying value includes faster movement of money, finality, fewer disputes, faster settlement, scalability, and programmability. There are payment use cases that can be programmed into smart contracts that simply cannot be done on traditional fiat rails.

Now, addressing your earlier point about how we make this evident for consumers: consumers will not care about markets, hierarchies, or programmability. They will care about their specific jobs to be done—whether that’s making payroll, paying rent, or paying a supplier in Indonesia. They need to see how this technology helps them do those tasks better.

It’s crucial that if we are asking people to leave the instruments they have used in the past and adopt a new one, it cannot be just 10% better; it has to be 10 times better. For example, if a transaction that used to take five days now takes just 15 minutes, or if services that were available only Monday to Friday from 9 to 5 are now available 24/7, that’s the kind of improvement that will drive adoption. Incremental gains of 10% will not be enough.

Ultimately, we are aiming for a 10x better payment rail through a user-friendly interface, which we hope will bring the next billion users into crypto. I genuinely believe that this will improve the financial system and enhance lives. Thank you, Jose, for taking the time to walk me through all the great things PayPal is doing. This was a fascinating conversation, and I appreciate it. Thank you so much, Camila.