Original title: Will PayPals PYUSD Steal Market Share From Tether and Circle?

Original compilation: Kaori, Luccy, BlockBeats

On August 7, PayPal announced the launch of PayPal USD (PYUSD), a U.S. dollar stablecoin used for transfers and payments. The stablecoin is issued by Paxos and is supported by U.S. dollars, short-term treasury bonds and cash equivalents. It will gradually be opened 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 stablecoin can still be regarded as a major event in the development of encryption.

Recently, Laura Shin conducted an exclusive interview with PayPal’s Senior Vice President of Cryptocurrency José Fernández da Ponte, and discussed in depth how the financial technology giant develops long-term strategies around blockchain-based payments. BlockBeats has compiled and compiled this interview. The full text is as follows:

Laura Shin: This week, PayPal launched the stable currency 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 crypto space for the past four years, and PayPals overall vision has been to become a bridge between fiat currencies and Web3, bringing mainstream adoption 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. The culmination of the first phase, 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 stablecoins are the killer application for blockchain right now, and theyre very close to the payments market that we care about very much.

Laura Shin: So how do you expect to apply it, 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 currency are well suited for payments, with some inherent advantages such as cost, programmability and settlement time. Interestingly, a lot of the discussion focuses on cost per transaction, whereas Im more interested in settlement time.

We tend to say theyre faster and cheaper, but when you pay, speed is cheaper, and the settlement time advantage is pretty clear. But this will take time, this revolution will not happen overnight, and we are still several years away from mainstream use of stablecoins in everyday payments. But now some industries are very suitable for using stablecoins. There are $122 billion of stablecoins today primarily used in crypto trading and Web3 use cases, including the DeFi you mentioned, and we expect PYUSD to be used there as well. Were seeing some early cases in things like remittances, which is an area that were very interested in.

A company called Xoom that PayPal acquired a few years ago has been very active in the remittance space, so we do have the right to play a role in this space, and the convergence between remittances and digital currencies has begun. In the B2B payments space, we are seeing increasing adoption of stablecoins, which makes a lot of sense when you think about it. If youre a company exporting to a foreign country and you want to get paid, rather than receiving a wire transfer that takes three to five days to clear, prompt settlement time is really powerful.

Perhaps beyond cryptocurrencies, the fourth market segment that we believe will be the first to adopt stablecoins is digital goods. Economies like Minecraft or Roblox have around $100 billion in digital goods traded every year. If you are a developer selling digital goods in your game under the current payment system, it can take up to 15 days to get your money. Therefore, if you can do something that is digitally native and instant settlement within the game, the advantages will be very obvious.

Again, I think we are still a few years away from mainstream use cases for domestic e-commerce or retail, but there is already a very large commercial market that could use stablecoins.

Laura Shin: So you’re saying that 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 a PayPal wallet. We are in the process of adding the product, but it is certain that PYUSD will be available on major exchanges at that time, and people will be able to use it for traditional use cases at that time as well.

Laura Shin: I saw some news saying 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, indeed. Regarding compatibility, I would say that PYUSD is an ERC-20 token, it is deployed on the Ethereum blockchain and can be sent to external wallets that support ERC-20 tokens, and that is what compatibility means.

Laura Shin: There is some provision in the user terms that PayPal can reverse a transaction, but I imagine this only applies to certain transactions, such as within the PayPal/Venmo system.

José Fernández da Ponte：I dont know exactly which part youre referencing, but there are definitely some transactions related to being a fully supported and regulated stablecoin. Our issuance is approved by the New York DFS, where Paxos is the issuer. 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 to be 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 a few different factors that make PYUSD a very strong value proposition. The first is obviously the PayPal ecosystem. PYUSD is the only stablecoin accepted by the PayPal ecosystem, which includes PayPal now and will soon include Venmo, as well as our bilateral 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 make a purchase at one of PayPals millions of merchants and you have a PYUSD balance on hand, you can pay using PYUSD as your funding tool, something I dont think anyone else can do.

The second aspect has to do with fiat currency connectivity, where PayPal leverages the bank connectivity weve built over the years. Converting from fiat to stablecoins is a clunky process that sometimes requires moving your wallet to an exchange to pay fees and then withdrawing, a process that takes days. And in PayPal you can transfer PYUSD and sell it, then withdraw it to your bank account. We believe this is an inherent advantage, both for uptrend and downtrend channels.

The third point I want to talk about is compliance and regulation. PYUSD is issued by a New York trust and draws on our 20 years of experience in dealing with and preventing online financial crime.

Laura Shin: Speaking of regulation, stablecoin legislation has now passed the preliminary committee stage in the House of Representatives. Is the timing of your release a coincidence, or does it give you some confidence to launch?

José Fernández da Ponte：We have been following the legislative process for a long time. Obviously, the parties still have differences on the content of the legislation, but this is a democratic process. Overall, the passage of these bills through consideration is not necessarily a trigger for our release. A clear trend is happening now regarding stablecoins, a few months ago it was MiCA in Europe. Many markets have clear regulation around stablecoins, and now the United States is catching up, and thats why we went to New York, because this is the strictest, strongest, most rigorous framework around stablecoins available today.

Laura Shin: House Representative Maxine Waters issued a statement saying, “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’s your response to that?

José Fernández da Ponte：I saw the ranking members statement, and I understood from the statement that her main point was that she wanted legislation to provide federal regulation of stablecoins, which, as we just said, is an ongoing debate in Congress. There are other members of Congress, both Republicans and Democrats, who have different views and thats part of the legislative process. We are very supportive of regulation through legislation, and as I said this is the most stringent framework currently in place, 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 companys failure, largely due to regulatory reasons, affected PayPals launch strategy.

José Fernández da Ponte：We had discussions about Libra, that was four years ago. But I dont think its going to affect how we do it because weve grown in this area the same way weve 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 weve said in the past, we have a presence in 200 countries and are one of the few organizations that can do that. We have emphasized that we will always coordinate with regulators as we explore this area. So I think this is not the impact of Libra, but just our nature.

Laura Shin: How do you plan to take this to the rest of the world? Also, will you launch stablecoins anchored to other fiat currencies?

José Fernández da Ponte：Were already live on the PayPal wallet, and the next step is to get this feature on the Venmo wallet, so it will still be based in the US, but well also be looking at 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：There are currently no plans.

Laura Shin: So what does your upcoming monthly reserve report look like, and will it also show proof of reserves?

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 its not an address-identifying thing, and people cant 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 PayPals existing user base, how do you plan to attract these users.

José Fernández da Ponte：Im very interested in payments in the video game industry. If you think about video games, sometimes to outside observers they can be perceived as only being for a younger demographic. But in reality, the audience for video games is very much in line with the general population, and its a very large industry with very stringent and constrained computing needs. This is a very difficult computational problem if you look at it from the perspective of solving difficult technical problems.

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 take digital items with you when you buy them in the in-game environment? I think weve 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 cant 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. You shouldnt tell 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 shouldnt expand on other protocols or other layers of the same protocol in the future. Although Ethereum has higher fees relative to other protocols, it also has many advantages. For some use cases, like lets say micropayments or high-speed, high-throughput, it can be expensive, so well 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 has been through reserve earnings, but in the current interest rate environment this has become a considerable source of profit for the industry, but we believe this should not be the only monetization mechanism. The interest rate environment may change, so our assumption is that when these stablecoins are adopted, we will monetize them through instruments that are closer to the traditional payments business. That is, when merchants wish to accept stablecoin settlement, they need to pay the merchant discount rate.

In addition, people may convert stablecoins of one currency into other types of stablecoins, which may involve certain fees. Regarding fees, there are no fees when buying PYUSD on the PayPal app, and there are no fees when selling PYUSD. You can buy $1 for $1, with no fees involved, or you can sell $1 and your PayPal balance will be credited. $1, of course transfers are also possible, and we dont charge any PayPal fees for these transfers. The only fees you need to pay are the ones the Ethereum protocol requires you to pay. In the PayPal ecosystem, we do charge transaction fees, but there are no fees for stablecoins.

Laura Shin: Going back to my previous question about PayPals revenue sources, how big does PayPal think this potential business line will become?

José Fernández da Ponte：This could be very important in the long term, but our expectations for next year are more modest. Whats interesting is that this is often a very polarized environment. Stablecoins exist for evidence, right? There are now $120 billion in stablecoins on the market, and we hope to capture some of the market share while also helping to expand the entire market.

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 22x 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 them out over time, and growth will definitely happen, but we are in a long-term mindset and this will be a multi-year journey.

Laura Shin: How does the app present this payment method to users? 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 that show up, the first one is when you go into the app, there is a cryptocurrency section in the app and you will see it as an additional coin and you will see the coins that we support, Bitcoin Coin, Ethereum, Litecoin and Bitcoin Cash, as well as PYUSD, where it can be bought, sold and transferred to external wallets.

During the checkout transaction, we provide consumers with choices that are not predefined and do not direct them to any specific payment method. So it will appear as another payment option, but will not be given more priority during checkout. If you decide to use PayPal and pay by credit card, your credit card will be displayed first, followed by the others, including PYUSD.

Laura Shin: Well, this has been a really interesting discussion. Is there anything else I didn’t ask about PYUSD that you’d like to mention?

José Fernández da Ponte：As I said at the beginning, we do believe that stablecoins are the killer application in this space. The advantages in terms of settlement time, cost and speed are very important, but it will take some time to become popular in the mainstream payment field. So we took a crypto-first strategy and then started exploring some retail cases. When it comes to competition, I believe we will have some market share here, but also believe there is a lot of demand in the market and hopefully there will be more fully supported and regulated stablecoins, which will be a boon for the entire industry. Good development.

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