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 first introduced PYUSD on the Ethereum mainnet in August last year. This move not only provides its users with a new and efficient payment method but also sets an important precedent for future trends in the payment industry. Before this, while drafting a Web3 payment research report and engaging in discussions with industry companies, there has been ongoing consideration of whether stablecoin payments are truly necessary. The launch of PYUSD on Solana conveniently coincides with PayPal’s practical approach, providing a clear answer regarding payment freedom: “People desire to pay as they wish, and current payment networks struggle to meet these needs. Crypto offers practical solutions. As a fintech company committed to promoting payment innovation, we are introducing stablecoin payment solutions to meet current desires for flexible payments.” Hence, this article aims to analyze the underlying logic behind PayPal’s focus on Crypto, the launch of PYUSD on Solana, and the strategy for PYUSD to achieve mass adoption. It aims to provide industry insights and welcomes discussions on the topic.

1. Why PayPal Shifted Focus to Crypto

As a leading global payment company, PayPal boasts over two decades of experience in global payments. During this time, alongside the maturation of e-commerce, PayPal has not only established itself as a beacon of trust, endorsing transactions for users but has also achieved widespread adoption of digital payments on the internet. PayPal’s mission has remained unchanged—to foster payment innovation and enable everyone to pay according to their preferences. However, until now, payment innovation has largely remained on the same financial rails established during the rise of the Internet. Despite efforts to provide global, instant, and seamless transactions, shortcomings persist: settlement times for online payments remain lengthy (averaging 2-3 days in the US); markets, banks, and service providers operate on weekdays, further delaying settlements; employers struggle to pay an increasingly distributed workforce; a globalized population finds it difficult to make cost-effective and efficient cross-border remittances. Businesses feel this friction most keenly, while consumers still endure long waits in what they perceive should be a fast payment environment. In short, people today cannot pay as they wish. This is why PayPal has shifted its focus to Crypto—the answer is simple: it meets demands and is practical. Cryptocurrency and blockchain technology bring people closer to realizing their payment desires: fast, inexpensive, global payments. This new generation of financial/payment infrastructure can assist PayPal in better serving its 40 million users, enabling everyone to pay according to their preferences. Therefore, over a decade after the emergence of cryptocurrency and blockchain technology, PayPal has once again arrived at a critical moment in payment history, reminiscent of the early 2000s internet, brimming with potential and opportunities. Just as PayPal previously brought payments online, it is now bringing payments onto the blockchain.

(flywheeldefi.com/article/paypal-steps-on-chain-with-pyusd)

2. Global Payment Challenges Need Improvement

Current payment channels and information transmission protocols (such as ACH, SEPA, and SWIFT) form the backbone of 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 balance between 1) payment settlement speed and 2) cost-effectiveness, for example:

• The movement of funds incurs costs, and there are pre-existing cooperation arrangements and liquidity requirements between various intermediaries.
• Cross-border operations within operating time limits (business days) and batch processing mean payments may take several days to settle.
• Settlement arrangements are challenging to meet the needs of small, high-frequency transactions.

However, as adults, we don’t want to choose; we want both—low-cost and 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 paying high fees and waiting for days. Today’s financial infrastructure cannot quickly meet people’s needs for fast transactions, and PayPal does not want users to lose value in such waiting times. Today, cryptocurrency and blockchain technology offer a new payment channel that simplifies payment clearing processes, making payments fast, inexpensive, and 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 globally.

3. PayPal’s Stablecoin Payment Solution

(PayPal’s Stablecoin poised to lead the crypto industry into mainstream adoption)

Definition of Stablecoin: Most cryptocurrencies experience significant price fluctuations, making them unsuitable for everyday payments—Bitcoin, for example, can see large swings within a single day. Stablecoins address this issue by aiming to maintain a stable value, typically pegged 1:1 to a fiat currency like the US Dollar. Stablecoins offer the best of both worlds: they maintain lower daily volatility while leveraging the advantages of blockchain—efficient, cost-effective, and globally accessible.

The stablecoin PYUSD introduced by PayPal is a new stablecoin payment solution designed to drive next-generation financial technology innovation. Built on PayPal’s extensive industry expertise and the high-performance Solana blockchain, PYUSD enables efficient instant settlements, reduces transaction costs, ensures high security, and facilitates truly global payments. PYUSD, launched by PayPal, is a blockchain-based stable value storage tool pegged 1:1 to the US Dollar, addressing the aforementioned issues in the global payment industry.

Qualified US users can buy, sell, send, and receive PYUSD, and use it for payments in various ways:

• Purchase and transfer PYUSD within the PayPal and Venmo ecosystems, ensuring seamless liquidity.
• Use PYUSD for payments in online transactions, such as checkout and payments with millions of PayPal merchants globally.
• Cross-border P2P payments on Xoom (a cross-border payment tool).
• Use PYUSD on cryptocurrency exchanges (e.g., Crypto.com) and wallets (e.g., Phantom) outside the PayPal ecosystem.
• PYUSD can also be utilized for various innovations, such as rapid, low-cost financing tools for ventures like Mesh.

PYUSD is shaping genuine stablecoin business scenarios, offering mainstream consumers and merchants the frictionless and trustworthy payment experiences they expect.

4. PayPal’s Stablecoin Payment Evolution 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 has the potential to elevate previous stablecoin transactions into true stablecoin payments. From its inception, PayPal’s responsibility has been not only to facilitate payments but also to introduce and propagate new technologies—digital payments, which are now ubiquitous in our lives. This successful experience can provide valuable insights and guidance for the launch of PYUSD stablecoin payments.

Specifically, PayPal outlines the evolution towards Mass Adoption in three phases:

• Awareness
• Utility
• Ubiquity

4.1 Awareness through Introduction

As previously discussed, payments are ubiquitous and deeply ingrained in habits and practices, so transitions need to be gradual and stable—they don’t happen overnight. Introducing a new payment method involves behavioral, technical, or financial changes. The first step towards Mass Adoption is awareness through introduction—simply making people aware of the existence of new technology. In this phase, early adopters are the target audience—those who already hold cryptocurrencies, comprising about 15% of the global population and relatively easier to reach. This was the reason PayPal launched PYUSD on Ethereum in late 2023, ensuring awareness among early adopters. Now, launching PYUSD on Solana, the second-largest blockchain by market capitalization, targets the most active and engaged participants in the crypto ecosystem, signaling to the world that “PYUSD is here.” Moreover, integration with PayPal and Venmo apps introduces PYUSD to over 100 million US users. Future efforts will expand PYUSD’s influence beyond the PayPal ecosystem through partnerships with cryptocurrency exchanges and payment providers. PayPal understands from past successes that achieving cognitive awareness is a necessary first step to introduce a new payment mechanism to the masses.

4.2 Utility through Integration

The next step in adopting new payment technology is achieving utility—turning initial cognitive awareness into practical payment utility, similar to how PayPal initially established itself as a trusted platform for transactions between unfamiliar parties, starting with eBay.

Today, what people need in payments must be fast and inexpensive. While PayPal’s launch of PYUSD on the Ethereum mainnet provided significant visibility, it didn’t fully meet all the standards required for PYUSD to fulfill its mission as a digital commercial payment tool—efficient, cost-effective, and globally accessible. Therefore, PYUSD’s shift to Solana aims to achieve payment utility.

(PayPal Launches USD Stablecoin on Solana: A New Chapter in Blockchain Payments)

Solana is a high-performance blockchain network built for finance, payments, loyalty programs, and more, and is one of the most widely adopted blockchains. In Q4 2023, it averaged 40.7 million transactions per day, with 2,500 active developers in its ecosystem. Additionally, its blockchain’s open-source, programmable, and composable nature brings significant scalability and network effects. Solana brings PYUSD far faster settlement speeds, lower transaction costs, greater scalability, and global network support compared to other blockchains. Leveraging Solana’s strengths, users of PYUSD can achieve real payment utility:

• Real-time settlement: Most PYUSD transactions settle efficiently within seconds.
• Low transaction costs: Transaction costs on the Solana chain are mere cents, regardless of transaction size.
• Finality of transactions: Merchants need not worry about payments being cancelled due to insufficient funds or other reasons.
• 24/7/365 availability: Transactions are available around the clock, every day of the year.
• 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, meaning any product supporting this standard automatically supports PYUSD. Developers can freely experiment and build within and outside the PayPal ecosystem. Consumers, merchants, and institutions can benefit from a wide range of third-party developer experiences, utilizing PYUSD for payments and financial use cases.
• PayPal’s extensive user base: PYUSD is available to existing eligible US PayPal customers.

Therefore, launching PYUSD on Solana will aid in the long-term adoption of stablecoin payments. This process moves PYUSD from the awareness phase to practical payment utility. With PYUSD now live on Ethereum and Solana, more developers and ecosystem partners will join in, and coupled with the utility on PayPal and Venmo apps, 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, seamlessly integrating the technology into daily life. At this stage, people can effortlessly use the new payment technology without noticing—they’re just paying as they please.

For PayPal, it made digital payments a way for people and businesses in over 200 countries to send money securely, reliably, and standardizedly, as a secure, reliable, and standardized P2P, B2B, and B2C payment method, becoming ubiquitous as digital globalization progresses.

5. Use Cases of PYUSD Stablecoin Payments on Solana

Turning dreams into reality and allowing people to pay as they please requires more than 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 closer than ever. However, transferring funds across borders remains a vast and growing market full of opportunities. Legal remittances to low- and middle-income countries reached $669 billion in 2023 (World Bank data), but cross-border remittances are not cheap. Using PYUSD, payers can transfer funds directly to recipients using a Solana wallet, with transactions settling almost instantly and costs approaching zero. Even for recipients without a Solana wallet, payers can collaborate with PYUSD payment service providers to save costs on cross-border remittance services. Payment service providers connect PYUSD to local banking networks for converting PYUSD into bank deposits or cash, enabling recipients to enjoy nearly instant, low-cost global remittance services.

5.2 Business-to-Business Transfers (B2B)

Due to the complexity of cross-border payments involving multiple intermediaries and multinational agent banking 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 PYUSD’s programmable features, businesses can build their own services to seamlessly create nearly 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, enhancing the speed and accuracy of supplier payments (or any other B2B payments governed by contract agreements). Furthermore, adopting PYUSD transfers does not necessarily require businesses to hold PYUSD or interact directly with PYUSD. Payment service providers can build B2B payment products that offer fiat experiences to end users.

5.3 Global Payments (B2C)

PYUSD can significantly simplify global payments. PYUSD bypasses complex networks (including unique regional bank accounts, different currencies, agent banks, and digital wallet tracks) and can be paid to any compatible wallet address. Additionally, programmable smart contracts using PYUSD can allow corporate payers to automate payment processes more effectively, even enabling real-time wage payments.

5.4 Microtransactions

Traditional payment processing systems struggle with high transaction costs and often batch payments for microtransactions, involving complex payment engineering that increases risks and prevents platforms from accepting microtransactions. However, PYUSD on Solana enables 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 reading or viewing counts.

5.5 Web3 Payments

Many Web3 merchants (e.g., NFT markets and blockchain-based gaming platforms) lack connections to traditional fiat bank accounts and require robust, non-fungible payment solutions, which PYUSD + PayPal can fulfill.

6. Write at the end

PayPal’s Senior Vice President of Blockchain, Cryptocurrency, and Digital Currencies Group, Jose Fernandez da Ponte, stated, “The creation of PayPal USD aims to revolutionize commerce once again by providing a fast, simple, and cost-effective payment method for the next phase of the digital economy. Offering PYUSD on the Solana blockchain further advances our goal to provide a stable-value digital currency designed specifically for business and payments.” Since its launch on Ethereum last year, PYUSD has mainly operated within PayPal’s Super App without much fanfare. With its launch on Solana, whether breaking into new territory or delving deeper into exploration, undoubtedly, a killer Web3 application may have arrived—payments! As we discussed in our previous Web3 payments research report, the greatest opportunity of cryptocurrencies might not be as cryptocurrencies but as a new set of payment methods. Payments carry the significant mission of bridging the gap between on-chain cryptocurrency systems and off-chain fiat systems. Through tokenization via blockchain technology, traditional monetary systems can gain new value, overcoming previous boundaries that seemed insurmountable, potentially altering the world economy forever.

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