Recently, PayPal announced that $PYUSD, their own stablecoin, will be issued on the Solana blockchain. Initially introduced in August 2023 to the 428 million active accounts on PayPal and Venmo through the Ethereum blockchain, this article explores why PayPal, one of the biggest payment service providers, decided to onboard stablecoins and the potential effects of this decision.

What is $PYUSD?

PayPal USD ($PYUSD) is a stablecoin created by PayPal. According to the company, the stablecoin "was created with the intent to revolutionize commerce again by providing a fast, easy, and inexpensive payment method for the next evolution of the digital economy." $PYUSD is backed by secure and liquid assets such as dollar deposits, US treasuries, and cash equivalents, ensuring that it maintains its peg to the US dollar.

Given that $PYUSD will function as an equivalent to USD and share the same use cases, a robust system is essential to prevent any potential issues. Paxos, PayPal's selected partner for $PYUSD, will be responsible for the issuance of the stablecoin. Paxos will also conduct monthly self-reports on the composition of the reserve asset portfolio and provide monthly attestation reports issued by an independent third-party accounting firm.

$PYUSD on PayPal: Easy on and off ramp

1. How does it Work

   Users of PayPal and Venmo can buy, sell, hold, and send $PYUSD on the platform without any fees. When using $PYUSD as a payment option, PayPal will convert the crypto amount into USD or the seller’s currency at no additional cost. The stablecoin can also be transferred in and out of PayPal’s ecosystem to Ethereum or Solana addresses, though network fees may apply.

   To kick off $PYUSD usage, PayPal or Venmo users are required to complete the W-9 tax form in advance. Once completed, crypto will automatically appear as an option in the interface.

   Outside of PayPal’s platforms, $PYUSD can be purchased on Crypto.com, Phantom, and Paxos.

2. Unique 1:1 Conversion Without Additional Fees

   The standout feature of PayPal’s stablecoin is its 1:1 exchange rate for buying and selling $PYUSD using USD, without any additional fees. This is unique within the ecosystem, as other platforms often include slight discrepancies or additional charges, such as transaction fees or maker fees. For example, as shown in the image below, ByBit offers a rate of 1:1.0015 for USD to USDT. While these small differences may seem negligible, they contribute to the overall friction that users face. For larger-scale transactions, these fees can scale up significantly in absolute terms. From a user's perspective, minimizing value loss is, of course, more desirable. To achieve mass adoption of stablecoins, it is essential to eliminate these obstacles whenever possible.

$PYUSD on Solana

On May 29th, 2024, PayPal announced that $PYUSD is now available on the Solana blockchain. According to PayPal’s press release, Solana is "known for processing massive amounts of transactions at high speeds with extremely low costs." Additionally, Artemis reports that Solana is the most used blockchain for stablecoin transfers. As a result, Solana is the ideal blockchain for $PYUSD to be issued for its intended payment use cases.

Another reason for onboarding $PYUSD on Solana is due to token extensions — a token standard and set of extensions that allow customization by token creators. Token extensions provide enhanced programmability for the stablecoin, enabling it to comply with regulations, meet specific user demands, and improve the payment experience.

Token extensions must be initialized at the time of token creation. While these extensions can be configured by the token creator post-creation, new extensions cannot be added later. Consequently, several extensions are initialized during the mint. However, the initialization of a token extension does not guarantee its use. The following are the mint extensions of $PYUSD:

The combination of PayPal’s expertise in payments and Solana’s token extensions paves the way for innovative stablecoin payment solutions, representing a crucial step toward the mass adoption of cryptocurrency.

Use cases for $PYUSD

Payments are the most likely avenue for the mass adoption of cryptocurrency. The use of stablecoins, such as $PYUSD, provides an answer to the question, 'Why blockchain?'. Below are several use cases for $PYUSD and the benefits it brings:

1. Near-instant cross-border P2P payments

   Consumers can send PYUSD to eligible recipients worldwide using a Solana wallet, with transfers settling nearly instantly and at negligible cost. This represents a significant improvement over traditional cross-border transfer. For instance, with SWIFT transfers, only 54% of transactions are credited to the customer’s account within one hour, and 93% within a day. For costs, the global average for remittance prices was 6.39% in Q4 2023 according to World Bank’s report.

2. Cost-effective B2B transfer

   Traditionally cross-border transactions have been costly and slow due to multiple intermediaries and varying international regulations. With the open nature of PYUSD, businesses can build services to create near-instant, cost-effective transfers seamlessly across borders. An example of this is payments on Shopify through its integration with Solana Pay, showcasing a practical, daily consumer use case.

3. Simplified Global Payouts

   $PYUSD simplifies global payouts by eliminating the need for regional bank accounts, multiple currencies, and correspondent banking. Traditional cross-border payments involve high fees, currency exchange risks, and slow processing times due to multiple intermediaries. By leveraging the Solana blockchain, $PYUSD enables direct, near-instant transactions at low costs. This approach reduces fees, mitigates currency exchange risks, and ensures faster settlement times. Especially in today's world, where remote working is increasingly common, this solution is even more beneficial. It provides a seamless and reliable payment method for businesses and their remote employees, making global payouts more efficient and cost effective.

4. Web3 Payments

   Users can convert PayPal USD to cryptocurrencies directly through PayPal, offering a new channel for onboarding into the crypto space.

Conclusion

In summary, PayPal's introduction of $PYUSD marks a significant milestone in the evolution of digital payments and the broader adoption of cryptocurrencies. By leveraging the Solana blockchain, $PYUSD offers a unique blend of speed, cost-efficiency, and programmability, making it an ideal choice for various use cases, from cross-border P2P payments to B2B transactions and simplified global payouts. The seamless 1:1 exchange rate without additional fees further enhances its appeal, addressing one of the key friction points in traditional financial systems.

As PayPal continues to innovate and expand its offerings, $PYUSD has the potential to revolutionize not only how we conduct transactions but also how we perceive and interact with digital assets. With the backing of a trusted name like PayPal and the capabilities of Solana, $PYUSD is poised to drive mass adoption of stablecoins.

Whether you're a consumer looking for a hassle-free way to send money globally, or a business seeking cost-effective cross-border transfer solutions, $PYUSD offers a compelling solution. As we move forward, the adoption of stablecoins like $PYUSD will likely become a cornerstone of the digital financial landscape, bringing us closer to the vision of cryptocurrency in every wallet.