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PayPal’s issuance of a payment stablecoin on Ethereum is significant for the blockchain industry from a demand perspective. Let me explain by using the framework of Supply and Demand to describe the business of blockchain. The business of blockchain represents a supply of block space of varying qualities, enabling various kinds of use cases and decentralized products to be built on top of this infrastructure. For the longest time, the majority of development has focused on the infrastructure/Supply front – execution and finality layers, data availability, DeFi primitives – all of which provide the key ingredients for real-world services and use cases that are yet to be defined. (I would argue that the Degen market is significant in its own right. Yet the demand it generates might not be representative of what the mainstream market has to offer.)
PayPal connects millions of merchants with customers. Their issuance of PayPal USD bridges the gap between the Supply and Demand of block space through the Payment use case. In simpler terms, PayPal brings computational Demand from Web2 to Web3, along with several benefits across the value chain (from higher to lower levels):
👯 End-user layer - Merchants and customers can transact with PayPal USD, with funds hitting their wallets instantly, regardless of geolocation. (One major benefit of blockchain is that transfers between accounts/wallets do not involve intermediaries like SWIFT.)
💻 Dapp layer - There is much more flexibility and room for creativity in rule-based transactions, as the stablecoin payment is programmable. (Account Abstraction and existing smart contract automation infrastructure providers like Gelato and Autonomy can enable this.)
🏗 Infrastructure layer - If executed as promised and issued on Ethereum, there could be increased transaction revenue for Ethereum validators and other infra agents.
Currently, there is a maximum total supply of $26.9 million PYUSD. Here are some open questions about service scalability, given its issuance on Ethereum:
📈 Considering Ethereum’s notorious network congestion, gas fees, and PayPal’s microtransactions, would issuance on Ethereum be sustainable and economical?
📜 Alternatively, has a solution been launched on certain Layer 2 solutions that the public is not aware of (or are there plans for such), which could provide cheaper transaction fees and transaction bundling to avoid overcrowding the settlement layer?
Payments represent one of the lower-hanging fruits of blockchain’s real-world use cases, along with tokenization. I am excited to see how this unfolds!
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