Solana Outperforms Ethereum for Stablecoin Payments Over PYUSD, Says PayPal VP

At Solana Breakpoint 2024, PayPal’s VP of Blockchain, Jose Fernandez da Ponte says Ethereum may not be ideal for payment systems – as PayPal advances its crypto presence with PYUSD.

At the Solana Breakpoint 2024 conference, PayPal’s Blockchain, Crypto, and Digital Currencies Vice President Jose Fernandez da Ponte explained why Ethereum may not be the best option for payment systems. This announcement comes as PayPal expands its reach in the cryptocurrency market, especially with its dollar-backed stablecoin, PYUSD.

PayPal initially launched PYUSD on Ethereum in August 2023. However, in May 2024, PayPal made a notable decision to introduce the stablecoin on Solana. Ponte later offered clear reasons for this change, clarifying PayPal’s strategic choice – with a pointed comment about Ethereum’s shortcomings.

“When it comes to payments, we need a network that can handle massive amounts of transactions at high speeds with extremely low costs,” Ponte said. “Unfortunately, Ethereum currently struggles to meet these criteria consistently.”

One of the primary issues Ponte highlighted was Ethereum’s transaction processing capabilities. According to the PayPal executive, a functional payment network must be able to handle at least 1,000 transactions per second (tps). Networks like Visa and Mastercard can typically manage 2000 – 10,000 TPS, but at 15-20 TPS Ethereum’s current infrastructure falls well short of this benchmark, creating bottlenecks and prohibitively high gas in high-volume payment scenarios.

While the introduction of Layer 2 solutions like rollups (e.g., Optimism, Arbitrum), can scale Ethereum’s potential to thousands of TPS, they handle transactions off-chain and settle them periodically on Ethereum’s main network – a scenario that isn’t appropriate for retail transactions in most cases.

According to DefiLliama, the circulating supply of PYUSD experienced a rise of 50.07% on the Solana blockchain. While the remaining 49.93% of the PYUSD supply continues to reside on the Ethereum network, highlights Solana’s growing role in hosting stablecoin liquidity.

Solana’s Speed Powers PYUSD Growth

The decision to launch PYUSD on Solana wasn’t made lightly. Ponte emphasized that Solana’s ability to process transactions quickly and at a fraction of the cost of Ethereum made it an attractive alternative. This efficiency is crucial for a payment system that aims to compete with traditional financial networks.

“There is transaction confidentiality and managing charges for transactions,” Ponte elaborated. “Thus, Solana was an easy choice when we were looking for the next chain, especially because of the Token Extension capabilities.”

These token extensions, a unique feature of the Solana blockchain, allow for added functionality such as transfer restrictions and multi-signature approvals. For PYUSD, this means enhanced customization options for managing payments with specific conditions or requirements – a valuable asset in the complex world of digital finance.

The impact of PayPal’s decision is already being felt in the crypto ecosystem. PYUSD has quickly gained traction, amassing a market cap of over $703 million as of the latest data from DefiLliama. This rapid growth suggests that PayPal’s stablecoin could soon be challenging the dominance of established players like USDT and USDC.

Ethereum’s Scalability Faces New Pressure

While Ethereum remains the largest smart contract platform by market capitalization, its scalability issues have been a persistent concern. The recent Dencun upgrade aimed to address some of these problems, particularly regarding gas fees. However, Ponte’s comments suggest that these improvements may not be sufficient for large-scale payment applications.

Ethereum’s ecosystem has responded to these challenges with the development of layer-2 scaling solutions. Currently, there are 74 Ethereum layer-2 projects in various stages of development and deployment. These solutions, including popular networks like Optimism and Arbitrum, aim to increase transaction throughput and reduce costs while maintaining the security guarantees of the Ethereum mainnet.

However, the proliferation of layer-2 solutions brings its own set of concerns. A recent report highlighted potential centralization risks associated with some of these scaling solutions, warning that network operators could potentially gain control over user funds in certain scenarios. 

Source: Brave New Coin Ethereum Liquid Index

As of September 21, 2024, Ethereum trades at $2,604, showing a 7.84% increase over the past 7 days, according to the Brave New Coin’s Ethereum Liquid Index. While the cryptocurrency continues to hold a dominant position in the market, PayPal’s decision to prioritize Solana for its stablecoin operations raises questions about Ethereum’s long-term viability as a payment solution for major financial institutions.

TrueX Backs PYUSD for Speedy Payments

The launch of TrueX, a new crypto exchange founded by former Coinbase executives, further underscores the growing importance of efficient payment solutions in the cryptocurrency space. TrueX has announced that it will use PYUSD as its “preferred token for transactions,” a decision that aligns with PayPal’s vision for the stablecoin.

While Ethereum remains a powerhouse for decentralized applications and smart contracts, networks like Solana are positioning themselves as go-to platforms for high-speed, low-cost transactions. As Ponte succinctly put it, “Ethereum is not the best solution for payments.”