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.
PayPal’s Blockchain, Crypto, and Digital Currencies Vice President Jose Fernandez da Ponte has stated that Ethereum may not be the optimal option for payment systems during the Solana Breakpoint 2024 conference. This announcement comes as PayPal expands its presence in the cryptocurrency market, particularly with its dollar-backed stablecoin, PYUSD.
Initially, PayPal launched PYUSD on Ethereum in August 2023. However, in May 2024, PayPal made a significant decision to introduce the stablecoin on Solana. Later, Ponte provided clear reasons for this change, highlighting PayPal’s strategic choice with a pointed comment on 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,” said Ponte. “Unfortunately, Ethereum currently struggles to meet these criteria consistently.”
One of the key issues highlighted by Ponte was Ethereum’s transaction processing capabilities. According to the PayPal executive, a functional payment network should be able to handle at least 1,000 transactions per second (tps). While networks like Visa and Mastercard can typically manage 2000 – 10,000 TPS, Ethereum’s current infrastructure falls short of this benchmark at 15-20 TPS, 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, this highlights Solana’s growing role in hosting stablecoin liquidity.
Solana’s Speed Powers PYUSD GrowthThe decision to launch PYUSD on Solana wasn’t made lightly. Ponte highlighted Solana’s ability to process transactions quickly and at a fraction of the cost of Ethereum, making 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,” elaborated Ponte. “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 PressureWhile 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 indicate 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.
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 PaymentsThe launch of TrueX, a new crypto exchange founded by former Coinbase executives, further emphasizes 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 strong force for decentralized applications and smart contracts, networks like Solana are positioning themselves as go
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