Ethereum Isn’t the Best Solution for Payments, Says PayPal’s Head of Crypto — Here’s Why

According to Jose Fernandez da Ponte, PayPal’s Vice President of Blockchain, Crypto, and Digital Currencies (BCDC), Ethereum (ETH) is not the best solution for payments.

Ethereum falls short for payment purposes

Speak Speaking at the Solana Breakpoint 2024 conference, Ponte highlighted that Ethereum’s inability to handle high transaction volume was a key reason PayPal chose to launch its dollar-backed stablecoin, PYUSD, on rival smart contract platform Solana (SOL).

PayPal first introduced the PYUSD stablecoin in August 2023 on the Ethereum network. However, in May 2024, the company launched the stablecoin on the Solana blockchain, solidifying it as the network of choice due to its ability to ““massive volumes of transactions at high speeds and extremely low costs.”

Ponte explained that a functional payment network needs to be able to process at least 1,000 transactions per second (tps). The Ethereum network struggles to achieve this consistently.

Ponte added that not only the transaction speed or network throughput, but also the benefit of token extensions made Solana an attractive base layer for PayPal’s dollar-backed stablecoin PYUSD. Ponte said:

There is transaction confidentiality and transaction management fees, so Solana was an easy choice when we were looking for the next chain, especially because of its Token Extension capabilities.

For those unfamiliar, Solana Token Extensions add additional functionality to tokens, enabling features such as transfer restrictions and multi-signature approvals.

These improvements are useful in payment systems because they allow developers to implement custom payment flows, automate certain processes, and add layers of security to transactions. Token extensions provide the ability to customize PYUSD when managing payments with specific conditions or requirements.

It is notable that two former senior Coinbase employees recently launched their crypto exchange, TrueX, which will use PYUSD as its “preferred token for transactions”. Unsurprisingly, PYUSD has already amassed a market cap of over $730 million and will likely continue to erode the market share of leading stablecoins like USDT and USDC.

Can the ETH ecosystem become suitable for retail?

Jose’s words don’t really come as a surprise, given the context. For stablecoins to become mainstream, the underlying network needs to have strong throughput and affordable transaction fees. While Ethereum’s Dencun upgrade While the intention was to significantly reduce the network’s gas rates, it pales in comparison to the minimal rates charged by networks like Solana, Tron and others.

There is hope for the success of Ethereum layer-2 scaling solutions such as Optimism, Arbitrum and others. Currently there are a total of 74 Ethereum layer-2 projects, indicating the strong demand for solutions that can help Ethereum scale with affordable transaction fees.

On the other hand, there are concerns about the centralized nature of many of these layer-2 scale solutions. A recent report posited that centralization risks could potentially allow network operators to gain control over user funds. Ethereum is trading at $2,540 at the time of writing, up 4.2% in the past 24 hours.