Ethereum is not the best solution for payments, says PayPal's crypto chief — here's why

ethereum (eth) is not the best solution for payments, according to PayPal's Vice President of Blockchain, Cryptocurrencies and Digital Currencies (BCDC) unit, José Fernández da Ponte.

ethereum does not meet the requirements to make payments

x.com/spdrswap/status/1836993790726267298?s=61″ target=”_blank” rel=”noopener nofollow”>Speech At the Solana Breakpoint 2024 conference, Ponte drew attention to ethereum’s inability to handle high transaction volume as a key reason why PayPal chose to launch its dollar-backed stablecoin, PYUSD, on competing 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, cementing it as the preferred network due to its ability to process “massive amounts of transactions at high speeds with extremely low costs.”

Ponte explained that a functional payments network must be able to handle at least 1,000 transactions per second (tps), a figure the ethereum network struggles to consistently reach.

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

There is confidentiality in transactions and transaction fee management. Therefore, Solana was an easy choice when we were looking for the next chain, especially because of the token extension capabilities.

For those unfamiliar, Solana token extensions add additional functionality to tokens, enabling features like transfer restrictions and multi-signature approvals.

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

It is worth noting that two former high-ranking Coinbase employees recently… Released Its cryptocurrency exchange platform, TrueX, will use PYUSD as its “preferred token for transactions.” Unsurprisingly, PYUSD has already amassed a market cap of over $730 million and is likely to continue chipping away at the market share of major stablecoins like USDT and USDC.

Can the eth ecosystem become retail-friendly?

Jose's words are not a surprise, given the context. For stablecoins to become mainstream, the underlying network must have high throughput and affordable transaction fees. While ethereum's Dencun improvement While it aims to significantly reduce network gas fees, it pales in comparison to the minimal fees 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, however, there are concerns about the centralized nature of many of these layer 2 scaling solutions. A recent report Postulate Centralization risks could allow network operators to gain control over user funds. ethereum is trading at $2,540 at press time, up 4.2% over the past 24-hour period.