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, Crypto and Digital Currencies (BCDC) business, José Fernandez da Ponte.

Ethereum Doesn’t Meet Payment Needs

Speaking At the Solana Breakpoint 2024 conference, Ponte pointed to Ethereum’s inability to handle high transaction volume as one of the main reasons 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, cementing it as the preferred network due to its ability to process ““massive amounts of high-speed transactions with extremely low costs.”

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

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

Transaction privacy and transaction fee management are ensured, so Solana was an obvious choice when we were looking for the next chain, especially because of the token scaling capabilities.

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

These enhancements 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 in payment management with specific conditions or requirements.

Notably, two former senior Coinbase employees recently spear their cryptocurrency exchange platform, TrueX, which will use PYUSD as its “preferred token for transactions.” Unsurprisingly, PYUSD has already amassed a market cap of over $730 million and is expected to continue to eat into the market share of leading stablecoins such as USDT and USDC.

Can the ETH ecosystem become retail-friendly?

Jose’s comments are hardly surprising, given the context. For stablecoins to become mainstream, the underlying network must have high throughput and affordable transaction fees. Although Ethereum’s Dencun upgrade aimed at dramatically reducing network gas fees, this 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 laid Centralization risks could potentially allow network operators to gain control of users’ funds. Ethereum is trading at $2,540 at press time, up 4.2% in the past 24 hours.