Unchained - PayPal Would Need These Two Things In Order to Issue a Stablecoin - Ep.290

Episode Date: November 16, 2021

Jose Fernandez da Ponte, PayPal’s senior vice president and general manager of blockchain, crypto, and digital currencies, discusses PayPal’s crypto game plan, how CBDCs might be implemented, crypto regulations, and more. Show highlights: Jose’s path to becoming the GM of blockchain, crypto, and digital currencies at PayPal what factors led to PayPal’s decision to launch its crypto offering what sort of customer makes up PayPal’s crypto demographic how users are engaging with the various PayPal crypto services, like crypto-rewards cards whether the introduction of crypto had anything to do with Venmo’s 36% jump in volume during Q3 2021 how PayPal interacts with Paxos on the backend to settle crypto transactions why Jose thinks PayPal has decided to not add cryptocurrency to its balance sheet how crypto transactions work within PayPal’s internal ledger and how that might change once PayPal launches support for withdrawals off-platform  the three types of directions that Jose believes stablecoins and CBDCs could be built what solutions would need to be built before PayPal would consider issuing its own stablecoin what scaling technologies, be it L1 or L2, PayPal is interested in whether stablecoins and CBDCs can/will co-exist Jose’s thoughts on how long it will be before CBDCs are being issued why Jose thinks that new regulation might be necessary for cryptocurrencies whether PayPal will be participating in decentralized activities, such as on-chain governance why Jose thinks that PayPal’s crypto offering could help improve financial inclusion -- especially for smaller companies why Jose and PayPal are excited about NFTs how PayPal will decide to support new cryptocurrencies on its platform what Jose thinks PayPal’s crypto offering could look like in the future Thank you to our sponsors! Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021     Nodle: https://bit.ly/3AXGydJ   Episode Links Jose Fernandez da Ponte LinkedIn: https://www.linkedin.com/in/jose-fernandez-da-ponte-a46ba81/   PayPal Crypto Basics Homepage: https://www.paypal.com/us/digital-wallet/manage-money/crypto FAQs:  https://www.paypal.com/us/smarthelp/article/cryptocurrency-on-paypal-faq-faq4398 https://www.paypal.com/us/smarthelp/topic/MY_WALLET_PER  Terms + Conditions:  https://www.paypal.com/us/webapps/mpp/ua/cryptocurrencies-tnc Venmo Crypto:  https://venmo.com/about/crypto/     Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Schinn, a journalist with over two decades of experience. I started covering crypto six years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the November 9th, 2021 episode of Unchained. My book The Cryptopians, Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Cray is available for pre-werect. order on Amazon, Barnes & Noble, or any of your other favorite bookstores. Go to Bitley slash Cryptopians. That's B-I-T-L-Y-S-C-R-Y-P-T-O-P-I-A-N-S and pre-order today. The Notal Cash app makes earning crypto on your smartphone as easy as turning on your Bluetooth.

Notal Cash is private, secure, and available on iOS and Android. Visit nodal.io-unchained. That's N-O-D-L-E-O-O-Sachened to start earning nodal cash. Buy, earn, and spend crypto on the crypto.com app. New users can enjoy zero credit card fees on crypto purchases in the first 30 days. Download the crypto.com app and get $25 with the code Laura. Link in the description. Today's guest is Jose Fernandez-Deponte, Senior Vice President and General Manager of

Blockchain, Crypto, and Digital Currencies at PayPal. Welcome, Jose. Hello, Laura. How are you? I'm doing really well, excited to have you. So let's start with your background. How did you come to be PayPal's general manager for blockchain crypto and digital currencies? Well, it's a long winding road.

I am Spanish born and raised. I've been mostly in payments, especially in emerging markets for the best part of the last 20 years. Did a lot of work in Latin America, Middle East, Africa. And I've been in the Bay Area for the last 10 years. and I started to get involved in crypto and digital currencies probably around 2015 or so. When we were doing back in my banking days, we were trying to make modern movements across border using blockchain protocols, and that's what started to pick my interest. I've been in PayPal for a few years now, and we started to get very, very involving earnest

in crypto on the PayPal side probably three to four years ago. We started small as we think that most of us have started in this field, most of the research and engineering activity. And then it started to grow and grow until we went public with our first retail product about a year ago. And then we created the unit that I have the privilege of running today, which is our blockchain, crypto and digital currencies division. And so you say PayPal got started in earnest three or four years ago. what happened at that time to get PayPal interested, and why did PayPal ultimately decide to

offer this ability to buy, sell, and pay with crypto? I think that what we saw is one of those combinations of events that every now and then happen at the same time, which is a technology that was getting ready for prime time, incredible demand and interest on the consumer side, and also where merchants were getting more interested into this as a payment instrument, and also more clarifying. on the regulatory side. So when you combine those three things, and you have a platform of the size of PayPal

where we have more than 400 million consumers and merchants, it's an incredibly powerful platform to be in. And we thought that it was part of our responsibility to help in making these asset class more accessible to the public. So at that moment in time, was when we were seeing that everything was kind of together. If you remember, we were coming out of the crypto winter, in 2017, so we were having this conversation at around 2019 or so, and things were getting

more stable. And especially on our side, the technology was getting more and more ready. And so as people are probably aware, your CEO, Dan Shulman famously said that after you guys offered that, users who had bought crypto on PayPal tended to log into the platform twice as often. And his expectation was that this would make the users more loyal and increase the amount of overall payments they made through the app. Have you seen that play out that people who buy crypto on PayPal

then actually just make more payments in general with PayPal? We see that it's actually a two-way street, and that's one of the beauties of the platform. We see more engagement from our crypto users, as Dan has said, we see a very high increase in engagement with the app. And now we are also seeing it work the other way around. As you know, we have very significantly now revamped the PayPal app and adding a number of new services in our strategy to become a super app.

And what we are seeing now is one of the side effects is we are seeing the improvements in the super app drive more engagement on the crypto side. And we are seeing significant increases in crypto adoption in our base since we rebumped the app. So it's one of the benefits of being in this ecosystem. There are network effects between different PayPal properties. And we see that on PayPal and when we go international, we see that when we light up the product on the VEMO side. And we see significant effects on both sides.

So the answer is yes. We are seeing both more engagement on the PayPal side, but also activity on PayPal is driving more engagement for our crypto users. And when you talk about those features that are the SuperUp features, what are those features? So the company has been launching, and we are in the process of rolling that ad now, an environment where you can go to the PayPal app, you will see your traditional payment activity that you know and love about PayPal,

but now we have made more visible our commerce properties and the ability to find deals in the app. Your crypto activity is there. The rewards side is there. You can do your bill payment from the app. We have announced that very quickly we're going to be going live with a product that will provide high deal deposit savings. So it's more and more of a place where you can handle your financial life in one unique place. Oh, that's fascinating. And so you're seeing that people on that who are transacting in that way, then just get more engaged in crypto naturally.

Indeed. And you can see when we think about crypto, our role in the crypto ecosystem, there are three things where we think that we can help. The first one is the one that I referred at the beginning, which is we have a very massive distribution and we can help in providing access to crypto assets. For users who are intrigued, but they are not experts. and they don't know and they don't want to know what Chateau-F6 cryptography is. They don't want to deal with a hardware wallet. They want to have accurate experience into crypto under the umbrella of a brand that they trust. So that access is the first part where we can help.

The second part where we believe we can move the needle is on providing more utility. I think that we all agree that these assets, the only thing that we do is sit on them. They are less interesting, and the main point of interest is how we can make them useful in the real world. We are starting to do that through our distribution, as you might know, soon after we enable our buy, hold, and sell capability on the PayPal app. We enable a crypto at checkout, which means that in your transactions at PayPal, when you're paying with PayPal anywhere that PayPal is accepted, you can select as a funding instrument, your bank account, your debit card, your credit card, your reward, and you can select your crypto balance. So all of a sudden, we have been talking about payments with crypto for a long while. All of a sudden, if you carry crypto with us, you can pay in any of our millions of merchants.

And we will settle with the merchant in Fiat, so the merchant doesn't need to do anything. We believe that having that crypto offering in the middle of a commerce and payments experience with this distribution adds pretty massive utility to it. And then the third one is that we have been a regulated financial services player. for a long while, and we are very happy to contribute to the conversation around regulation on crypto and also we are doing a lot of work around central bank digital currencies. You basically just covered all the topics that I want to get to in this podcast. All right.

Well, I do have a few more questions about this user uptake. I did notice in the earnings that you said that, or PayPal said that the Venmo app began supporting crypto in April and that in the third quarter, you saw people. payment volume jump 36% in Venmo to $60 billion. And I wonder, did it look like the introduction of crypto there had something to do with that big jump? I wouldn't say, yes. Our introduction of crypto and Venmo is fairly recent, as you were saying, is a few months

back. We are seeing really, really high engagement from the Venmo demographic, which is, interestingly, you see different behavior patterns between the PayPal population and the Venmo population. I think that the Venmo team is doing a fantastic working in growing. the volume on the BEMO side. I would not claim any credit on the crypto side yet. I think that it is another feature that we are adding to BEMO, and we will be adding more.

One thing where we are seeing more engagement on the BEMO side is we added, as you know, as you might know, Bemo has a credit card, a physical credit card that people can use to fund purchases with their, with their memo balance. And that credit card has a reward program. So one of the things that we introduced it very recently is that users can choose to have their cashback from the Vemocard denominated in the crypto of their choice, meaning that you are spending with your card, you get your 2%, and as opposed to getting $2 at the end of the month,

if you spend $100, you can get $2 worth of any of the tokens that we support, Bitcoin, Ethereum, Bitcoin Cash or Lycan. And we have seen that to be a fantastic feature that people love. And it's a really, really good first experience, as we said, for many folks who are curious about crypto, but they don't know about it. And this is like getting a free crypto in a way and removing all that friction into a first experience. And so when you said that you're seeing different behaviors between the PayPal users and the Venmo users, what kind of behavior are you seeing on the PayPal side?

We see that when we look at investment and amounts and transactions, the Venmo demographic tend to skew younger. And we are seeing smaller transactions and, and, faster adoption in the curve. And I'm sorry, that was for the Venmo users, you said? Oh, okay. For the Venmo users. And so in general, how do you view the PayPal and or Venmo users of crypto

and how would you differentiate them from, for instance, the crypto customers at Coinbase or Robin Hood or Square? Well, I cannot tell you much about the crypto users at those other companies, because I don't know the profiles, but we have gotten to know quite a bit about our crypto user population. And it has been actually surprising. When we started, when we went live in October last year, I think that my preconceived idea is that probably crypto users

on the PayPal side will maybe skew younger, maybe skew more affluent. And what we have seen, which I think is good news for the prospects of crypto adoption as a mainstream instrument, is that actually they cut across. the board. I don't think that we can point of one specific demographic or socioeconomic segment that is more active in our side. We are seeing engagement across the board. So I can tell you that our crypto population is actually a good reflection of our overall PayPal population and not one

specific segment, which I think, again, is fantastic news for our sector. And are you finding that the crypto offering has brought new customers to PayPal or Venmo? Or is it just getting existing customers to buy crypto for the first time? There are some new ones, but most, as I said, our value prop is a lot about for people who know and trust the PayPal brand. So our typical adopter is someone who's comfortable using PayPal. They are using PayPal for their payment activity. They see that there is an offering on crypto,

and they have been crypto-curious for a while, and they tend to adopt more. So logically, we've only been in the market for about a year. So it makes sense for us that the early users tend to be more on the PayPal population and is an engagement activity more than an user acquisition activity. Okay. Yeah. But then it sounds like actually you guys are bringing new people to crypto. Very much so. When we do service of our users for a relevant percentage of them, we are their first crypto experience, which is fantastic. As we said, we get a lot about access.

And being able to add more and more users to who become crypto adopters is something that we get a lot about. Okay. And so for users who, or for listeners who aren't aware, you have Paxos as Itbit work all of that on the back end. So is, or do they take care of any hedging that happens when you're transacting in what is a very volatile environment and also one in which the value of these assets is increasing? Do they just take care of all of that for you? So Paxos is, is our partners you're saying they're a fantastic company. We're very, happy with a partnership. They provide liquidity and custody to us. What happens when somebody's buying a crypto on the PayPal side, they will place the order with us. So the customer relationship

is with us. We're not sending them anywhere else. And then we're using our collaboration with Paxosuggest to go to the market, acquire the crypto, and then keep that on the name of the user. We don't have at this stage, we don't carry crypto on the balance sheet of PayPal. It's a question. that we get quite often, as other companies have been using crypto for treasury purposes. We don't carry that on our balance sheet today. It might happen in the future if we need that for operational purposes. One thing that we have learned also, and we have been telling a lot of people in the space, is that when you operate on a payment's environment, a payment is more than a transaction.

So it's something that is relatively straightforward when people want to send value from an Ethereum wallet to a different Ethereum wallet. When that is part of a payment transaction, there are many things beyond the value movement that come into play there. You need to deal with refunds and with disputes and we need to deal with the payment stack on the merchant side and financial reporting. So it might be that in the course of our payment activity, it makes sense for us to some of that crypto hour balance for operations, not for investment. But at the moment, we don't have that. And so why in this time when a lot of corporate, I don't know if a lot is really the word, but but a good number of companies have decided to add crypto to their balance sheets, why has PayPal

decided not to do that? Because again, from an operational point of view, we don't need it yet. And from an investment perspective, our treasury team is deploying the funds in different strategies. But we don't carry that and we will probably not carry that for investment. purposes. And part of the, we deploy our treasury as an operational instrument. And again, in our current construct, we don't need to have crypto on balance for operational purposes. Okay. So going back to the transactions, how has the fact that crypto transactions are not

reversible changed the way that PayPal thinks about security, fraud, and similar issues when it comes to executing those transactions, you know, versus obviously like a bank or a company. credit card transaction. That goes back to this very, very important point that a payment is more than a transaction. We spent quite a bit of time thinking about it. Our product today exists inside the PayPal environment. When I say it exists inside the PayPal environment, it means that to transact in crypto, with us, you buy the crypto from PayPal and what you want to sell it, you sell it back

to PayPal. And when you're paying for a good of service with your service with your. your crypto balance, you are doing that with a PayPal merchant as well. So as long as all that, of course, inside the PayPal environment, all our usual product features apply. So there is buyer protection and seller protection and all those things. It's going to be very interesting as we, as we have announced a few months ago, when we enable on-chain transfers and the ability to withdraw crypto from your PayPal balance or bring

it from an external wallet, all those things that you are saying very much come into effect. So it does have an impact on how we look at a transaction, which means that we are very intent on how we're going to do, be doing transaction monitoring and validation of the merchants who are doing these transactions. It is a different ballpark than a traditional credit card transaction. And so for the first part of your answer, I did notice that if somebody buys using crypto, then there's a little note that says, you know, if you. end up returning this or reversing the charge, you'll be refunded in the dollar value of the crypto that time. So that's the reason why, because you're just using kind of your internal ledger for that. Is that? Yeah, and we are settling with the merchant in Fiat. So what is happening when you pay for crypto on a transaction at PayPal is we will sell the equivalent amount of your crypto balance.

We will receive dollars in this case in the U.S. and we will give dollars to the merchant, which means that you can't totally refund your transaction, but your commitment with the merchant is in that dollar-denimated amount. And it's also tricky when you're operating in a highly volatile asset that you don't want to create an incentive in which people will buy with Bitcoin and then Bitcoin goes up 30% in value, and then people have an incentive to say, hey, I want to cancel my transaction and I want my Bitcoin back.

We want to make sure that it is more useful and easier to transact with, but the moment that you're locking that value for a commerce transaction, then you are locking that value. Yeah, yeah, this goes back to obviously, for instance, things like the Bitcoin pizza that now would be worth hundreds of billions of dollars. Right. You might not have a person who wants a refund on their pizza. Exactly.

So in terms of that ability to withdraw some crypto that user bought on PayPal to their own wallet is kind of the not the whole. it, but the thing that you're working to develop further would be these security and fraud, I guess, protections in order to release that kind of capability? We will make it easy for people to send that to other wallets. Obviously, it will it be different when they are using that for a commerce, for a commercial transaction, they want to pay with Bitcoin at some other commerce where there is a PayPal flow or they just want to take it to a hardware wallet?

So in commercial transactions, our protections do apply on a transaction where you are withdrawing crypto because you want to put it in your wallet. Basically, we want to make it easy for you to do it. But it's not really a refund there because it is not a payment. You're just moving your value around. And I did also notice that the crypto page in PayPal at the moment says that if people's account is hacked, that PayPal will replace their crypto. And I was wondering how that was going because hacks are kind of a dime a dozen in crypto.

There's all kinds of phishing scams and other types of scams. So why did PayPal decide to do that? And are you finding that there's kind of a lot of usage of that feature? So PayPal, one of my colleagues likes to say that we present as a payments company, but we are very much a cyber security company that happens to dealing in value. So we have been in this business for a very long. on time. As you know, you were referring, the activity of the company. We are around a trillion in TPB worldwide every year. So we are very used to keeping the money of our users safe. And crypto

is an extension of that. Yes, it's an important commitment. We stand by our commitment. I think there's a very important part of our promise to the users that they can trust us. And if something happens to the account, we will stand by them. Wow. Okay. That's quite a promise. So for a long while now, there's been chatter that PayPal may launch its own stable coin, which you have denied in the past. We've seen, obviously, there is another large company that has been attempting to do this, which is Facebook. And disclosure, I do write a newsletter for them. But watching what has happened to Facebook's efforts with DM, particularly in terms of the reception from regulations, How does that affect PayPal's own plans or even thoughts in this area? So first of all, it's too early for us to be discussing specific plans on the space, but I'm very happy to have a few ideas of how we are seeing the world. You were talking about DM and talking about the regulatory environment.

It's obviously a very, very active moment now in the discussion around regulation of stable coins. and it feels like we have part of the blessing of operating a platform that is life in 200 countries is that we are in a position to see what's going on in different parts of the world. What I see is in terms of stable representations of value, right, which both CBDCs and stable coins. It feels like the world is evolving in three directions. On the one side, you see something like the China model, meaning these representations of value will be issued by the central bank. So you have the electronic yuan, you have ECNY, issued by the People's Bank of China, and that is one model. So no private stable coins, central bank money.

You have the recommendation that was issued by the Presidential Working Group a few days ago, where basically they are thinking of something that I would call more like deposit the stable coins. So they're taking an approach in which there are some characteristics of deposits of stable coins that likened them to a bank deposit. And so a stable coin issuer should be basically a bank. They say an insured depository institution. And then there is a model in which, which is maybe where Europe is going, that they're talking about e-money stable coins.

So this is not a banking deposit. This is kind of a store value. It's an electronic store of value. And then you can be an in-money institution or a payments company and issue an unstable coin. I think that those three approaches can coexist. It's clear on which, how different regions are going to go in one way or the other. And that's part of the debate that I think that we will see happening over the next months and maybe, maybe even years.

How that evolves, I think is going to be an important part of which companies would be willing and able to do what. We do believe, and we see that part of the requests that we hear from our clients is that there is a demand. for these digital representations of value that are stable. We believe that they are a fundamental part of both digital assets becoming more mainstream, but also being more accepted for commerce and payments. We have been very, very vocal that we want to be supportive of CBDCs when they are available. Dan Schulman, our CEO, has spoken about that. We are quite active in the space.

We are collaborating in the task force that the Bank of England and the Treasury in the UK have put together to think about how a digital pound will look like. We are part of the MIT's Digital Currency Initiative, where we contribute engineering time to developing. Because one of the things that we see specifically in the CBDC space is the ratio of PowerPoint written to code written is very heavily skewed toward the PowerPoint, and we want to contribute to the code base.

So we think that stable coins, again, are a fascinating space, which is really, really, really important that it gets regulated in an appropriate way in which consumers and merchants can have the right guarantees and investor protections, and there is a prevention of illicit finance in a way that also is not stifling the innovation in the segment. And so it sounds like you aren't necessarily, at least at this moment, interested in PayPal issuing its own stable coin that you kind of want to play in all these different areas. I'm sure you're well aware. There are a lot of commentators who have said that it would probably make a lot of sense for PayPal to do something like that. Is there something kind of in the regulatory world or maybe like a type of business opportunity you'd have to see or something in the infrastructure or something else that would finally, you know, have that make sense for PayPal?

Not about, again, not specifically about PayPal ourselves issuing something or adopting something that is the market. I think that for that to happen, especially even thinking about adopting one of the stable coins that are already out there, there are a couple of things that would need to happen. On our side, as you know, we are very much a commerce and payments company. We care about commerce and payments use cases. And the stable coins that we see on the market today, and I'm sure that they, the audience of unchaines are very adapted using stable coins in their daily lives. Most of those use cases are mostly for trading or for defy protocols.

And if you think about stable coins deployed on Ethereum, they are a fantastic use case. If you're going to do a few transactions of a large volume, for our use cases, we are much more interested in being able to support 10 million transactions of $10 each, more than 10 transactions of 10 million each. So we need two things to happen in the space. We have not seen a stable coin out there that is purpose bill for payments yet. We see a lot of activity in some of the new protocols and we are our engineering teams are doing keeping a close eye on how some of these layer new layer one protocols or the layer two evolution on top of Ethereum. that will support the throughput and scalability that you need for payments at scale.

And so the technology getting ready, especially in terms of security throughput and scalability, is one aspect. The other aspect, as we just discussed in the prior question, is that there is clarity on the regulation and what are the regulatory frameworks and the type of licenses that are needed in this space. And so earlier when you were talking about the scalability issues for stable coins that you might adopt, Are there any particular layer twos or any particular chains in general that look especially promising or scaling technologies that you're especially interested in? We have been doing obviously quite a bit of work on Ethereum in general for many of our use cases. As you know, this is such a fluid space that doesn't, that if I give you names today, then those names will be different six months from now.

we have been anything that supports interoperability is relevant for us. So we have been quite intrigued by things like PolkaDOT. We have been quite intrigued. We have been very impressed with the way that the Solana ecosystem has been growing. We have been quite impressed with the growth around Algon. I guess that one of the things that we keep an eye on is we tend to follow developers. So we see interest from the developer ecosystem and developers spending time. is where we think that good things can happen.

And we steer our engineering teams who are working in the space towards those same areas. I'm sure that if you ask me six weeks from now, I could give you four or five different names. This is how exciting. Yes, I totally understand. Welcome to my world as a journalist who definitely can't keep up, not that anybody can.

But, okay, yeah, no, this is fascinating because as you saw from my question, you know, I was thinking it was certain other issues that might hold you up on that. But of course, I hadn't thought about the scaling issue, which of course is what everybody's talking about now. All right. So in a moment, we're going to talk a little bit more about central bank digital currencies, regulatory issues and other things. But first, a quick word from the sponsors who make this show possible. Join over 10 million people using crypto.com. The easiest place to buy, earn, and spend over 150 cryptocurrencies. New users enjoy zero credit card fees on crypto purchases in their first 30 days.

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stuck in traffic, or even while you're sleeping. You can even repurpose your old smartphones to earn Notal Cash. Visit nodal.io slash unchained to get started. That's NODLE. Dot IO slash unchained. Join the Citizen Network to earn crypto on your smartphone 24-7. Back to my conversation with Jose. So CBDCs, Central Bank digital currencies have been coming up throughout this conversation. As I'm sure you're aware, Fed Chair Jerome Powell did say this past summer that one of the reasons for the Fed to create a CBD would be that then stable coins wouldn't be necessary. I know that you've said you think stable coins and CBDCs will coexist. So can you talk a little bit about more how you see that space developing?

Absolutely. And I think that there's no reason. If you look at, if you work by analogy with what we have today, we have electronic money. So there are balances. People have their PayPal balance and balances in other, in other wallets, which are built on top of a fiat money, on money that is deposited in banks. There is no reason why the same analogy does not exist to the stablecoin world.

I do believe that we will see stable coins that are backed by Fiat money that is deposited in commercial banks. And I do think that we will see stable coins that are backed by CVDCs when there is a CVDCs out there. When you think about what central banks are doing and where they're trying to optimize for, in general terms, they're thinking of CBDCs, sees as an instrument that can be advantageous for financial stability and financial inclusion.

And it's more likely than not that is going to be, by design, it's going to be issued centrally because it has to be issued by the central bank. From a technology point of view, I think it's relatively unlikely that it will deploy those assets on public blockchains. So if you are thinking about what are the implication, who is going to, at the moment that, let's imagine that there is a digital dollar or a digital pound or a digital euro that is issued by the central banks in those regions. And developers and companies want to use that for payments or for decentralized finance or for other aspects. It's very unlikely that the Fed or the Bank of England are going to deploy a digital euro, a digital pound or digital dollar on Ethereum. So somebody will do that work. And you can

think of a stable coin backed by a CBDC as kind of a wrapped version of that CBDC. It's obviously a different claim. So the CVDC, the main aspect of it is that it is a claim on the central bank, that you can take your CVDC and go to the central bank and get your money. But it can also be used as a reserve for a private stable coin that then can be deployed across all these protocols that we have in discussing, which I don't think that the central banks are going to be doing that directly.

All right. So, yeah, we'll have to see all of that plays out. One other thing was you did talk about how you're working with some of the digital dollar efforts. Can you talk a little bit more about what you see as the main issues there that need to be resolved before such a digital dollar could be issued? It's an extremely complicated project to work on, which takes me back to my comment on. We believe that it's a good moment to start moving from the PowerPoint to the code, because you will only surface some of those problems as the codes going.

Part of the conversation these days is still a relatively high level, right? So if you follow the discussion around stable coins, still a lot of that is about, is it going to be a two-tier system or a one-tier system, meaning that is the central bank going to distribute directly to the public, or is going to go through distributors who must be regulated financial institutions or telcos or others. Those are still, they are foundational discussions and principles

that will impact the development. But when you start to get into the, the needy-gritty of it, there are many, many detail questions that jet that will need to be solved. For instance, one of the things that we keep scratching our heads is in an environment where there is a CBDC that is issued and that you carry that in a wallet in your cell phone. What happens if the network is down? What happens if there is no mobile connectivity or what happens if there is no, how do you update the ledger? Because one of the requirements is that you should be able to transact in any circumstances, similar like you transact with physical cash today.

And that is not just only one example. Other discussion that is very lively and relevant is privacy around stablecoin. So what is the presumption of privacy if you're interacting with a form of money that is issued by the government and there is a central ledger? There are ways to address that. But those are both policy and technology conversation that still need to happen. I am very, very optimistic that we will see digital money issued by central banks, but also I believe that this is going to play over a number of years.

I don't think that this is something that we're going to see in six or nine or 12 months. Yeah, and about the privacy question, what do you think will end up being the most likely way that that's handled? Because I know a lot of people working on this, you know, have talked about that as kind of one of the main questions. And as I'm sure people are well aware, a lot of the criticism of the digital yuan is that it's almost like a surveillance tool. So I'm sure people would or central banks like here in the U.S. or in other democratic countries would be sensitive to that concern. I'm sure that that will be the case. And there are technical ways in which we can enable that privacy. I think that we all think that privacy is a good thing.

and in the thing that anonymity might be a different thing. So there are, as we say, it's important to have controls in place that prevent illicit finance activity going through these instruments. So there have to be ways in which you need to be able to monitor that activity and prevent that activity from happening. But there are ways in which you can enable flows where the data is stored in different places. The access rights are different. The technology will be there.

I think that we still need to have, or the central banks need to have the policy debates as well on how there will be a menu of options and you will be enabled more or less privacy. I don't think that the technology is going to be a barrier for that. So another theme that has been coming up throughout the conversation is regulatory issues. I'm sure you're well aware that that is probably one of the biggest topics on everybody's mind, especially in the crypto community in the U.S. And to my mind, one of the biggest core tensions is this issue of whether or not to apply

regulations that have been built for a model that uses intermediaries to crypto, which obviously the purpose of it is to replace intermediaries with software. Some people are advocating that there be new regulations. I'm sure you're aware that there are some regulations or some guidance on regulations already that is kind of pushing for crypto to keep the model using intermediaries. What do you think is the best approach? I know you're very active also on this contributing to that World Economic Forum report on regulation.

Yeah. So I think that there are a few things that are relevant here. First, for the ecosystem to develop and for digital assets to become mainstream, there has to be regulation of the space. I think that is important that there is clarity. And if you talk to many actors in the space, when they're thinking about jumping in or adopting more broadly, part of the deterrent is, we don't know how the regulation of this environment is going to be.

So regulation is a prerequisite for this sector that we love and believe that has a ton of promise to flourish and develop. So it has to happen. Your question explicitly on, do we need a new framework or can we adjust the existing framework? I think that the little experience is that we have so far, because this has happened in a short amount of time. is that the places that have developed specific frameworks for this have been more successful in driving that innovation.

If you think maybe the most prominent example in the U.S. is New York with their virtual currency framework and the famous bid licenses, where there might be people in favor or against, but there is clarity. So you understand what you need to comply with. Maybe an international equivalent of that is Germany, where they went, they went. exactly in the way that you were suggesting in your question or stating in your question, which is, this is not exactly the same instruments that we have seen in the past, and it's not just about fitting these new instruments into the old regulation, because that would be a little bit of the square peg in the round hole.

Maybe we need to make sure that there is a new framework developed for this, and that is informing the micro-regulation in Europe. And it's also part of the recommendation that the presidential working group was issuing a few days ago, we were saying, it looks like we need a new framework for this and they were requesting from Congress to issue legislation here. It feels to me that there are places that will benefit a lot from being purpose-built for the specificities of digital assets. It doesn't mean that we need to start everything from scratch. If you're in the US, there are very good instruments that are in place, both from the state regulatory system and the federal regulatory system that might

might be very applicable to what we are all trying to do. But these assets are different. And working by analogy might help us at the beginning. But there's going to be a moment in which these digital assets start to have use cases that are not just working by analogy and that are totally brand new use cases. And the existing framework might not be as easy to adapt. Okay. Yeah.

We'll see how this plays out because I'm sure you're well aware that there are definitely people in the government, both regulators and I think legislators who seem to believe the opposite that the existing frameworks apply. So another area that sort of brings a new frontier to things is that crypto networks kind of offer things like interest if you offer services on the network such as staking or lending crypto. Does PayPal ever see that it's offering would allow users the opportunity to participate in things like that? We are considering what we should do in a world where that moves more and more toward proof of stake.

What is the best way to provide access for that? We have not formal plans about it yet, but we see not only in terms of staking, but as the environment moves from asset accumulation, if you want, to the management of those assets and what is the ability to both? derive returns from those assets, but also participates in the ecosystem, is a demand that the public will have. So we need to be ready to address that. We don't have formal plans on it yet, but we are seeing that as more and more something that will be relevant in the midterm, maybe even in the short term. And similarly, other centralized crypto companies like

Coinbase, Robin Hood, they're also developing non-custodial or self-hosted wallets for crypto users, does PayPal ever see that it would also create products like that? We believe that it's important that that users can move their, their crypto outside the PayPal ecosystem. And that's why we announced that we were going to be enabling transfers from from their PayPal wallet to crypto wallets that they host outside. And it feels to me that that's like 90% of the functionality that you would have with an unhosted wallet. But most of our users, what we are seeing is part of the reasons that they are interacting with us is because they like the trust of the on the PayPal site.

So they don't want to get into the complexity of handling their own digital keys or their own private keys. So we don't see a ton of demand on our side for us to offer a standard on wallet. We believe that we can provide that connectivity to the protocols and the rest of the ecosystem by enabling on-chain transfers from the wallet that we have today. Okay. Okay. So, but if demand, if there was demand from your customers, you would consider doing something like that? Our product roadmap is very much driven by the demand from our consumers. So when the environment changes, we definitely adapt to that. And it's one of those who are, you can say, never say never. But it's not something that we are seeing right now. Okay. And so, you know, about this ethos of decentralization and also participation, what role do you use?

see centralized companies such as PayPal playing, we are, you know, I'm sure you're aware, seeing that some companies are doing things like participating in governance of decentralized networks. Would PayPal ever consider doing something like that? Decentralization is something that obviously is very core to the ethos of the system. But decentralization is not a binary state. So there are different degrees of decentralization. We want to support the decentralized environment. We think that is, we think that the best, benefit of this is that is built on open source. We don't think that is on our role to be relevant actors in the governance of specific protocols.

That actually is not our role to play and probably would be perceived by the community as. In my conversations to the community, I don't think that they feel like the place of corporates is being very involved in the governance of these protocols. We want to enable our users who choose to work with that, with us to be able to exercise the rights. But I don't see ourselves being very active in the governance of any of these protocols anytime soon. We want to support it and we think, again, as we said, that decentralization doesn't mean that is a, that doesn't mean atomization. It means that there is not a central point of view. PayPal by design, obviously we are a corporation, we are a centralized entity. Coinbase is a centralized entity and Robin Hood is a centralized entity. So we think that there is, the push towards decentralization happens when you are able to make the cost of

contracting cheaper. So one of the reasons I keep saying that I, the reason that I work at PayPal is because it would be really, really cumbersome to show up at the office every day or at our remote office and negotiate a contract about what I'm going to be doing that day and then do that again and again and again. Is that that cost of contracting that pushes towards centralization? So there is an advantage in centralization. What is important is that we have the right degree of centralization that supports all that activity and that there is. is not a high level of concentration. So there will be, again, I think that we should discuss

between decentralization, which is beneficial and full brown atomization, which might be something that we are far from. Yeah, no, I think what you're talking about is kind of spot on with some of the feeling in the community because I think this was for the ENS governance token. I did see, I think it, I'll make a correction if it wasn't this, if it was a different project,

but Coinbase was named a delegate. And I did see some commentary on Twitter like, why would you delegate to Coinbase and, you know, kind of people criticizing that. So I think you're right that there is some sensitivity around centralized corporations. But I find it fascinating that they are participating. And, you know, Andreessen also did publish something about how it's thinking about participating in governance.

So clearly this is a question. So one other thing that I found fascinating was your CEO has talked about some problems of the legacy of financial system saying that it can be more expensive for poorer people to use and cheaper for wealthier people to use. And I know earlier in your career, you were head of emerging markets at PayPal. And I wondered what opportunities you saw for crypto and for PayPal through its crypto offerings to address those kinds of issues. As you were saying, we are a company that has financial inclusion at heart and Dan Schulman, our CEO, and all the company think very, very strongly feel very strongly about it.

I do believe, and one of the reasons that drove me to the space was this promise about the ability to help with financial inclusion and especially creating financial opportunity in emerging markets. Isn't one's question, though. I'll tell you what I do think that I see impact now and where I see impact in the future. I think that in the short term, where these instruments are going to be most effective is in helping on the small business side. and supporting entrepreneurs and companies in these markets

who can accept payments for abroad at a lower cost and faster. When I was, as you were saying in the past, in my capacity as a head of emerging markets strategy for PayPal, but also running our business in the South American markets, the Spanish-speaking markets, I've seen firsthand the impact that we can have for a small merchant that is running as Cuba-diving school in Costa Rica and he wants to accept payments from tourists in the U.S.

And the local bank is going to charge them hundreds of dollars per month to accept credit cards. And the travelers from the U.S. don't want to give them their credit card number because they don't know the merchants on the other side. So for that, when you can enable either through CVDCs or deposit the stable coins, you name it. But you can provide a way in which that business can export more and get more business and get more revenue.

adopting digital currencies, that's where I see the short-term impact on financial inclusion and opportunity in emerging markets first. A lot of the conversation around digital assets and cryptocurrency in the context of emerging economies has been more about remittances and how you can send funds from the US to Kenya and people can receive that on a mobile wallet. That exists. What we have not been able to solve yet is the last mile. So imagine that I can send funds from the from the US to my family in Kenya

and the people will receive that in a mobile wallet but if they still have if that value that I have sent them if they cannot use it widely in the market and still they need to go to a cash agent in Kenya to convert that digital value

into cash because that's what they can use in their day to day then we still have 80% of the cost there basically we're reduced the cost of the long haul which is not what the problem was and we still have the problem of the last mile. That's why, for instance, things like what is going on in Nigeria, when we have a CVDC that is issued by a central banking one of these markets,

and that CVDC can be legal tender, meaning that the public will be more used to interact in digital value, and merchants will be accepting that so that you don't have that intermediate and expensive step of converting into cash, that is the prerequisite that we need for the consumer side of emerging markets. Because then it's different. Then I can send any stable coin to that wallet in Kenya or in Nigeria, and they can either use it directly or convert it into a digital token that is accepted in the market.

But until that last mile of acceptance is implemented in the market, I think that the consumer part of it will take a little bit to develop. And so I'm sorry, you're saying that it would need to be a stable coin in the local fiat currency. That is accepted in this digitally native form. I think that we need to have acceptance in the day to day of non-cash, non-physical cash, forms of value for that work. Yeah, yeah.

I've seen crypto people talk about how, you know, when people talk about stablecoins, they're typically just talking about U.S. dollar pegs, stable coins. And I've noticed when I interview sources in Europe or Asia or whatever, they will say, oh, at that time, the value of Bitcoin or Ether was X. And they quoted to me in US dollars, not their local currency. So it's fascinating that, yeah, right now in the crypto world. Payments are very, very local. And one thing that happens with, I live in Silicon Valley.

Sometimes you see the perspective from Silicon Valley is a little bit simplistic in that sense and assuming that you're going to invent from here is going to apply everywhere. those components that you're saying, so local currencies, local regulation, the local last mile, and the distribution network and the merchant network of those digital currencies, they are issues that are

quite frankly not technology issues. Some of them are business issues or they are policy issues, but you need to be able, for that to be effective, even in the case of mobile money, M-Pesa and Kenya is always highlighted as the success story for non-crypto, but mobile money. but even when you look at other cases in Africa, Kenny is a little bit of the all-lier.

So Pesa has been very successful there, but mobile wallets in other markets have been less successful. So we are all making steps toward the main goal, but I think that I see short-term impact on the business side before I see that on the consumer side in these markets. Yeah, so we'll have to see how all this plays out. I feel like, you know, the ideal of crypto, is all this democratization and we haven't seen too much of it yet.

But something that is all the range now is NFTs and the Metaverse. You know, I just thought I would throw this out there. I don't know how PayPal might get involved, but do you see a role for PayPal or would you just limit yourself to kind of the financial areas of crypto? I totally see a role for us in NFTs. And it's interesting. As we discussed at the very beginning, we've been,

on the PayPal side, working on this maybe for the last three or four years. I've been in the space maybe for the last six. And I have to say that NFTs is one of those that grew way faster than I expected it to grow. It feels like it was only one year ago. We were thinking about it as something that, yes, it will happen eventually at some point in time, and then all of a sudden the storm unleashed. And I think that we're just at the very, very beginning of it. I personally have really, really high hopes and high expectations that it will extend

way beyond what we are seeing today in terms of collectibles and art and art, and we will see digital tokens that can unlock experiences in the real world, whether they are that your ticket to a concert is issued as a non-fungible token or any other of a zillion use cases that the developers are hard working at. what do we see as pain points and places like where we can contribute? Again, in the spirit of how we built our initial retail product in terms of making an easy experience for a non-sophisticated user to begin with, I think that applies very much to buying an NFT today.

The experience of buying an NFT today is the number of hoops that you need to go through. So you need to know that, let's use the ERC-20 case. You need to know that you need to buy Ether. And then you need to get that Ether into a Metamask wallet. And then you need to go into an NFT marketplace. And then you need to buy something there. And then your token exists in some version and you don't really know what to do with it. You said, and then you get Rugfold.

Yes. So that goes to the protection side as well. So that is something that is definitely on the early adopter side. It's not yet a mainstream experience for a curious but not sophisticated user. So I think that we definitely have a role to play on how do we enable a seamless payment experience for NFTs. I think that's something that we feel like we have a role to play. Many of our merchants and partners, and especially on the media sector, they are asking for that. You say, hey, can you please make it easy for our users to engage with these NFTs?

And then the other part of it is, same that it impacts to the payments, impacts to the custody. So how can people interact with those NFTs and where are they going to leave? So it's something that we are monitoring very closely. We think there is a space for us there. It's a very, very rapidly developing ecosystem. And we are in the very early stages. But definitely we feel like we have a role to play there. Yeah, yeah.

I guess now that I think about it, of course, I did have someone from Visa on my show, Kai Shafteld, the head of crypto there. And he also talked about it. So it does make sense. And yeah, I started imagining all kinds of partnerships you might do. But speaking of future things or things coming down the pike, I'm sure the listeners will be curious. When are you going to add new cryptos and how are you deciding which ones to add? So when we started, we wanted to make sure that, that again, they were capturing a significant part of the market cap of crypto. But also that we were that make sure that the assets that we were putting in front of our users were very high quality and we consider that we have

this responsibility of providing a curated experience. In the short year that we have been in the market, I think that we all have seen that a lot of the growth in the markets has gone, has happened outside the traditional tokens out there. So what the industry calls Bitcoin dominance has decreased significantly. We expect, obviously, that Bitcoin will continue to be there for a long time, but we are seeing a ton of growth outside those more traditional tokens, if we may. And we see that demand from our consumers. So people want to see more tokens on their PayPal wallet.

So we will be looking into that. It's something that, again, as I say, our product roadmap is very much driven by our consumer requests. And the best way to influence our product roadmap is to reach out and say, we would like to see this. is very important on our side that, again, that when we make the decision to add additional tokens, that they are of very high quality and a really high standard.

So we're going to have a very high bar. I don't expect that you're never going to be, that people will never be the place where you go and see 150 different tokens. We want to make sure that we can address the main themes and that we can, again, take care of our users as they explore what they want to do next. So you're not going to try to take on, uniswaffe or anything like that. Just kidding.

I want to talk about it. Assets. But we see the demand from our users saying we love what we see and we will love to see more and a larger offering of tokens on the app. So what is your vision for what PayPal's crypto offerings will look like maybe, let's say, three to five years from now? I was trying to figure out if you had asked me that question. three years ago, I would not have been speaking about CVDCs and NFTs and things like that,

because I don't think any of the people were speaking about that. I think that we need to be open-minded and unhumble in first, in our role in the system, and how much do we know? Because I have no idea, but whether three or five years from now, we are going to be talking about decentralized computing and all the rates is going to be how you can be processing, or whether we are going to be talking about a federated identity or what is going to be the next bend of the road. What I know is that we are here to stay.

So we are a company that cares a lot about financial inclusion and opportunity and we think that these assets are a fundamental part of driving that. The next way, we think there is a really intriguing opportunity to actually have significant payment activity on new rails, whether that's some CBDCs or private stablecoins or something else, which is very close and very core to our business. And we believe that also that identity is going to be a very important part of that and that we have a role to play around digital identity as well.

So if you were to ask me, I think that in addition to NFD, CBDC is a stablecoin and all of that, one of the places that are in the most intrigued about these days is digital identity. and how that is going to play in a decentralized world. Oh, that's fascinating. And so basically, you think that maybe PayPal would, yeah, would kind of basically offer some kind of digital identity for its users. I don't know how it would look like. Again, three to five years from now it's a different planet.

But this is one place where I think that we see a demand, again, from consumers, but also from regulators and also from merchandise. So somebody will need, I don't think that five years from now, when you want to have a transaction into wallets, what we're going to do is to send someone an inordinate number of characters of a wallet on protocol X or protocol Y. There has to be some type of interpretability and portability of credentials that you can use to identify yourself. And just jumping off from that, I did want to maybe circle back to this super app vision for PayPal. And I don't remember how clearly we defined it earlier in the show, but, you know, this is kind of the vision of something like a we chat, but here in the West where it would support messaging, saving, shopping, et cetera. And one thing, you know, when I was thinking about that, I was also

thinking about how in crypto, as I'm sure you're aware, things are very community driven, sometimes almost a little bit religious. And I'm sure you're, you know, aware that a lot of crypto communities will congregate in different telegram groups or in discord channels. And I wonder, how you saw that kind of like cultural aspect of crypto maybe, or how you saw PayPal as the super app kind of capitalizing on that cultural aspect of crypto. Again, I think that this goes back to our humility. We have the utmost of respects for the community. I don't think that we want to interfere with the community.

We're here to serve the community and to listen to it. If the community chooses to go and interact with PayPal on a messaging service that happens on the PayPal side, fantastic. But part of the benefit of that cultural aspect of crypto is that the community will generate use cases that I am not able to think about and PayPal will not think about and corporates will not think about. So they bring a totally different lens there. I think that our role there is to listen to what they have to say and to amplify their voice

and provide them with the tools and the infrastructure. I think that actually I'm really interesting on we can do on the technical work to make sure that we provide the tools for developers and that we can able to provide the right environment and the right security for them to build crypto products on top of what we can offer. And if they choose to use us from a retail perspective, that is fantastic.

But they are the ones who are driving the system forward. All right. Well, this has been a fascinating conversation. Where can people learn more about you and PayPal? There are a number of places where you can learn more about us. there are landing pages on the crypto side. Obviously, we have grown our team significantly over the last year, and we have spending quite a bit of time in outreach and finding candidates

and explaining our story. So everybody can reach us on our landing pages and reports, and we are more and more present in BDS as we continue to develop what we think are worthy efforts to push the ecosystem forward. Perfect. Well, thank you so much for coming on Unchained. My pleasure. Thank you for having me. Thanks so much for joining us today.

To learn more about Jose and PayPal, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Ness, and Mark Murdoch. Thanks for listening.