Edwin Aoki I Stablecoins Bridge Old and New Payment Rails with PayPal I Pragma Bangkok 2024

[Music] next interview and for this I'd like to bring on a very special guest that is Edwin who is the CTO of the digital currency initiative at PayPal you may have seen them do a lot of new things in our ecosystem and to talk about all those things we're going to have this live conversation so please give Edwin a big round of applause [Music] all right I am very excited for this conversation um and we'll kind of start with some uh some stage setting and my first question to you is well tell us about who you are and your role at PayPal and here I was expecting hard questions um so my name is EDI I'm the CTO of PayPal's blockchain crypto and digital currencies unit which encompasses both our digital asset space as as well as Global remittances at PayPal uh which we can talk about a little bit later I guess in terms of how that uh how that plays together um I've been at company for Wow 14 years and a bit uh about four years in this role uh was one of the founders of this unit um and prior to that was PayPal's Chief Architect for about a decade um spent a lot of time in in Internet uh and and uh Finance so Netscape AOL in all all names and sort of consumer consum internet and Consumer Finance spaces amazing and I think it's one of those uh important and amazing things here that I don't think anybody needs an introduction to what PayPal is it's been such a prominent part of just the internet as history that we all have with this context on what PayPal is and how we kind of got into just e-commerce and eBay and everything from uh from early 2000s and late 90s um the thing I'm kind of curious about is what got you and PayPal excited about crypto and what's the opportunity here yeah so as I mentioned I was uh PayPal's Chief Architect for a while and that's a role that lets me play in a whole bunch of different sandboxes across all of the PayPal companies and one of that um one of those uh activities was running essentially our research and development and Innovation function within PayPal as part of that we started looking at blockchain technology both as a core technology as well as you know uh a building block for crypto uh fairly early on um probably six seven years ago um and about four five years ago we started to really uh believe that the technology was starting to be right that the opportunity in the market was starting to be right and that um you know what we were seeing in the digital asset space was really going to be transformative for payments and so we came into this space not because we're crypto maximalists per se but because we're payments Max lists and we think that digital assets and and uh crypto by extension is really a better way and a and a more modern and efficient way to do payments Cecilia just before was talking about you know Swift which in fact is 50 years old but even if you go before that you know wire transfers which still run a lot of the underlying rails for Commerce and payments like the first wire transfer was like 152 years ago so that's what we're dealing with and you know crypto and and digital assets really gives us the opportunity to really move the game into something that's more modern something that's more efficient and ultimately something that's going to make payments better maybe kind of to understand a small Nuance here as somebody who is is part of PayPal where you've been in so many countries and you've kind of figured out anywhere from the rails regulatory side of basically every currency I can think of um what is the efficiency gain that you are unlocking here is it is it purely the fact that settlement becomes faster or more because if anything you are in the perfect position to make this already seamless with without introducing any decentralized Ledger in the game yeah I mean you know certainly a lot of people in a lot of places do use PayPal and are are are able to take advantage of that um but the reality is that when you think about a product like PayPal or venmo or grab or any of the others um they sort of exist in this layer above the financial system right like they are in some sense maybe the original Layer Two on top of the financial systems layer one right and so yeah when you transfer money across PayPal your balance ticks up and things look like it's happened instantaneously the reality is that money is moving three five 7 10 days later especially if we're talking about crossborder and you know when we think about how you are able to execute payments not just Within the payment uh the PayPal ecosystem but more broadly those inefficiencies really add up so I know that there's a number of you in here that are founders or entrepreneurs maybe your investors and you know if you think about your last funding round as an example um how many times has somebody sort of said oh I can't close my round because that last check hasn't quite come in or you know I issued the wire transfer request but the banks closed 3 P.M on Friday yeah exactly 3 p.m. on Friday so sor you have to wait until next week right um the the modernization of the Rails fundamentally changes the game for those things and so yes it's faster but it's also 247 just like the internet is it's much lower cost you can move hundreds of millions of dollars across the network for pennies depending upon what protocol that you're using and that starts to create inefficent sorry create efficiencies and entirely new use cases that when combined with smart contracts and programming really start to unlock a whole new set of use cases you know beyond that when you think about the convergence between you know what we're doing in the digital asset space and the increased Automation and identification of the internet like you can't give a bot a credit card right not yet um not you probably won't ever be able to give a bot a credit card but if you want an agent to be able to perform Commerce on your behalf you're going to need some way to be able to exchange value and that is undoubtedly going to be in the digital asset space so again you know if we're going to be um participating in payments if we're going to continue to be a leader in this space we need to be a leader in digital assets that makes that makes a lot of sense and and kind of speaking of you've recently launched a stable coin and uh tell us about uh what led to that and um how do you going to think about the PayPal stable coin year yeah not so recently by uh sort of crypto standards it's about uh August of 23 so about 15 months old now um but yeah I mean as I said you know we started our uh Adventure in uh sort of retail or consumer crypto by offering our PayPal customers the ability to buy and and sell crypto on the platform um Bitcoin ethereum a couple of others um you know and we actually had two reasons for doing that one was that we wanted to First familiarize our users with the uh this sort of asset class and being able to understand and have them be able to take advantage of that in a in a manner that they found safe and comfortable and familiar through the experiences and interfaces that they already had but then beyond that we knew that we had work to do um uh to understand how customers were using that to understand how our regulators and our compliance and and risk sort of profiles would change as a result of that excuse me and we learned a lot through that process one of the things that we launched shortly after what we call our Buell hold product is the was the ability to be able to use any crypto that you're holding in the PayPal wallet as a uh payment instrument at any PayPal Merchant so if you're in the United States you have you know $300 of eth uh in your uh PayPal wallet and you wanted to buy you know a new pair of shoes at uh nike.com nike.

com is a PayPal Merchant you could spend that eth and buy those shoes Nike didn't have to do anything to integrate with that they get paid out in Fiat um just like they would with any PayPal transaction so that was a way again that we sort of were able to learn more about how consumers were using it and what they wanted to do um and also to familiarize both sides of the network the merchant side and the consumer side with the fact that these assets were there and real and had the same level of protections and the same level of utility that the PayPal balance transactions did and then but again from the beginning our intent was to launch a stable coin something that wasn't quite as Vol as price volatile something that was able to be really focused on the payments use cases and then um it took us a couple years to do that not mostly because of the tech I will have to admit um but uh we were able to go out with that um and uh followed that up about six months later with the uh launching our second chain salana um and with that I think that you know we've really started to uh be able to drive stable coins as a payment token as opposed to as a store of value which was really the whole intent and if anything uh this is the the perfect way to understand kind of the effects of distribution here and if if Merchants are okay with this world you get to learn so much and so much faster um in that in that Nike example did the merchant know that this was they don't um again because in most cases uh we settled directly with the merchant in the mechanisms that they prefer to um they didn't have to change their integration they didn't have to know they don't even necessarily have to be in a country where um they have to worry about sort of the licensing and all of that of crypto um I was in Australia uh shortly after we launched this feature and uh I remember you know one of my favorite stories is that a very large uh Merchant in Australia came up to me and said hey what you're doing is great like how do I accept crypto on my site and I pulled up my phone and I said you already do um you know which is like the easiest sales pitch ever um so you know we'll continue to expand that to Great more locations where uh consumers can do that with the wallet we'll expand that so um you know there are other settlement mechanisms that come with that but you know the as I said the the ubiquity of that our lawyers probably won't let me say this but you guys are all friends right like I think that PUSD has the greatest acceptance at at um point of sale of any crypto simply because of the fact that you know we can um seamlessly integrate with the PayPal Merchant base through that may maybe to to a small push back uh and a followup why why not integrate existing hyper available stable coins directly and uh and what kind of is different here with py USD and any other stable coin yeah I mean like I said I think when we started this whole thing our intent was to create a token that would be really optimized for payments um so are there any specific contract features here that are yeah so so you know what we started with this um we started with the rc20 because of the ubiquity and the um uh the network effects and the developer community that allowed for um py USD to start showing up in metamask and blockchain explorers and defi apps and the like you know literally within hours after we launched um and that was important because we wanted to make sure that we were participating as part of this community and that folks that had already made investments in the uh ethereum space could do so with py USD and the token that we brought um but we always knew that we were going to be multi-chain we always knew that we were going to bring additional features um and you know we continue to work with not only the ethereum community but also when we launched on salana an example you know we were one of the very first uh stable coins to register the token extension for example for confidential transfers and for those of you who may not be familiar with uh the confidential transfers extension this allows for amounts of uh Salon tokens that are exchanged on chain to be uh masked uh and and encrypted so that the existence of the transaction is visible but the amount isn't and why is that important um if you were paying payroll on chain the last thing that you want to do is to be able to essentially broadcast your entire company's salary to anybody that with a blockchain Explorer if you're doing business to business transactions the last thing that you want to do is to have somebody be able to start analyzing your sales data ahead of an earnings report or ahead of those kinds of things and so you know we've been working with the community to really understand what are the unique extensions and the unique attributes in the contracts that really can facilitate payments um and incorporating that into the token so on the ethereum side no not a whole lot you know our um primary differentiation there is the holding mechanism of our reserves which is in a limited purpose New York trust so um this gets into sort of deep sort of Finance Arcania but um you know limited purpose Trust basically means that token holders assets of Reserve are held in the name of the token holders and their bankruptcy remote so if PayPal or paxos who's our issuer goes under token holders still get paid out for all of those reserves that's incredible I mean that's a very specific amazing detail it's a it's a very spe it's like I said it's a kind of Arcane detail but you know when we think about it from a financial services lens and how do we create the maximum level of protections for customers like those are the kinds of things that we went in so not all of that is sort of specifically in the token design some of it's in the uh design of the reserves or the design of sort of the way that we uh engage with the ecosystem but those are the kinds of things that we started thinking about when we um wanted to go out uh and those were not attributes that we necessarily saw elsewhere in the space yeah that makes makes a lot of sense um the other thing I'm was curious about was um how was the experience doing this at a company that's on public big and uh and is trying to disrupt itself uh I can imagine there's a lot of push back I can imagine there's more lawyers than engineers talking about what to do here uh I'm just speculating and uh and it may not have been that easy so H how did you kind of get over the the hurdle of actually saying hey let's actually push through this thing because it actually is beneficial yeah I mean actually we've had a lot of uh really great support from our senior leadership um you know from our CEO at the time all the way on down our current CEO is a huge supporter of what we're doing because again you know the the core of what we're doing this for is because we're a payments company um and we believe this is a better way to do payments in the future of the way that payments will be done so this is really seen as the way that we continue to Drive Leadership into the next generation of payments um we do have a number of lawyers uh we do have a fairly robust risk uh uh mitigation and risk controls organization um but we actually see that as a feature and not a bug because what you know as an example our token is green listed by the New York Department of Financial Services and that means that if you are an exchange or you are somebody that is a regulated institution um you don't need to go and ask permission to list our token um from your regulator uh it's sort of granted by the fact that they've done the diligence and that they trust that we've done the diligence across that so um we are considered a safe asset for for that activity and that comes because a we have 25 years of sort of history and and uh trust in the marketplace but also because we apply the same level of rigor that we do for our Fiat transactions for our Core Business into crypto um now I will say that um as you know the guy that leads engineering for that that hasn't necessarily always been easy our unit probably has been audited internally more times than any other unit at PayPal um and yet I think that we move faster than probably any other unit at PayPal because we get to first of all take advantage of all the great work that's happening in spaces like this and for across the rest of the ecosystem but also because that's what the space demands and so um you know I think it's been it's been a fun Journey um you know it's been great to be able to create that level of education and level of awareness both internally to PayPal and externally amongst um you know sort of the the web to the the great unwashed masses of folks that that haven't yet seen the light um but to be able to really bring that into a new realm and and you know everybody talks about the next billion users um you know we're concentrating on the 400 million users that we already have and being able to really give them a safe and and an efficient way to get into this asset awesome um kind of the the two small things I'm kind of curious about are understanding kind of how do you think about this thing when you are are making a decision to integrate this thing at a global scale uh P USD is from its name specific to a single country's currency um how does that sort of go beyond just either one currency or that infrastructure powering other things and uh kind of what's a good framework that you found to scale this across the entire PayPal user base yeah I mean you know first of all when we think about the overall space and one of the things that is unique about py USD relative to PayPal and and PayPal balance is the fact that p is portable right um a few weeks after we launched uh through partners and folks that you know wallets and uh both uh custody and non- custody wallets that that picked it up uh py USD was available to customers and I think 15 countries um and from a first-party perspective from PayPal at the time it was available in one so you know we are big Believers in the power of the ecosystem to really be able to take uh py USD to the extent that it's useful and and expand that into markets where they have expertise and they have product Market fit um for what they're doing for our part you know the reality is that if you look at what stable coins are used for most today and some of the things that we're looking at especially in terms of large volume busino business kinds of transactions most of all that is still denominated in dollars so you know the depth of crypto liquidity pools on dollars still vastly outshines anything on the you know on on other currencies um all of the world's Commodities are essentially uh denominated in dollars most of global trade happens in dollars and particularly where areas where stable coins um are are being adopted for normal everyday transactions these are places where um you know there is less faith in local institutions uh there may be high inflation or high volatility of the local currency and those people actually prefer to keep their tokens in in something more stable like US Dollars and so you know we're very customer focused organization we go where our customers tell us to go um to the extent that folks want to be able to off-ramp that into local or Regional currencies um and they want to use a a source from PayPal to do that we'll listen to that and and respond accordingly but at the moment the demand seems to be on the dollar side that makes makes total sense and maybe to end um even though you kind of did hint about this and and kind of teased this a bit but what actually is kind of the focus moving forward like are you just going to continue growing what's working or what else can we expect here yeah I mean I think there's really two tracks to that um one is that from the use case perspective you know if you're sap we just announced that that sap now has integrated PUSD into their Global Currency hub for businessto business invoices um you know if you are the average PayPal customer you actually don't care what's underneath the hood so we're focused for those people on the application layer um getting those experiences right being able to bring that and and and and weave that through the rest of the PayPal experience you know for those of you in this room and me and my team you know we're focused on continueing to track the trends at the protocol layer um uh things like you know the the various eips that are coming out of ethereum the additional token extensions that are on salana and um you know some of the innovations that are happening with the l2s to really continue to build out that foundation and that substrate uh so that we can bring more Innovations into the space amazing Ed thank you so much for this amazing conversation and looking forward to seeing more from PayPal great to be here [Music]