Hello everyone. Thank you for being here. My name is Justin Gainsley. I manage stablecoin payments at Coinbase. I've been doing this for four years, which is quite a long time for cryptocurrency, but quite short for payments.
But I want to talk about what we've learned from building stablecoin payments at scale, selling them to businesses and payment service providers, what we've learned along the way, and, uh, what I think we still need to achieve. So, I want to start by sharing this post by Coinbase founder Brian Armstrong on Reddit. This is actually Hacker News, not Reddit. But in a post from 2012, before he applied to Y Combinator with the idea for Coinbase, he writes that he thinks he can use cryptocurrency to eliminate exchanges, to eliminate the 2-3% tax that Visa and Mastercard charge on every payment. And what's so cool about this is that even before he had the idea to buy and sell Bitcoins, which would eventually become a huge company huge company , he was thinking about cryptocurrency as a payment method.
So, cryptocurrency as a payment method has been deeply ingrained in Coinbase from the very beginning Coinbase from the very beginning . And when I took on Coinbase Commerce four years ago, the task was essentially the same. How to make crypto payments work on a large scale? And we tried an incredible number of times. We tried payments in Bitcoin.
We tried every token of every chain from every wallet. We turned to memecoins. We tried all sorts of experiments with cashback. We tried point of sale, invoicing, online invoicing, online payment. But none of this really moved.
And for a long time, there was a period when we weren't sure if crypto payments would ever become big business. Sure, maybe a niche startup would have met the demand, but was it really a viable business on the scale of Coinbase? And we were just worried that maybe cryptocurrency wasn't suitable for payments. But the signal was there if we listened carefully. We spoke to hundreds of buyers and sellers and asked them: why do you use it?
What fascinates you about this? What are you trying to achieve with this? And when we listened carefully, we discovered that there were several different camps of people. Some of them wanted to spend their profits. Some of them were just really passionate about Bitcoin.
But for the most part, there was a group of people who were very passionate about cryptocurrency as their money, as something they were making money on, which they then really wanted to spend. They wanted it to be stable. They didn't want to deal with gas or volatility. And we found that maybe more assets don't mean better results. So we made a bet.
We excluded Bitcoin, Ethereum, all volatile assets and invested entirely in stablecoins. And this may seem obvious in retrospect, but I will tell you that there was no consensus at the time. This actually led to a lot of backlash. Even internally we debated. Many of us didn't believe this was the right move, right?
People thought it went against what were trying to achieve as a company. But we've heard from our customers that this is probably the direction to go. And that 's why we wanted to take this bet. And the illogical result was that all indicators increased. Conversion increased, volume increased, seller satisfaction increased, even though we no longer had 99% of the crypto market able to pay.
And the reason for that is that people actually wanted to store digital dollars and spend digital dollars without fees. And instead of creating a crypto product, they really just wanted to use a payment product. So this was a turning point for our business. And another statistic that I think really highlights this is that 64% of that 64% of wallets that paid for the stablecoin product alone had no other assets. This is exciting.
This is a fundamentally different cohort of people than those who previously used our Bitcoin payment product. These are not crypto traders using their dry powder for expenses. These are savers. People who use stablecoins as a way to save money to earn. This is a fundamentally different group of people, and I think group of people, and I think this group of customers didn't really exist a few years ago.
This is a very recent phenomenon. So I want to talk about what we actually created. I want to start with history. So, we switched to stablecoins only. Uh, and we created what we thought was the best stablecoin cash system in the industry.
You could use almost any crypto wallet. You could use it on any chain, on all major stablecoins. No gas on any token. Uh, so we were really happy about that. We thought it was for the best.
And so we brought this to Shopify, our partner, and we're very proud of it. And then we gathered their whole team in a room and said, " room and said, " Hey, we want to show you this new thing we built." We want to offer it for your cash register system.” And I see Shopify's global head of payments and fulfillment raise his hand, and he says, "Well, what's your plan for Au and capture?" And as embarrassing as it may be, as someone in the payments industry, I've never heard those words before.
I thought, " those words before. I thought, " What is this?" And then there was a year of working with Shopify as a truly fantastic design partner to understand everything a true payment system requires. So imagine the idea that you can separate the storage of funds from the receipt of them. So you imagine if you check into a hotel, they swipe your card, block $1,000 on it, and then you can take from the minibar and they will only take the amount you need at the end of your stay at the hotel.
And it is authentic. They also needed automatic cancellations, customizable expiration dates, refunds, different billing schemes, different reconciliation reports, and the ability to resolve disputes. So all of these were prerequisites for a payment service provider or enterprise to even consider stablecoins. And the ordering process was just one part of this overall puzzle. And one of the things we learned doing this was not to underestimate how much thought went into the traditional payment system.
We like to say that it's broken and extractive, and of course some parts of it are. But decades of thought have gone into creating systems that work for billions of people. And if we want payment service providers and businesses to take stablecoins seriously, we can’t require them to change every part of their payment flow. We cannot require them to change their agreement or restructure their reporting. We need to connect to the places where they already exist and make it easy for them to agree.
This is our key topic. And that's why we created a commercial payments protocol commercial payments protocol . I know some of the audience is tech- savvy, so I thought I would delve into an interesting smart contract we created. Hmm, and we did this, which is we ran this escrow protocol on the database. It's completely open source and runs on Shopify USDC, which currently powers, um, hundreds of thousands of sites.
So, the foundation is this escrow smart contract . And after authorization, the funds are transferred from the buyer to escrow. After capture, the funds are transferred from escrow to the seller. The contract guarantees that after authorization, the funds are guaranteed to be seized. So we had to create this new escrow on the blockchain to avoid the double-spending problem.
The business needs to make sure it can tick the box for the user and ship the product. And of course, there are no assumptions here about the type of wallet or recipient, which allows us to be extremely flexible extremely flexible as we continue to scale the product to scale the product . We also created this idea of an operator. So in traditional payments, someone has to send the transaction. This is usually the merchant's payment processor.
And we call this role the operator. Anyone can create an operator. Er, and that's effectively giving the operator the keys to the car without the keys to the house. And in this way, they can contribute to each of these key actions. They cannot change the payment intent.
So the payer signs this hash with payment data, recipient, token, amount, expiration dates, and expiration dates, and any mutation will result in a different hash, and the contract will reject it. The operator also cannot block funds. So if the authorization expires and the operator has not taken any action, the payer can return them directly in the contract without the contract without any intermediary. And, of course, operators cannot influence other operators. So a bad operator can only hurt their own group of sellers.
And the entire protocol consists of only six operations of only six operations . Authorization, capture, write-off. Deletion is an opportunity to combine authorization and capture in one step. A reversal is the transfer of funds back from the escrow back from the escrow account to the buyer. I'll move on .
A refund refund is a transfer from the seller to the buyer. And then a refund. Refunds are a really interesting option because they are quite native to the blockchain. The idea is that the buyer can withdraw their own funds from the escrow funds from the escrow account after the author's authorization expires. And this does not exist in traditional payments.
So you can imagine that if your credit card expires at this hotel, you will have to wait for the issuing bank to release the reservation. And this may take several days. But in this case, if the operator decides or forgets to refund you due to cancellation, you can go through the contract yourself and get your money back, which is quite interesting. We had to create a lot more to get Enterprise to agree as well . I find it boring, but necessary.
They want predictable fees, so they won't be happy if their gas fee is 8 cents one day and 12 cents the next. They want predictability, so we absorb all the gas fees. We level them and transfer them to our company as a filing fee. Calculation files. Each payment service provider has its own settlement requirements.
They have their own way of reading data and providing it to their clients, and they are not going to read the block explorer themselves. And that's why we created these serializers so that every payment service provider can get exactly what they expect when it comes to reporting on fiat currency settlements. Of course, not everyone is ready to hold stablecoins, so we are happy to send them fiat money to their bank account daily on whatever schedule they wish and collaborate with their various organizations. As you can imagine, there are a lot of compliance requirements involved in payments . And so there are a lot of these boring but necessary things that we need to do to make it so easy for them to say, "Hey, I'm ready to dip my toes into stablecoins."
And as a result, we are a result, we are just another alternative payment method. You get familiar APIs, consistent reporting consistent reporting , and a simple buyer interface. Their finance team doesn't need to do anything new. Their developers can simply enable this on their existing payment service provider portal. It works just like any other alternative payment method they already support, which is great because they don't want it to change their system.
So what else do we need as an industry? Well, maybe that's a hot idea. Despite how much hype there is always about new blockchains, new L1, new L2, faster finality, higher throughput, I think blockchain is perfectly suited for payments. Of course, there is a need for investment. But the base is already set up in 200 milliseconds for less than a penny.
And for the most part, the chain is not a problem for us . What we see is that the wallets, the platforms, the signing interface signing interface – these things were built for the crypto trader sitting at their desk, not for the person who is saving their savings and stablecoins, who is making money from stablecoins and wants to be able to spend them to pay for their life. And so there are a few places where it's killing us today . Wallet connections. Unfortunately, some of the wallets with the most assets actually have the worst UX.
They can have very unstable connections. I attribute this to the same thing as card rejection. If the connection to the wallet drops wallet drops and they can't spend, they have to log back in, try again, we lose them. The platforms still need improvement. A significant percentage of people want to get more money in stablecoins.
Doing this outside the US can be very difficult. Therefore, we can make a lot of progress to improve the experience on the platform. Signing UX Signing UX signatures as raw hexadecimal signatures is not what people who want to protect their savings and stablecoins want to see. We need to make it easier for people to understand what they're doing and avoid unnecessary controversy, and then, I think, the introduction of smart the introduction of smart wallets or just the introduction of new standards in general. We need to push our wallets towards better understanding.
These are ecosystem problems. They are solvable. I don't think we necessarily need to raise another billion dollars for a new chain, but rather build on these pieces that are around the wallet in the payment infrastructure. I'll end on a bright note, which is that two years ago, no one was really talking about stablecoin payments. They have gone from this curiosity to something that is now used in production.
Millions of businesses , millions, hundreds of millions of people hold stablecoins and use them as a better benchmark. All the primitives exist, which is amazing, and the demand is real and growing. I think we still have a lot of work to do, but it's very encouraging to see how far we've come in such a short time. With that in mind, I want to thank all of you for being here today and listening. You can check out Coinbase's payment suite at coinbase.
com/payments. You can find me on Twitter at ginsyjustin. I'll be around if you want to chat after the talk. Thank you again.
Automatic transcript — names and jargon may be misspelled.