Lightspeed Newsletter: How Solana hooked PayPal

Howdy! 

Happy Wednesday. After weeks of building in stealth, I launched a knitting club last night. The reception was overwhelmingly positive. If you give me a good tip for this newsletter, a hand-knit scarf might be coming your way. 

Ok anyways, as for today’s crypto stuff:

“Token extensions” sweetened deal for PayPal

For those reading this newsletter from under a rock, PayPal launched its stablecoin on Solana this morning. 

It’s the latest instance where a large financial institution has shown interest in Solana ’s payments potential. This is because Solana’s blockchain is fast, cheap, and scalable, the typical thinking goes. 

But with also-fast competitors (like Monad) approaching the market, being able to process a lot of transactions cheaply is starting to feel like “table stakes,” Sheraz Shere, the Solana Foundation’s general manager of payments and commerce, told me.

What’s novel about PayPal’s Solana launch is PYUSD’s use of “token extensions” that make tokens more customizable (and possibly more compliance-friendly). PYUSD was implemented on Solana with six of these token extension features enabled, according to a white paper PayPal released regarding the launch.

Token extensions were built in collaboration with PayPal, Visa, and Stripe, a Solana Foundation spokesperson told me. The set of features first launched in January. 

One of PayPal ’s token extensions is confidential transfers, which would let businesses keep transaction amounts confidential from consumers — though the feature is yet to go live on Solana. Bitcoin developer and influencer Udi Wertheimer joked that Bitcoin developers have been “larping” about confidential transactions for a decade but never built the feature. 

PYUSD will also contain an optional extension that gives one delegate control over a set of tokens, which would allow law enforcement to seize illicit funds. Accounts can also set their own transfer fees. 

These all sound like the sort of features that merchants would want handy if crypto payments are going to become more than proofs of concept.

Aside from payments, Shere said “a lot of real-world asset issuers” are also looking into minting with token extensions because they provide the types of controls that sometimes drive projects to private blockchains. 

I brought up the idea that token extensions could make Solana a more attractive ecosystem for larger institutions in an interview with Jose Fernandez da Ponte, PayPal’s senior vice president of blockchain, crypto, and digital currencies. 

Fernandez da Ponte said the optionality created by token extensions are “definitely a plus,” but didn’t have much else to add.

Notably, the stablecoins issued by Circle and Tether, which currently comprise nearly all stablecoin market capitalization on Solana, are not minted with token extensions. There are companies looking to create wrapped versions of USDC or USDT with token extensions, Shere told me.

— Jack Kubinec

Zero In

As far as Solana-based stablecoins go, there’s a 2.3 billion-pound elephant in the room:

Source: DefiLlama.com

The above chart demonstrates the uphill battle facing PayPal as it seeks to carve out a position in Solana’s stablecoin landscape. Tether’s market capitalization is in second with 25%, while the rest of the ecosystem — a constellation of other USD or EUR-tied stablecoins — largely ranks below a single percent. USDC’s market cap reigns supreme at 72.6%.

It’s a slightly different story over on Ethereum , with USDT encompassing some 55% of market share to USDC’s 27%. PYUSD? A paltry 0.34%, per DefiLlama.

Maybe there’s a touch of irony here — a traditional payments titan in the rear of the crypto payments pack — but as is always the case with crypto, this is all certainly subject to change. 

— Michael McSweeney

The Pulse

When Pump dot Fun suffered an exploit two weeks ago, it seemed plausible that another memecoin trading platform could use the negative press to catalyze a competing app. 

Sure enough, a smattering of websites advertising similar products to Pump’s have sprung up. One notable attempt is Whales dot Meme, created by Whales Market, a venue that came on my radar for enabling pre-token launch “points” trading. 

Still, at the time of writing, only nine Whales dot Meme tokens had cracked $5,000 in market capitalization. The only online chatter I could find about the platform was along the lines that it could be a good bet on Pump dot Fun’s downfall.

With Caitlyn Jenner and Iggy Azalea coming out of the woodwork to talk about Pump dot Fun in the past few days, I probably wouldn’t take that bet.

Still, there are examples of incumbents being suddenly outcompeted in crypto. To wit, Blur grabbed the NFT marketplace mantle from OpenSea last year, partly due to its native token launch driving activity on the platform. 

Whales dot meme is offering users grant incentives — maybe it’s worth thinking about a token, too?

— Jack Kubinec

One Good DM

A message from Sheraz Shere, general manager of payments and commerce at the Solana Foundation:

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