175 - 400M PayPal Users to Crypto with Jose Fernandez da Ponte

thank you welcome to bankless where we explore the frontier of Internet money and internet Finance this is how to get started how to get better and how to front run the opportunity this is Ryan Sean Adams and I'm here with David Hoffman and we're here to help you become more bankless guys we've had a thesis on Bank list for quite a while on how we get to 1 billion crypto users worldwide we call it the D5 mullet thesis that's right D5 mullet that's fintech in the front defy in the back and basically the idea is fintech will help onboard the world to crypto

and there is no bigger fintech company than PayPal it's our guest today is Jose Fernandez de Ponte he's from PayPal he's a senior executive he leads all of their crypto and blockchain initiatives and he wants to tell us what the 400 million PayPal accounts can do with crypto right now we talk about that we talk about the future of cdbcs stable coins and the regulatory headwinds crypto is facing right now a few takeaways for you number one what does PayPal see in crypto why

are they developing on it number two we talk about what PayPal's 400 million accounts can do with crypto today is this the front door to a bankless money system number three we talk about how to get to one trillion dollars worth of stable coins we got a ways to go but Jose has a plan number four we talk about the role of cdbcs in a world of Highly Successful stable coins can cdbcs and crypto coexist number five we talk about Jose's contrarian views on crypto regulation the environment that we're in the US and why he sees this environment actually as a glass half full it's not

all bad news and David maybe my favorite part of this episode is we just got the senior vice president of PayPal to see say the words defy mullet I think twice in this episode so I enjoyed that as well uh what's the significance of this one it was really refreshing to hear Jose say that PayPal is here in crypto based on its merits and I mean it makes sense PayPal is a for-profit company that has shareholders that needs to do right by shareholders it's not going to adopt crypto for some ideological reason God

who would be so crazy to do that uh PayPal is going to adopt crypto because it provides a certain set of unique services and product offerings to what PayPal wants and that's why PayPal is here in crypto and they're also I'm sure paying attention to cbdc's as part of this conversation of this podcast though I'm sure they're also paying attention to Fed now and other payment and money Innovations yet they are paying attention to crypto and perhaps perhaps according to Jose you'll have to find out by listening to the episode paying

attention to crypto the most because crypto is the best and furthest along in all these things at least that's just my bias but hearing that PayPal is is here for their own benefit and crypto's here to service them uh is is a nice perspective to bring the other thing that we didn't talk about this and uh and I want to talk about in the debrief run is that on that same vein in that same vein uh PayPal is adopting cryptos payment rails to facilitate payments but it's also letting you touch Bitcoin and ether other monies in of its same Merit so

what does that mean when PayPal lets you touch Bitcoin and ether because maybe that's just what people want uh and so I think there's another conversation of just like not only is Paypal a fintech for payments but now it is also allowing for the expression of who wants to choose what money they want to express their money-ness desires in little did they know PayPal is allowing people to choose Bitcoin and ether even though they are a payments company I thought that was pretty interesting I express all of my money-ness desires in crypto let me tell you that and I can't wait to

talk to you more about that tell me about your money this desires bro I'm sure we're going to talk saying the words D5 mullet more than a few times in that debrief as well of course the debrief is the episode that David and I are going to record right now right after the episode that gives you the highlights and our thoughts on what we just heard so stay tuned for that if you are a bankless citizen you have access to the bankless premium feed if you're not a citizen just upgrade click the link in the show notes ads but premium RSS feed you can get access to that right now okay we're going to get right

to the episode with Jose but before we do we want to thank the sponsors that made this possible including our number one recommended exchange that's bankless Nation I'm super excited to introduce you to Jose Fernandez de Ponta he is the senior vice president of blockchain crypto and digital currencies at PayPal PayPal plus venmo of course one of the same he drives the company's efforts to bring the utility of crypto assets and crypto networks to millions of global customers certainly have seen PayPal doing a lot in the space he also knows a

thing or two about how the banking system works how it's broken and maybe has some insights in terms of how to fix it Jose welcome to bankless greatly here nice to be with you Ryan and David uh it's great to be with you we've wanted to have this conversation with um with somebody from PayPal uh and uh you know yourself for for quite some time so I'm glad we could arrange this I figured we could maybe break this into two parts for bankless listeners and and part one is just try to figure out what PayPal is doing with crypto right now

and then part two maybe you could give some uh wider insights the 30 000 foot view in terms of what is actually broken about global banking maybe we could talk stablecoins cdbcs and crypto's role in all of this does that sound okay absolutely let's do that you know first though Jose I have a 101 level question all right and this is my own kind of kindergarten level curiosity um can you tell me what a dollar is in PayPal so being in crypto for as long as

I have I feel like I have a pretty good understanding of what a usdc what a stable coin actually is and what it's backed by um because we've had to study that in crypto right we've had stable coin failings um we've we've learned about under collateralized stable coins and algorithmic stable coins uh we see sort of usdc uh and its balance sheet we kind of know maybe a little bit what's backing tether um what about a dollar in PayPal what is

that what is that backed by yeah absolutely happy to to do that and and it's funny because sometimes we in internally in the team we like to joke that if we were starting PayPal all over again now maybe we'll call the the PayPal balance unstable coin in a permission environment right because it's pretty much what what it is it is it is electronic money for the we'll talk about this when we discuss International uh but it is Europe has this concept of electronic money that I think that is really helpful for what

we're trying to discuss so when you have a dollar in your PayPal balance that is backed by funds that are held in bank accounts for the benefit of of that user so we'll talk about backing later but there is no a rehypodication of assets there's nothing like that the the money sits on on the bank it's there for when when a user wants to redeem underlining PayPal balance and take it out to their bank account again so Jose every dollar in PayPal is backed one to one with a dollar somewhere in a bank account somewhere is that correct and like what

banks does PayPal use because that's come into play too and we've we've talked about um usdc do you use some of the larger Banks all over the world there is a number of banks as a company where we operate in 200 markets so the the treasury and the banking relationships that we have is international and I don't think that we have and I couldn't tell you at the top of my mind the names of the banks our treasury team deals with with that but we are active globally and again I think that we are one of the few financial institutions that I know that is active in 200 markets so is the business model

of PayPal just pretty similar for all the crypto people more or less the same thing as usdc where you have funds dollars in a bank many banks across the world across the financial system and then you have representations of those dollars as ledgers that are presented on uh you know mobile or a web browser is that kind of the the very quick summary of it uh I would say more than more than that PayPal what is that at its hard disa payments company right so the the origin of PayPal came from peer-to-peer money

movement but then eventually became a way in which you wanted to do a transaction or an e-commerce environment and remember the good old days of early internet and and The New Yorker cartoon that nobody knows you're a dog in Internet so it was definitely a trust problem and people wanted to buy online from other parties but they didn't want to provide their credit cards and they didn't want to to need to deliver more information that they wanted so in essence PayPal grew to ensure the trust and the confidence when you were doing

an e-commerce transaction so let's get to crypto now Jose because I know PayPal is doing a lot with crypto now and it sounds like you are one of the key leaders of that charge let's start with just this basic question I'm sure a lot of bankless listeners um have an app called venmo or have an account with with PayPal if I log into my venmo app right now what can I do with crypto so what you can do the story that that we have been in crypto PayPal has been crypto product for the best part of the

last four years uh I myself have been in crypto Pro since 2015 back in my in my banking days and the way when we started the first thing that you could do with PayPal and with venmo initially with PayPal only and then you extended to memo was to buy fall and sell a few tokens so you could get into PayPal or you could get into them or way back in 2021 and 2020. you could buy a few tokens you could buy Bitcoin and and is and Litecoin and big concussion you can still do that to this day uh it was a

custodial experience and it was an experience in which the user would only buy from from PayPal and sell back to PayPal so you couldn't you could not do Unchained transfers and the reason we started there is because we thought that that we helped the ecosystem in three places and one of the places where we helped is access so there was a lot of users who were intrigued about crypto but they didn't want to get into detail of what shot 256 cryptographies and horror wallets and this and that and and and they didn't want quite frankly to

give their banking details to some exchange out there that they didn't know and they and and were not familiar with but they like the PayPal brand that they trusted the PayPal brand so the first thing that we said is okay let's provide experience for folks who are curious about crypto but not very sophisticated and when they have their first experience that's why we we started there and by and large that has been very successful even today many of the false could do transaction with us we are their first crypto experience and and again I think the

best part remember that we have more than 400 million accounts worldwide so as part of driving mainstream adoption into crypto I think that ourselves and other platforms are an important Gateway for people to to engage then we started we moved from PayPal to venmo we opened the UK as our first International Market maybe the most important relevant Milestone after that was last year when we enabled on chain transfers because that was the first time that from a PayPal wallet you were able to connect with a external crypto wallet and that triggered a bunch of things so

if you think in terms of network Theory so you have now 400 million accounts on the PayPal and the micro system you have your notes will know better than than I do but the same more than 100 million a crypto wallets out there which were separate there was no connectivity between those PayPal Wallets on those crypto wallets when we enable a on chain transfers last year basically we were building a bridge between the 400 and the 100 and that means a number of things first if you believe in network Theory the value of an Edward grows with the

square of the number of nodes so adding we're going from 100 to 400 million connected networks adds value to the ecosystem the second thing that it means is anyone with a PayPal wallet is at most two degrees of separation to anyone with an external crypto wallet and we think that is something that is extremely extremely relevant and that led to a bunch of different things one of them is first use case casual users who wanted to double into crypto for the first time when we open

on chain transfers that we launched on PayPal last year and we just announced that we have just opened that on venmo then all of a sudden we have that role as a non-ramp as an off-ramp to crypto so we see more and more people who come to to PayPal to say hey I want to buy it not because I want to bet on the price of it or keep it in custody of PayPal we want to buy I want to buy it because I want to send it to madamasco I want to go and buy enough tips or I want to go and do D5 and experience uh you know very well the

experience for Fiat to crypto on ramps it's pretty clunky there are any suspensive and there are a bunch of steps that that you need to take so now we have a population of people who are doubling with crypto and getting used to it which is fantastic and then a population of Fairly sophisticated users that were worth demanding from us is hey we want easy cheap fast on ramps between Fiat and and and crypto and that led to the next thing that we are doing now which is integrating PayPal in the properties

where crypto users go we launch our first integration with metamask a few months ago which has been very successful as well and there are all sorts of things that now the market is the money from us from modern Rams to wolframs to different ways to connect the Fiat and the web 3 world the way that we see our role is in building that conduit we don't play at the protocol level we don't think is is our role to to be driving the protocols we do believe that we play in the application layer and on the user experience layer so when when PayPal looks towards the

world of blockchain uh obviously money and payments payments are very very close to what PayPal does how would you summarize what PayPal sees as its position in this space um we got we have hooks into metamask uh we're making stable coins and and crypto transfers easier um but how would you summarize in totality what what the actual PayPal strategy is for hooking into these blockchains yep so the reason that we are on the digital currency space is because we believe that a food that a relevant part of payments and commerce

will move to digital currencies and that is digital currencies Rate large so cryptocurrencies feedback stable coins even cbdcs and if you are a payments company at heart you cannot just see that one out I think that is the first time I've been in payments for the best part of the last 20 years and this is the first time that I've seen technology that can radically transform payment rates for all the Innovation that has happened on in fintech over the last yes 20 years most of it is just better user experience on

the same traditional Financial rights and and this is the first time that I've seen something that can actually revamp and and rebuild those payment rates if you look at what I'm the most interested in is programmable fast low-cost payments and if you look at some of the information that that others have published the colleagues at Circle published some information on their transaction cost and I think that we're saying depending on the protocol they were looking at a transaction cost of one cent per

transaction when we have been kicking the tires of some of the latest protocols we have been doing transactions with a cost of 100 of a cent per transaction and if you think that the cost of payments in general is about 200 basis points if you are able to run transactions at one cent per transaction or one tenth of a cent per transaction then there is a bunch of stuff that you could not do in payments before that you can't do now you can do micro payments you can do streaming payments you can open a channel between the three of us

and charge a flat fee and just move value back and forth you can do business models that were not possible with your traditional Financial rates and that's the reason that we were so intrigued by by it there's something um I think kind of interesting and also refreshing about that posture which I feel like is um your PayPal and maybe we could generalize this to other fintechs um are just looking to the market for Solutions there's sort of a neutrality about this where you guys are saying we

just want programmable fast low-cost payments we don't care whether that comes from a cdbc or that comes from the traditional banking system or that comes from stable coins or that comes from crypto we will adopt the technology that gets us the best programmable fastest lowest cost payment technology period and we'll try anything I think that is the posture that you guys are taking is that uh accurate Jose that is accurate we're coming at this with a very known I would say

non-ideologic position so we're wearing it for the payments aspect and we think that is what is driving us I also think there is a little bit of that fallacy of the use case then I'm sure that during many of your guests in the show face that question every day that I face which is people asking but why do you need a blockchain to do this and why do you need a stable coins if you have credit cards and why do you need well I think that is the wrong question to to ask and both on the

commercial side on the regulatory side because it's it's a little bit of totals all the way down right where do you stop and say why do you need planes if you have forces and why do you need Wheels feet so at some point in time the the question should not be about why the burden of the proof is not on on the new technology to prove why is is on the other side to say hey why not in which cases you cannot apply this technology because there are risks Associated to to it

but the use cases keep popping up and I'm sure that if I were in the gaming business I would bring you a bunch of use cases around gaming on the payment side and and I don't think quite frankly that you will see the early adoption of digital currencies for payments on mainstream e-commerce payments I I don't think that the next thing that's going to happen is that folks are going to go to a large traditionally Commerce website and start paying with a crypto assets we have enabled crypto checkout as a funding instrument in PayPal for

the last three years and what that means is if you have a Bitcoin or eth balance with us and you go to new website and and you click the PayPal Blue Button because you want to buy anything you will be showing your payment instruments your debit card your bank account whatever you have with us and if you have a crypto balance you will see your crypto balance and you can click there and pay with your cryptobalance and what we do in the background is we sell the crypto we get the Fiat and we give the merchant the Fiat it's a flow that exists not a ton of people use it I don't think that mainstream users are thinking of a CR

their crypto Holdings as a way to to pay but what I do think that we will see adoption quickly is first what it is today I think that there is proof of existence right there is 120 billion errors of a stable console already out there that mostly get used on the crypto trading ecosystem I do believe that we will see adoption in a bunch of verticals that are really really right for that gaming is one that we follow very closely because it has some characteristics that make it really interesting for a digitally native

currency um there are pockets of cross-border e-commerce meaning I am in Peru and I want to buy from a merchant in the US but I don't have an internationally enabled credit card you see some of the of the crypto payment service providers are mostly looking at those use cases and I do think that you will see that on B2B payments at scale relatively quickly because if you are a company that has to play A supplier in Indonesia and you have an instrument that is 24 7 dollar

dominated a instant settlement outside of banking hours it's a very rational decision to go on and use that to your point writing what you're saying is less about the ideology and more about the harm utility or something that is it's a better tool in the toolbox I like that and I I also want to emphasize the opportunity here for for folks that just missed this and I'm speaking on behalf of of crypto natives who are very excited maybe about the future adoption of of crypto and uh what we would call on bankless bankless Technologies Jose

which is what you just said is did I get this right Jose you guys between PayPal and venmo have over 400 million users is that correct well 400 million accounts I I have several accounts myself sure sure okay so 400 million accounts and now there is the ability across both PayPal and venmo and those 400 million accounts there has been the ability to buy hold and sell crypto assets like ether or Bitcoin now there is the ability over the last year or so to transfer those

assets from PayPal or from venmo to a non-custodial crypto wallet what we would call in bank was a bankless wallet so guess what guys what we just created is a back door okay well we just created here is an onboarding mechanism from the fintech systems like PayPal directly to a self-sovereign crypto wallet and we got the network effect that PayPal already has in place I mean

that is incredible when it comes to adoption potential now of course crypto has the task to make its non-custodial wallets a whole lot easier and uh for people to to want to do that and I think that's the task ahead of us but what we've called this Jose internally at bank list for a while we've been kind of predicting this for the past you know two or three years or so we've called it the D5 mullet okay which is basically the idea that you know um fintech it's fintech in the front and D5 in the back like the parties in the backs crypto in

the back and we've kind of predicted that that fintech would would take this this path because they are neutral in the sense that they are just looking for the best Payments Technology out there so they'll use the banking system they can they'll use a cdbc if they can or they'll use crypto rails if they can and if it's better and that seems to be the case and I just want to emphasize for bankless listeners this hasn't fully been activated because we don't have 400 million users with crypto wallets yet but there's that potential okay now we have the the gate open if you will and

uh to me that is absolutely incredible so that that was more a comment rather than a question Jose I don't know if you'd have anything to add to that though it gets me excited yeah and I wouldn't call it the back door I think it's a front door I think that the the crypto ecosystem needs a onboarding and off-boarding connectivity I don't think that Fiat is going away we just need to make sure that you can build that you can get in and out quickly uh one example you were talking about the defy well I'll give you one interesting case now we have Kirito acids that you can

hold on paper wallets crypto assets that you can hold on WeMo wallets and we you have on chain transfers one of the things that that enables is PayPal acquired them more I think it's probably eight years ago so PayPal and memo have been sister wallets for the last eight years and for those eight years you could not move value between a PayPal wallet and a memo wallet they were not connected they existed in in their own worlds today you can send value from Obama wallet to a PayPal wallet using crypto rails which

is something that that is is one of those when I go back to why do you need a blockchain to do that you don't there are at least five over other ways in which you can do that but the fact is it wasn't available and it's available today so that idea that the first transfer value in a interoperable wallet between memo and PayPal was a Bitcoin transaction blows my mind it is something that has been being in payments for again 20 years that that the first movement of value that you can make between

interoperable wallets has been done on crypto rails it's just one example of that Define mullet that that you guys refer to about things that are where we are abstracting the complexity from from the consumer I think that if you go back to the early days of of Internet yes you have to understand TCP and a bunch of other things to be able to to interact with it in the same way that you need to be relatively Savvy around the protocols on the wallets and the infrastructure to be able to interact in in crypto today for mainstream adoption we will need to

have solutions that abstract that complexity from the mainstream user and I think that this is a a first good example of that Jose the this goes back to what you were saying earlier about just the idea of network Theory and and when you have open public permissionless networks the individuals the users on those networks can grow at a very large scale uh and the fact that um Bitcoin was able to solve this problem of interoperability between two siled Payment Systems naturally emergently is is pretty cool and you know goes down to

the very essence of like why these Technologies like excite me and Ryan um and I'm wondering uh if on the other side of things because PayPal is treating these as technologies that can provide utility to the company to increase its value how does the crypto industry compare to the non-crypto industry that is also on the the Frontier technical world of payments and that comes in the world of like cbdc's or any other innovations that we just aren't familiar with because we only pay

attention to the crypto industry because we're crypto people so like how do we stack up as like service providers to PayPal like how we doing so there is we need to remember that the crypto industry has been around for a relatively short amount of time so the plumbing and the wiring and many of the things it is still in progress but in the short seven years that I've been involved with the space we have gone a long long way so things like obviously there are a implications on

kyc and AML concerns for the industry we're in a much better place now with emergence of transaction monitoring platforms and and the likes of elliptic and trm and Analysis and and others in terms of the Fiat to crypto connectivity we are in a better place that we use now we we competed in the market with many other companies that are providing on ramps there and we should have uh even more and obviously and I'm sure that we will talk it later on about regulation it is it is still very early days I

think that we need to remember that and and again you're talking about 100 million wallets worldwide you're not talking about billions yet and sometimes people get a little bit frustrated with the state of development I think that we have gone enormous distance in the last 12 years are we fully there yet no of course we we are not there are there are solutions that will be needed for better kyc and decentralized identity and self-sovering identity and uh that that will emphasize that adoption going forward but we're in a

place where the numbers that we manage if you look at surveys for the USA strictly they will tell you that a little bit I think it's a little bit more than 20 percent of U.S adults have a have about or sold crypto at some moment in time and that is consistent with the numbers that we get from our internal surveys we have so many users in the US that I would say that probably at this stage the PayPal population is a decent sample of of the general U.S population so when you have more than 20 percent of the adult base

that has your script you have about 15 percent of the adult base that has engaged with the stable coins we have 12 percent of the population of the adult population who has engaged with nfts you start to be in the cusp of usually when you go beyond 10 percent you are starting to get beyond their re-adopters and you're starting to be you're not mainstream yet but you should start to get close to to mainstream so we need to remember this early days the infrastructure is much better than than it used to be I'm actually optimistic about regulation I think that what we

see going on in in places from Europe to Singapore to Japan to Hong Kong to the to UAE there is a drive to warm or clarity are we there yet no we're not there yet in to the full extent but again we need to we are all playing the long game here I think that we are making a ton of progress It's funny uh you say that you give those stats around usage because if you believe some uh Regulators I'm not going to name any right now or or some politicians they would have you believe that uh no one actually uses crypto but

there is no use case except the use case for scamming other people what can you say about that Jose is that just uh yeah what do you say to that charge so crypto is useless look as we said before there is you cannot argue with proof of existence so if there is a 120 billion uh you know stable coins out there that is proof of existence if you have an asset class that is worth more than one trillion that is proof of existence so there are there is utility that people are are using that for for different things and again in terms of how

pervasive the the penetration is it's not 80 of operation but it's 20 I don't think the other thing that we like to say is that when when reality does not respond to your model what is wrong is not reality right so the the industry is here to to stay and is and is being adopted I I don't think that genius go back into bottles I just want to take a quick peek under the hood of the actual uh how this actually works at PayPal so users can buy and store crypto they can also send crypto

um where are the assets actually sourced from so who is selling PayPal users their their crypto assets and then who's also doing the the custodian chip how do how did PayPal choose its custodian I think Jose keeps it on his Ledger right his Ledger you now we are we are regulated obviously in in a number of states we have uh virtual currency license out of New York we were the first company I think that we're a conditional bid licensed that then was became full a bid license we work with several companies in the space for

liquidity and and custody we have a long-standing relationship with paxos out of New York and we're investors in the company too and we do custody with several custodians the relationship with the with the consumer is is with us so when somebody's engaging with crypto on the PayPal platform their user agreement is signed with with us and then we work with different providers on in on in the background okay so if Ryan's got a venmo account and I got a venmo account and I send Ryan ether from my venmo account to his