Weekly Recap
August 11, 2023

Crypto Fundamentals #040

Paypal Launches USD-backed stablecoin, Visa tests on-chain gas payments through fiat currencies / credit card payments

Jimmy Zheng

This week, Mike Novogratz talks Bitcoin and crypto with David Rubenstein, Coinbase’s BASE network built on the Optimism SDK goes live on mainnet, and Michael Saylor may sell stock to purchase more Bitcoin.

let’s jump right in 👇

🌞 Paypal launches USD-backed stablecoin: PYUSD

💫 Visa tests on-chain gas payments through fiat currencies / credit card payments

🤝 Trends to Look out for on Artemis: Linea

😉 Bonus: Artemis Product Updates

The market saw low volatility this week across L1 / L2 tokens with average and median WoW price increases of ~0.5% and ~0.1%, while equity markets saw small downwards movements (S&P 500 and NASDAQ index down ~0.5% and ~2.2% over past 5 days, respectively). Solana was an outperformer vs its peers this past week with a 7.1% WoW, which has coincided with a steady increase in TVL on the network over the past month (~$270mm on July 1 to ~$320mm on Aug 11).

🌞 Paypal launches USD-backed stablecoin: PYUSD

This past Monday, Paypal announced that it’s launching a USD-backed stablecoin: PYUSD. The Paypal USD is issued by Paxos Trust and will be fully backed by dollar deposits, short-term Treasuries and cash-equivalents. The stablecoin is pegged to the dollar and will initially be launched for US Paypal customers.

CEO Dan Schulman noted that the technology allows for instant and lower-cost transfers without a central intermediary, and that “the vision over time is that this becomes a part of the overall payments infrastructure” (Bloomberg). Jose Fernandez da Ponte, head of PayPal’s blockchain and digital currencies team added that the regulatory environment continues to “[progress] towards more clarity” and sees increasing demand for alternative stablecoin offerings given how concentrated the existing market is. Currently, there are ~$126bn of stablecoins in circulation according to Defillama with the largest components being Tether (~$83bn market cap) and USDC (~$26bn market cap).

stablecoin dominance per defillama

Patrick McHenry (R-NC), who has been leading the charge on a bill to regulate crypto stablecoins, stated that PYUSD shows that “stablecoins - if issued under a clear regulatory framework - hold promise” for digital payment systems.

On the other side of the aisle, Maxine Waters (D-CA), the top Democrat on the House Financial Service Committee, stated that she’s “deeply concerned that PayPal has chosen to launch its own stablecoin while there is still no federal framework for regulation, oversight and enforcement of these assets.” Waters pointed to the fact PayPal has meaningful size and reach with its 435mm customers, and that federal oversight and enforcement of stablecoin operations would be essential to “guarantee consumer protections and alleviate financial stability concerns.” In her prepared remarks, she also pointed to the Republican bill as “[undermining] the Fed’s role as our central bank, making it harder to protect the economy against inflation or support maximum employment if stablecoins are broadly adopted.”

Ultimately, while Paypal’s launch of a USD-stablecoin platform is a positive signal that traditional fintech players believe that the underlying technology has the potential to drive meaningful value for consumers, in the near term it does not seem like the action has helped bring any further regulatory clarity to the space. We will be closely monitoring the continued regulatory responses and eventual rollout of PYUSD.

💫 Visa tests on-chain gas payments through fiat currencies / credit card payments

This week, Visa released a paper detailing a solution to allow users to pay on-chain gas fees on Ethereum using stablecoins and other non-ETH tokens. The experimental solution was tested on Ethereum’s Goerli testnet and intends to reduce the reduction to interact with blockchain networks such as Ethereum. Typically, users would need to maintain a certain amount of Ethereum tokens in order to pay for gas fees to transact on the platform. With Visa’s solution, which leverages account abstraction and the ERC-4337 standard, users could pay for gas using USDC or USDT, or have their fees covered by a separate entity such as Visa itself.

In Visa’s paper, the team outlines that the existing flow for users to acquire native tokens such as ETH to transact on blockchain networks requires a number of cumbersome steps and is currently a subpar customer experience. Visa’s team notes that the process requires depositing fiat currency onto an exchange, purchasing tokens, and then transferring said tokens to a personal crypto wallet. The user then also faces the problem of fluctuating ETH values and gas fees, which could impact whether or not their initial purchase of native tokens is sufficient for them to complete their intended actions.

Simplified User Interaction with the Paymaster Implementation. See image description for details.

Visa’s solution simplifies the process to allow for users to pay on-chain gas fees in fiat money directly using a credit card on file. Visa utilizes a “paymaster” smart contract that has the ability to sponsor gas fees for user accounts. This allows the the user to simply use their Visa card to pay for gas fees and participate in on-chain activities such as minting an NFT or participating in a DeFi project.

Ultimately, Visa’s intention with these experiments is to continue evaluating ways to reduce the user frictions that exist today with interacting with blockchain technology. Visa has continuously emphasized that it believes that digital transactions and blockchain technology continue to have the potential to shape the future of money, and has now made meaningful strides in bringing that vision of the future to life.

🤝 Trends to Look out for on Artemis: Linea

Linea is a new zkEVM roll-up backed by the ConsenSys team. Per a recent press release, “Linea is a Developer Friendly zk-Rollup, Powered by ConsenSys.” The platform is focused on delivering a seamless developer experience and offers “native integrations with popular tools such as MetaMask and Truffle, so that builders can focus only on innovation.”

The team recently launched their platform in mid-July and has seen usage start to grow over the past month. The platform currently boasts ~$10mm in TVL and ~31k daily active addresses, putting it in the at the lower end of peers such as Arbitrum (~150k daily active addresses) and Optimism (~115k daily active addresses).

While the platform is still new, Linea has already started to consume a meaningful level of gas on Ethereum L1 given its ZK architecture.

Layer 2 scaling solutions gas usage on ETH Layer 1 - % Market Share

Today, Linea makes up ~10-20% of gas usage across the ETH L2 scaling solutions. As the L2 ecosystem continues to proliferate, it will be interesting to continue monitoring gas usage and user adoption metrics across the space.

😉 Bonus: Artemis Product Updates

As an update, the Artemis team has been shipping a ton of new features - check them out on our website / Twitter below!

GMX V2 Statistics:

Layer 2 on the OP Stack: Zora

Layer 2 on Ethereum: Linea

Detailed L1 dashboard for people who love more numbers in smaller font:

Note: Revenue represents fees that go to the protocol’s treasury or are returned to tokenholders via a burn mechanism (source: Token Terminal). Weekly commits and weekly dev activity as of 7/28/23.

The content is for informational purposes. None of the content is meant to be investment advice. Use your own discretion and independent decision regarding investments.

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