Tether Co-Founder Sizes Up PayPal’s Stablecoin Ambitions

Tether pioneer William Quigley, who was also an early investor in PayPal, said he doubts the payments giant will bring much innovation to the stablecoin space.

Sep 18, 2023 at 3:19 a.m. PDT

• Tether co-founder Quigley says PayPal’s stablecoin ambitions are driven largely by potential savings on trillions of dollars worth of multicurrency transactions.
• When he helped found Tether, Quigley, who also invested in PayPal, thought of it as “a charitable contribution to the open-source blockchain community.”

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William Quigley, one of the co-founders of Tether, said that while he believes privately issued stablecoins are “a benefit to society in every respect,” the recent arrival of PayPal’s PYUSD token is unlikely to bring much innovation.

“I don’t think much innovation will come from PayPal,” Quigley said in an interview with CoinDesk. “I think PayPal will see this principally as a cost saving. They may or may not pass on a portion of that to their end users.”

The stablecoin market is dominated by Tether (USDT), far and away the largest and most liquid of the dollar-pegged tokens, followed by Circle’s USD Coin (USDC). Still, nobody would doubt PayPal’s ability to shake up the stablecoin leaderboard, given its reach into hundreds of millions of wallets around the globe.

Quigley, who left Tether in 2015, was also an early investor in Paypal though he no longer holds any of its stock. He said he knew PayPal had been looking at stablecoins for seven or eight years, driven largely by the potential savings on the many multicurrency transactions carried out by hundreds of millions of PayPal users.

The payments world is blanketed by financial intermediaries, each extracting a toll for their services. Creating a stablecoin involves PayPal buying a basket of currencies and holding these yen, euros, rupees, won and so on in banks across the world. Once PayPal tokenizes the currency backed by those bank deposits, it has a private, multicurrency money supply that exists outside the global banking system and is free of any third-party toll collectors, Quigley explained.

This means when an American consumer with dollars purchases a product from a German merchant needing euros, PayPal doesn’t have to use a financial institution to settle the transaction because it already owns both currencies.

“All transactions are now done on its private blockchain outside of the Visa network and the banking system,” Quigley said. “There are no financial intermediaries anymore – just PayPal. There is no third-party FX intermediary taking margin because real currency is not being swapped. It’s just one token being exchanged for another. There’s no FX or interchange fee.”

Quigley said PayPal, which charges consumers and merchants 200 basis points and higher to exchange currencies on cross-border transactions, can exploit its new stablecoin network in one of two ways.

“PayPal can continue to assess consumers’ and merchants’ currency conversion fees on each transaction even though it no longer incurs those fees, and retain 100% of those fees as profit. Or, it can eliminate the currency conversion charges it has heretofore assessed its customers and lower their overall cross-border transaction costs,” he said.

Large stablecoin operators today, who hold dozens of billions of dollars in things like U.S. Treasury bills, earn impressive yields on those reserves thanks to interest-rate increases in recent years – a potential earner Quigley admits he didn’t see coming.

“When we did Tether, I thought of it as a charitable contribution to the open-source blockchain community,” he said. “I remember someone said, ‘What if we got like $500 million in deposits?’ Keep in mind, interest rates were basically zero at that time, and of course, I never thought it would get to $50 billion.”