When PayPal launched its stablecoin PYUSD in August this year, all eyes were on stablecoins and their payment-related use cases. And the whole crypto payment space is truly in motion. We have seen a series of announcements, new launches, and substantial moves in the crypto payment space in the last couple of months. Next to PayPal, the payment giants Visa and Mastercard advanced their stablecoin integrations, SAP piloted B2B payments with USDC, whereas Shopify started accepting USDC payments with Solana. The following presentation provides an overview of: 👉🏼 Key trends in the crypto payment space 👉🏼 B2C and B2B use cases 👉🏼 Player landscape by type of stablecoin 👉🏼 An in-depth comparison of PYUSD with the leading stablecoins Tether and USDC 👉🏼 How stablecoin projects monetize 👉🏼 Challenges with crypto payments and … 👉🏼 Solutions. If you want to dive deeper into the topic of crypto payments and stablecoins, check out the last two episodes of the Untitled Investment Talk on: Spotify https://open.spotify.com/show/2dJQSIm6dMKEcVknuah9Xt?si=9a248c56629a4b38 Apple Podcast https://podcasts.apple.com/de/podcast/all-things-digital-assets/id1527241518 Follow Untitled Investment Expertise and Dr. Karl-Michael Henneking on LinkedIN.

1. Crypto Payments with Stablecoins
Navigating the Recent Run
October 2023 I kmh
Untitled
Investment
Expertise
Berlin I Frankfurt I Hongkong I London I Manama I Melbourne I Munich
Singapore | San Francisco I Tokyo I Vaduz I Vienna I Zurich

2. The crypto payment space is gearing up: Payment and e-commerce titans
team up with leading crypto players to conquer the ‘Real World’.
2
Sources: Cointelegraph, SAP, Blockworks (2023)
& more …

3. !

4. Use cases for paying with crypto currencies are manifold, in particular for
stablecoin payments.
4
§ P2P payments, i.e. pay friends & family
§ Remittance, i.e. foreign workers sending money
back home
§ Donations, i.e. to charities
§ Merchant/POS payments: paying for goods in the
real world
§ E-commerce: paying for goods and services online
§ Other digital payments, i.e. online in-game
purchases
B2C B2B B2C B2B
§ Cross border payments, i.e. companies paying
suppliers or payroll transactions for own staff
§ Nano payments, i.e. for machine to machine
services
§ Settlement of securities: immediate delivery vs
payment for bonds or shares

5. For payment use cases, stablecoins that avoid volatility risks fit best.
5
Stablecoins are digital assets pegged to a fiat currency, typically a single fiat
currency. They are issued on permissionless blockchains by private entities.
Remarks: For alternative broader definitions of stablecoins, see for example: https://fc20.ifca.ai/preproceedings/119.pdf
Note: Stablecoins serve additional purposes in crypto, in particular in trading and DeFi (lending, borrowing, liquidity provisioning for DEXes)
Volatile crypto pegged
coins, i.e. Bitcoin- or
Ethereum-pegged like
wBTC and wETH
Central Bank Digital
Currencies: issued by a
public institution, use of
permissionless blockchain
technology unlikely
Commodity price pegged
coins, i.e. Tether Gold and
Paxos Gold
≠ ≠ ≠

6. Why stablecoins for payments?
6
Faster
almost immediate settlement
Lower fees
less/no
intermediaries
Finality
no charge back
fraud risk for sellers
Stablecoin
Value Proposition
For Payments

7. Coingecko lists 90 stablecoins atm. For use cases with Real World
partners fully fiat-backed stablecoins are most relevant.
7
The classification here is for illustrative purposes. Boundaries are blurring with stablecoins dynamically adjusting their reserve portfolio, i.e. Tether uses Bitcoin as
collateral, and DAI is increasing their US treasury bonds backing.
Types of Stablecoins
Algorithmic
AMPL
(Ampleforth)
§ backed by funds which hold
reserves fully or dominantly in
cash or cash equivalents such
as short-term bonds
§ predominantly USD-pegged,
EURO coins and coins for other
larger fiat currencies available
as well
FRAX
Hybrid
cUSD, cEUR (Celo)
Crypto-backed
DAI
USDD
Tether USDC BUSD
Stasis Euro EuroC
Fiat-backed
§ backed by other crypto assets,
typically over-collateralized to
cater for volatility of the
reserve
§ DAI reserve: mainly Ethereum,
ETH derivatives, but
increasingly also US treasury
bonds (hybrid)
§ not backed by assets
§ rely on algorithms and smart
contracts to maintain stability
§ several projects in this
category failed so far, among
them Terra UST, Basis Cash,
and ESD
§ combining algorithmic and
collateral-based approaches
§ Frax plans to eliminate the
algorithmic element and to
move over to 100% crypto
backed collateral

8. Stablecoins USDT and USDC make up 89% of the total market cap.
More than 98% of stablecoins are US Dollar pegged.
8
84,3
25,6
3,8
3,4
2,1
6,2
USDT USDC DAI TrueUSD BUSD Rest
Sources: Coingecko, October 22nd 2023
$ 124 bn
(68%)
(21%)
USD- Stablecoins
EUR-Stablecoins
$122 bn
$0,28 bn
STASIS EURO, EUROC, Euro Tether, …
98,5%
0,2%
market cap

9. The recent launch of PayPal’s PYUSD was long awaited. Is PayPaI’s
credibility the door opener for stablecoins to real world payments?
9
Source: WebGTR, Binance, Techcrunch

10. How the new kid on the block, PYUSD, compares to the incumbents…
10
Reserves
Regulation/
Compliance
Transparency
Business Model
Market Cap
USDT USDC PYUSD
$84,3bn $25,6bn $131m
Time on Market Oct 2014 Sept 2018 Aug 2023
Monetization through interest income,
fees & investments
Issuer Tether Limited
- Hong Kong based private company
Circle Internet Financial, LLC
- US based private company
Paypal uses Paxos as issuer
- a US based private company
Not (US) regulated Money transmitter licenses in various
US states and countries, incl.
Maryland, NY, and Singapore
Regulated by the New York State
Department of Financial Services
Claims to be backed 1:1 by US dollars.
Reserve as per last publications
contains US treasuries & other cash
equivalents, corporate bonds, gold,
bitcoin, other investments, and loans.
1:1 backed by US dollar deposits,
short-term US Treasuries, and similar
cash equivalents. Paxos, not PayPal, is
holding the assets.
1:1 USD backed by short-dated US
Treasuries, overnight US Treasury
repurchase agreements, and cash.
Custodied at The Bank of New York
Mellon and managed by BlackRock.
Monthly attestations – proof of
reserves - by Deloitte. Audited
financial statement 2019 and ‘20 for
Circle by Grant Thornton public.
Monthly PYUSD Reserve Report.
Monthly attestations by WithumSmith
+Brown. Third-party audits of financial
statements not publicly available.
Quarterly assurance opinions on
reserves by BDO Italia. No financial
statement audit publicly available.
Monetization through interest income
& fees
Monetization through interest income
& later potentially transaction fees
As of October, 22nd, 2023

11. … Note that PYUSD is in the very early stage.
11
Real World
Network
& Partnerships
Availability
on Crypto
Platforms
USDT USDC PYUSD
Integration with
other Blockchains
Widely integrated including
Avalanche, Ethereum, Polygon,
Cosmos, Algorand, Tron, EOS, Solana
Accessible on Ethereum and several
other blockchains, including Tron,
Polygon, Algorand, Solana, Avalanche,
soon live on 15 blockchains
Currently on Ethereum only, but plans
to integrate with L2s and other
blockchains
Widely available and can be acquired
through various cryptocurrency
exchanges (>119*), wallets and
platforms
Stability Smaller depegging events in ’23
(down to 0,98), but historically
always recovered quickly
Major depegging event, March 11th
‘23, drop to 0,88; but overall stable
with quick recovery
No major depegging during its short
lifespan, too early to judge
No major partnerships know Can leverage PayPal’s strong network
in the traditional payment space with
>430 million users and >30m
merchants; PYUSD available on Venmo
Multiple B2C and B2B partnerships,
i.e. with VISA, Asian superapp Grab ,
Robinhood, Mercado Pago, Xapo bank
and SAP
Widely available and can be acquired
through various cryptocurrency
exchanges (>93*), wallets and
platforms
Available at major exchanges
crpto.com, Bitstamp, Coinbase and
Kraken, on popular wallets, and with
institutional service providers such as
Fireblocks, Copper, Paxos, and Fordefi.
* # of exchanges listed on coinranking.com, Oct 20th 2023
As of October, 22nd, 2023

12. An evaluation framework for stablecoins - for payment use cases.
A first draft, up for discussion.
12
0
2
4
6
8
10
Market Cap
Real World Integration /
Partnerships
Integration within
Crypto Space
Stability
Transparency &
Compliance
Reserve Composition
Biz Model Sustainability
USDT USDC PYUSD
Remarks: Stability hard to judge for PYUSD due to short lifespan. Reserve Composition score correlates with share of cash and equivalents.
Biz Model Sustainability: Monetization depends heavily on interest income, which is attractive atm but subject to macroeconomics and FED interest rate policy.
As of October, 22nd, 2023

13. Stablecoin business yields attractive returns at the moment for the
incumbent players.
13
Source: Decrypt; X (formerly twitter)

14. How do Stablecoin projects monetize? The Tether and Circle case.
14
Source: Circle, Tether, Blackrock (2023); *listed as revenue source in the 2020 financial statement, no details available
Interest Income
Lending the fiat money held in custody
accounts to private companies, banks
and governments
Investments
Gains from investments in other
companies, crypto projects, crypto
currencies and other assets
Service Fees
Issuance / Redemption Fees
Account verification Fee
Transaction Fees
Integration Fees
Investments in Bitcoin, other digital
tokens and Gold (Tether)
Withdrawal / deposit fee 0,1% (Tether)
$ 150 for new account (Tether)
Fees for outbound transfers of USDC
(Circle) to cover network costs
Fees for implementation of USDC on
new public blockchains (Circle)*
Circle reserve fund - money market
fund - managed by BlackRock yields:
5,29% as of October 20th

15. Challenges which crypto payments with stablecoins face and solutions
that are being worked on or are already implemented.
15
Solutions
Challenges
1
Anti Money Laundering. 2
Know Your Customer
High transaction fees on Layer 1 blockchains, in
particular Ethereum
SCALABILITY
Ethereum L2 scaling solutions like Arbitrum,
Optimism, and Polygon; L1s like Solana
FINALTY
Lack of chargeback mechanisms can lead to
issues for customers, especially in cases of fraud
or disputes.
Education of customers on crypto payments;
Advanced blockchain analytics to detect fraud
and proactively warn users
REGULATION
Unclear regulatory landscape i.e. in the US. How
to balance regulatory compliance, in particular,
AML1 and KYC2 with privacy requirements?
Consistent lobbying by crypto community
Privacy through advanced tech solutions like Zero
Knowledge Proofs
INTEGRATION &
MERCHANT
ACCEPTANCE
Integration with existing point-of-sale systems, e-
commerce platforms, and accounting software
can be challenging and time consuming for
businesses, growing but still limited acceptance
by merchants
PayPal, VISA, and Mastercard serve as bridges
and facilitators for access to the ‘real
world’/TradFi payment space; tech partnerships
and tech co-creation between stablecoin issuers
and businesses

16. You want to dive deeper?
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16
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17. Untitled
Investment
Expertise
Berlin I Frankfurt I Hongkong I London I Manama I Melbourne I Munich
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Contact
Dr. Karl-Michael Henneking
kmh@uie360.com