- PayPal’s stablecoin has jumped 224% in three months.
- Defi adoption and incentives drive growth.
PayPal’s PYUSD stablecoin is booming as decentralized financial protocols and their users pile into the dollar-pegged token.
Since September, the amount of PYUSD in circulation has jumped 224% to over $3.8 billion, making it the sixth largest stablecoin after World Liberty Financial’s $1.
Ethena, a DeFi protocol and issuer of the dollar-pegged USDe token, has become the largest holder of PYUSD, with $1.2 billion in deposit through custodian Copper, according to onchain records.
Ethena holds several stablecoins to back its USDe token, including Tether’s USDT and Circle’s USDC. It is unclear why the protocol currently holds more PYUSD than its rivals. Ethena did not respond to a request for comment.
PayPal’s stablecoin success comes as key crypto legislation in the United States opens up the industry to institutions.
Wall Street players like BlackRock CEO Larry Fink have hailed the potential for greater efficiency and transparency that blockchain-based stablecoins offer.
There is also a substantial profit target. Tether, the issuer of the stablecoin USDT, generated a record profit of $13 billion last year, mainly thanks to the yielding U.S. Treasury bonds that back its stablecoin.
Excitement over stablecoins is permeating even the highest levels of the U.S. government. Last month, Treasury Secretary Scott Bessent said he expects the stablecoin market to reach $3 trillion by 2030, up from the previously forecast $2 trillion.
Lucrative incentives
PayPal launched its stablecoin in 2023 and was among the first US companies to do so.
The company worked with crypto liquidity management company Sentora to drive adoption. The pair attempted several initiatives, including so-called DeFi bribes on decentralized exchange Curve Finance and incentives for PYUSD users in DeFi protocols.
Kamino, a Solana lending protocol, currently offers users nearly 6% annual interest on PYUSD loans, partially subsidized by PayPal.
Over the past three months, the amount of PYUSD on Solana has grown from around $250 million to over $1 billion, according to data from DefiLlama.
Stablecoin issuers like PayPal can afford to pay such lucrative incentives by investing the funds that back their stablecoin in U.S. Treasuries – the same way companies like Tether have made record profits.
This strategy works well when interest rates are high, as has been the case since early 2022.
However, as the US Federal Reserve increasingly hints at further rate cuts, the future of such adoption strategies may be cut short.
Tim Craig is DL News’ DeFi correspondent based in Edinburgh. Contact us with advice at tim@dlnews.com.
