- Solana is now the dominant blockchain for PayPal’s PYUSD stablecoin.
- Double-digit yields offered to PYUSD holders via Solana DeFi have increased demand.
PayPal’s strategy of offering incentives to DeFi users is paying off.
The Solana version of the fintech giant’s PYUSD stablecoin has just overtaken its Ethereum counterpart, despite Ethereum’s 10-month lead.
Over $377 million worth of PYUSD now resides on Solana compared to $356 million on Ethereum, according to data from DefiLlama.
A winning strategy
The key to PYUSD’s success lies in the lucrative incentives offered to those who use the dollar-pegged stablecoin in Solana DeFi protocols.
Every week, PayPal provides lending protocol Kamino and trading platform Drift with hundreds of thousands of dollars worth of PYUSD to distribute to users.
Depositing PYUSD on Drift earns users over 16% per year in-kind, while Kamino gives users around 13%.
That’s significantly higher than the 3.5% yield users can earn by lending PYUSD on Aave, Ethereum’s largest lending protocol, where PayPal doesn’t add to the yields.
The incentives increased demand for PYUSD.
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After more than doubling its market share over the past month, PYUSD is now the third-largest stablecoin on Solana behind Circle’s USDC and Tether’s USDT, according to DefiLlama.
PayPal first launched its stablecoin PYUSD on Ethereum in August 2023.
Shortly after, the company hired liquidity management provider Trident Digital to help increase usage of the stablecoin.
In January, Trident used so-called DeFi kickbacks — offering incentives to those who provide liquidity for a specific asset — on decentralized exchange Curve Finance.
But the Ethereum stablecoin market is highly competitive, making it difficult for new entrants to compete.
Since launching PYUSD on Solana in May, PayPal seems to be focusing its attention there rather than Ethereum.
Can the incentives last?
PYUSD is a dollar-backed stablecoin. This means that for every PYUSD issued on a blockchain, the company holds one dollar, in cash or equivalent, in reserve.
Issuers are not required to hold all funds backing their stablecoins entirely in cash.
Tether, the largest stablecoin issuer with over $116 billion of its USDT stablecoin in circulation, keeps $80 billion of its reserves in high-yield U.S. Treasury bonds.
Interest rates in the United States are currently between 5.25 and 5.50%.
In the first half of the year, Tether made a whopping $5.2 billion in profit, thanks to the yield on the bonds it holds.
Assuming PayPal follows a similar strategy with its reserves, the amount it distributes in incentives is only a fraction of the overall return it generates.
If the Federal Reserve begins cutting interest rates in September, as many analysts expect, that could impact PayPal’s incentives.
Tim Craig is DL News DeFi correspondent based in Edinburgh. Feel free to share your tips with us at tim@dlnews.com.
