- Paypal’s stablecoin PYUSD circulation has increased by 224% in three months.
- Decentralized finance (DeFi) protocols and user incentives are major growth drivers for PYUSD.
- Ethena, a DeFi issuer of USDe, is the largest PYUSD holder with $1.2 billion in custody.
- PayPal collaborates with Sentora to promote stablecoin use via DeFi bribes and lending incentives.
- High interest rates have supported these growth strategies, but future Federal Reserve rate cuts may affect them.
PayPal’s PYUSD stablecoin supply has surged by 224% since September, reaching over $3.8 billion in circulation. This growth positions PYUSD as the sixth-largest stablecoin, following World Liberty Financial’s USD1, according to data from DefiLlama. Decentralized finance (DeFi) protocols have contributed significantly to this increase.
Onchain records show that Ethena, a DeFi protocol and issuer of the dollar-pegged USDe token, holds $1.2 billion of PYUSD through custodian Copper. Ethena maintains several stablecoins to back USDe, including Tether’s USDT and Circle’s USDC. The reason for Ethena’s substantial PYUSD holdings compared to competitors is not publicly confirmed and the protocol did not respond to inquiries.
PayPal’s stablecoin success comes at a time when U.S. crypto regulations are fostering greater institutional involvement. Executives like BlackRock CEO Larry Fink have praised stablecoins for improving transparency and efficiency. Tether, issuer of USDT, reported $13 billion in profit last year, primarily from yields on U.S. Treasury bonds backing its stablecoin, according to a Tether announcement.
Stablecoin adoption is expected to grow, with Treasury Secretary Scott Bessent projecting the market could expand to $3 trillion by 2030, as recently noted.
Since launching PYUSD in 2023, PayPal has worked with crypto liquidity firm Sentora to enhance adoption. Their efforts include DeFi bribes on Curve Finance and offering incentives within DeFi applications. For example, Kamino, a Solana-based lending platform, offers nearly 6% annual interest on PYUSD deposits, partly subsidized by PayPal. As a result, PYUSD on Solana rose from about $250 million to more than $1 billion over three months, per DefiLlama data.
PayPal and similar stablecoin issuers can sustain incentives by investing backing funds in U.S. Treasury bonds. This model is effective when interest rates are elevated, as seen since early 2022. However, signals from the Federal Reserve about potential rate reductions may impact the viability of these strategies moving forward.
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