Layer 1 blockchain Solana has now become the primary blockchain for payments giant PayPal’s stablecoin PayPal USD (PYUSD). According to data from DefiLlama, the total value of PYUSD on the Solana chain has reached $391 million, surpassing its value on Ethereum for the first time on Tuesday (13th).
Source: DefiLlama
Although PYUSD on the Solana chain debuted nearly 10 months later than its Ethereum counterpart, it has shown faster growth, possibly thanks to PayPal's strategy of offering rewards to DeFi (decentralized finance) users.
PayPal partnered with stablecoin issuer Paxos in August 2023 to launch PYUSD on the Ethereum network for the first time. According to "DL News", soon after, the company hired liquidity management provider Trident Digital to help promote PYUSD. use.
In January, Trident employed a so-called DeFi bribery strategy — offering rewards to those who provide liquidity for specific assets — on decentralized exchange Curve Finance. However, the stablecoin market on Ethereum is highly competitive and it is difficult for new entrants to compete. When the Solana version of PYUSD was launched in May this year, PayPal seemed to turn its attention from Ethereum to Solana.
reward strategy
Key to Solana’s version of PYUSD’s rapid growth are the generous rewards offered to those who use the stablecoin within the Solana DeFi protocol.
PayPal provides lending protocol Kamino and trading platform Drift with hundreds of thousands of dollars worth of PYUSD each week to distribute to users. Users who deposit PYUSD on Drift can earn over 16% annual returns, while Kamino offers users around 13%, which is significantly higher than what users can earn by lending PYUSD on the Ethereum lending protocol Aave 3.5% yield. These rewards increase demand for PYUSD.
Data from DefiLlama shows that in the past month, PYUSD’s stablecoin market share on Solana has more than doubled, and it has now become Solana’s third-largest stablecoin by market value, behind Circle’s USDC and Tether’s USDT. .
Can it be sustained?
PYUSD is a stablecoin pegged to the U.S. dollar, which means that for every PYUSD issued on the blockchain, PayPal will hold the corresponding U.S. dollar cash or equivalent assets (including short-term U.S. Treasury bonds) as reserves.
Stablecoin issuers typically do not reserve all the funds backing their stablecoins in cash. Tether is currently the largest stablecoin issuer, with more than $116 billion of its USDT stablecoin in circulation, and the company has $80 billion of reserves parked in yield-earning U.S. Treasury bills.
Interest rates in the United States currently range from 5.25% to 5.50%. In the first half of this year, Tether made as much as $5.2 billion in profits on proceeds from its bond holdings.
Assuming PayPal follows a similar strategy with its reserves, the amount it hands out through incentives represents only a small portion of the total revenue it generates. If the Federal Reserve begins cutting interest rates in September, as many analysts predict, PayPal's incentives could be affected.
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