PayPal’s $733m Stablecoin Experiencing Rapid Growth on Solana Compared to Ethereum

PayPal’s PYUSD stablecoin has seen a surge in popularity on the Solana blockchain, surpassing its Ethereum counterpart despite Ethereum’s earlier adoption. Currently, over $377 million worth of PYUSD is held on Solana, compared to $356 million on Ethereum, as reported by DefiLlama data.

The success of PYUSD on Solana can be attributed to the attractive incentives provided to users engaging with the dollar-pegged stablecoin within Solana’s DeFi protocols. PayPal offers substantial incentives to users of lending protocol Kamino and trading platform Drift, with users earning over 16% annually by depositing PYUSD on Drift and around 13% on Kamino. These yields far exceed the 3.5% offered by Aave, Ethereum’s primary lending protocol.

The introduction of these incentives has significantly boosted demand for PYUSD, making it the third largest stablecoin on Solana, trailing only Circle’s USDC and Tether’s USDT. PayPal initially launched PYUSD on Ethereum in August 2023 and later enlisted liquidity management provider Trident Digital to enhance its utility. Trident leveraged DeFi bribes on Curve Finance to incentivize liquidity provision for PYUSD.

However, the competitive stablecoin market on Ethereum posed challenges for PYUSD’s growth. Since its launch on Solana in May, PayPal has shifted its focus to the Solana ecosystem over Ethereum. PYUSD operates as a dollar-backed stablecoin, ensuring that each unit issued is backed by a corresponding dollar reserve. While issuers like Tether maintain reserves in yield-bearing assets like US treasury bonds, PayPal’s strategy with its reserves remains undisclosed.

Tether’s substantial profits from its reserves highlight the potential for significant returns in the stablecoin market. If the Federal Reserve reduces interest rates, as anticipated, it could impact PayPal’s ability to sustain its current incentives. Tim Craig, DL News’ DeFi Correspondent, covers developments in the sector and can be reached at tim@dlnews.com for tips.

The evolving landscape of stablecoins and DeFi platforms underscores the importance of competitive incentives and strategic positioning to maintain market share and user engagement. PayPal’s success with PYUSD on Solana highlights the significance of attractive yields in driving demand and adoption within the crypto ecosystem.