Solana is now the dominant blockchain for PayPal's PYUSD stablecoin. The double-digit yields offered to PYUSD holders across Solana DeFi have fueled demand.
PayPal's strategy of attracting DeFi users with incentives is paying off.
Despite Ethereum's 10-month head start, Solana's version of the fintech giant's PYUSD stablecoin has outperformed its Ethereum counterpart.
According to DefiLlama, Solana now has over $377 million worth of PYUSD compared to $356 million in Ethereum data.
A winning strategy
Key to PYUSD's success is the lucrative incentives offered to those using the dollar-pegged stablecoin in Solana DeFi protocols.
Each week, PayPal offers lending protocol Kamino and trading platform Drift Hundreds of thousands of dollars PYUSD value to distribute to users.
Depositing PYUSD in Drift earns users over 16% per year, while Kamino offers users around 13%.
3.5% Yield Users can borrow PYUSD on Aave, Ethereum's largest lending protocol, where PayPal does not juice the yield.
Incentives increase demand for PYUSD.
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After doubling its market share last month, PYUSD is now the third largest stablecoin in Solana, behind Circle's USDC and Tether's USDT, according to DeFillama.
PayPal first Used Its PYUSD stablecoin on Ethereum in August 2023.
Shortly after, the firm hired liquidity management provider Trident Digital to help it grow the use of Stubcoin.
In January, Trident introduced so-called DeFi bribes — offering incentives to those who provide liquidity for a particular asset — in decentralized exchange curve finance.
But the stablecoin market in Ethereum is highly competitive, which makes it difficult for new entrants to compete.
Since launching PYUSD on Solana in May, PayPal seems to have shifted its focus away from Ethereum.
Can incentives continue?
PYUSD is a dollar-backed stablecoin. This means that for every PYUSD issued on the blockchain, the organization holds one dollar in cash or equivalent in reserve.
Issuers are not required to fund all of their stablecoins entirely in cash.
Tether, the largest stablecoin issuer with more than $116 billion of its USDT stablecoin in circulation, keeps $80 billion of its reserves in yield-bearing US Treasury bonds.
Interest rates in the US are currently between 5.25 and 5.50%.
In the first half of the year, Tether made $5.2 billion in profits through returns on the bonds it held.
Assuming PayPal implements a similar strategy with its reserves, the amount paid through incentives is only a fraction of the total yield it generates.
If the Federal Reserve starts cutting interest rates in September, as many analysts predict, that could affect PayPal's incentives.
There is Tim Craig News' Edinburgh-based DeFi correspondent. Reach out with tips at [email protected].
Related TopicsPAYPALSOLANAETHERUMSTABLECOIN
