Payments giant PayPal’s (PYPL) foray into the world of stablecoins, PYUSD, has experienced a significant turnaround. After a sluggish start on Ethereum last year, PYUSD has surpassed the $1 billion market cap milestone thanks to its expansion to the Solana blockchain and the allure of lucrative DeFi incentives.
Launched in collaboration with fintech firm Paxos, PYUSD initially struggled to gain traction on the Ethereum network in 2023. However, a strategic move in late May saw PYUSD expand to the bustling Solana ecosystem. This decision proved pivotal, leading to a surge in user activity and a more than doubled token supply since June.
Solana’s Allure and DeFi Incentives Drive Growth
While the broader cryptocurrency market experienced a cool-down during the summer months, PYUSD defied the trend. According to Visa’s stablecoin dashboard created with Alluvium, monthly active wallet addresses for PYUSD skyrocketed from 9,400 in May to over 25,000 in July.
This remarkable growth can be attributed to several factors. PayPal’s initial entry into stablecoins was seen as a watershed moment for the industry, with expectations of PYUSD challenging established giants like USDC and USDT. However, early enthusiasm waned on Ethereum.
Solana’s emergence as a faster and more scalable blockchain compared to Ethereum presented a compelling alternative. PYUSD’s migration to Solana proved highly successful. Within just three months, the token’s supply on Solana ballooned from zero to a staggering $650 million, surpassing its supply on Ethereum. DeFiLlama data further highlights this dominance, showing that PYUSD supply on Solana has grown by a staggering 171% in the past month, rapidly approaching Tether’s USDT on the network.
The Power of Incentives
Tom Wan, business development and strategy associate at digital asset investment firm 21.co, attributes PYUSD’s recent growth to “incentives playing a huge role.” Integration with decentralized finance (DeFi) protocols on Solana has also been a key driver. Protocols like Kamino, Drift, and Marginfi have all introduced enticing rewards for PYUSD deposits, offering double-digit annual percentage yields for token holders.
Sustainability Concerns Linger
While PYUSD’s current growth trajectory is impressive, questions remain about its long-term sustainability. Experts like David Shuttleworth, partner at research firm Anagram, express concerns about the viability of high-yield incentives: “My sense is that these incentives are not sustainable, but they are not designed to be permanent.” He further clarifies, “The idea is to get more PYUSD circulating and onboard new users within the Solana ecosystem.”
Whether PYUSD can maintain its momentum after the initial incentive period remains to be seen. However, its success on Solana demonstrates the potential for innovative stablecoins to thrive outside the confines of Ethereum. As DeFi continues to evolve and more institutions embrace digital assets, PYUSD’s journey on Solana could serve as a case study for future stablecoin projects seeking to carve out a niche within the dynamic blockchain landscape.
Also Read: Solana (SOL) Gains Traction – Brazil ETF Greenlight, PayPal PYUSD Adoption Boost Outlook
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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