PayPal’s PYUSD stablecoin has faced challenges in the competitive stablecoin market since its launch in August. To boost its liquidity, the issuer is exploring opportunities in the decentralized finance (DeFi) space, including discussions with AAVE. Aave, a leading lending protocol, is gauging community sentiment for potentially integrating PYUSD into its Ethereum pool, with a vote ongoing until January 11th, following PYUSD’s activation on the Curve automated market maker in late December.
PayPal introduced PYUSD as the first major financial institution to offer an online payment giant’s dollar-pegged crypto instrument, marking a significant milestone. However, questions about PYUSD’s unique use case have emerged in a sector dominated by heavyweights like Tether and Circle.
PayPal’s marketing suggests PYUSD is intended for use in PayPal app payments, while its deployment on central exchanges indicates a focus on crypto trading. The absence of public data on PYUSD’s use within the PayPal app leaves its success in this area uncertain. Despite a 63% circulation increase last month, PYUSD remains the twelfth largest stablecoin by market value and lags in transaction volume behind stablecoins like Terra Classic and Binance USD.
DeFi research firm Kaiko’s expansion head Clara Medalie notes that all stablecoins face tough competition against USDT. PYUSD is issued by Paxos, the same New York-based crypto firm that launched Binance’s BUSD stablecoin. Paxos has partnered with institutional crypto platform Trident Digital to increase PYUSD’s on-chain liquidity by late 2024. Trident Digital, responsible for PYUSD’s activation on Curve and the current Aave proposal, envisions a symbiotic relationship between the two protocols.
If the Aave proposal is approved, Trident Digital, with contributions from Paxos and others, suggests adding $5-10 million in liquidity to the pool. This strategic move aims to kickstart PYUSD’s liquidity boost and position it as a competitive player against established stablecoin giants. While Paxos has not commented on these developments, Trident Digital sees DeFi as a potential catalyst for PYUSD’s liquidity goals. Entering DeFi marks a significant starting point for PYUSD as it navigates the challenges of competing in the stablecoin world, potentially creating ripples in the broader crypto ecosystem.