PayPal stablecoin deployment on Aave sought by Paxos

As PYUSD sees middling adoption, Paxos is helping create DeFi markets for the stablecoin

article-image

MardeFondos/Shutterstock modified by Blockworks

share

Since launching in August, PayPal’s PYUSD stablecoin has struggled to gain a foothold in the top-heavy stablecoin sector. In a bid to boost PYUSD’s liquidity, the token’s issuer is beginning to venture into decentralized finance.  

The lending protocol Aave is conducting a community temperature check on potential PYUSD onboarding into Aave’s Ethereum pool. The initial vote ends Jan. 11th and follows a PYUSD activation on the automated market maker Curve in late December. 

The stablecoin’s August debut came with much fanfare, as the online payments giant became the first major financial institution to offer the price-pegged crypto instrument. Stablecoins grease the wheels of crypto markets, and PayPal seemed primed to expose some of its hundreds of millions of users to the blockchain.

But with stablecoin offerings from Tether and Circle already processing tens of billions of dollars per day, a nagging question remained: what is PYUSD’s use?

PayPal’s marketing language surrounding PYUSD suggests the firm would like the stablecoin to be used for payments and within the PayPal app, Clara Medalie, head of growth at DeFi research firm Kaiko, said. Medalie added that PYUSD’s deployment on centralized exchanges indicates the token is meant to be used for crypto trading, too. 

There is no publicly available data on PYUSD’s use for payments within the PayPal app, so it’s impossible to know how successful the stablecoin has been on that front, Medalie said. PayPal did not return multiple requests for comment. 

On exchanges, PYUSD’s adoption is growing but remains far behind its competitors. Data from CoinGecko shows PYUSD is the twelfth-largest stablecoin by market capitalization. Its circulation grew by 63% over the past month. 

PYUSD still finds itself multiple decimal places away from volumes seen by Tether and Circle. Its roughly $17 million in trading volume over the past 24 hours was outstripped by erstwhile stablecoins Terra Classic and Binance USD.

PYUSD seems to be experiencing something of a stablecoin Matthew Effect: liquidity tends to go where liquidity already exists. 

“It will be hard for Paypal to compete against USDT considering the majority of crypto liquidity is denominated in this stablecoin,” Medalie said. USDT currently accounts for roughly 70% of all stablecoins, according to DeFiLlama.

PYUSD is issued by Paxos, a New York-based crypto firm that formerly issued Binance’s BUSD stablecoin until the New York Department of Financial Services forced an end to the relationship

In late 2023, Paxos began contracting with a digital asset firm named Trident Digital to boost PYUSD’s on-chain liquidity. The two firms previously worked together on Maker-related ventures, Trident co-founder Anthony DeMartino said. 

Trident wrote and passed the PYUSD activation on Curve, and it is behind the current Aave proposal. 

DeMartino called the Aave and Curve deployments “symbiotic” in that the two protocols are perceived to have different risk profiles. Demand for higher Curve yields will raise the PYUSD borrow rate on Aave, incentivizing lower-risk investors to deposit PYUSD on Aave, DeMartino said.

Were the Aave proposal to pass, “Paxos and other parties” would seed the pool with $5-10 million in liquidity, Trident wrote under its governance proposal. 

Paxos did not return a request for comment. Its work with PYUSD has mostly flown under the radar of late outside of some SEC scrutiny in November. But as the stablecoin attempts to gather enough liquidity to compete with the entrenched giants, DeFi appears to at least present a starting point. 

“It’s like starting a fire, right? This is just the kindling,” DeMartino said.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

recent research

Unlocked Advisory-min.png

Research

This report distills Blockworks Advisory’s research on incentive programs and their analysis, offering a foundation for designing future initiatives and advancing industry-wide standards. By highlighting key lessons and methodologies, we aim to empower protocols to make informed, data-driven decisions.

article-image

The company did about 2.5 times the amount of crypto-backed collateral financing in November compared to the rest of 2024, exec says

article-image

Programmable yield, seamless swaps and decentralized control are the hallmarks of a new stablecoin model

article-image

Crypto is “really exciting,” former SEC Commissioner Paul Atkins said in a podcast interview last year

article-image

Bitcoin is now the “seventh most valuable asset in the world by market cap, just behind the likes of Google and Amazon,” GSR’s Brian Rudick said

article-image

Many analysts expected bitcoin to top $100K before year-end, though it’s been on a post-election tear

article-image

Will investors take a 10% lower return to get access to a regulated investment wrapper?