PayPal’s dollar-backed stablecoin PYUSD gains traction in DeFi

PayPal’s dollar-backed stablecoin, PYUSD, is making waves in the decentralized finance (DeFi) space, with a recently launched liquidity pool on the Curve automated market maker (AMM) platform amassing $135 million in total value locked (TVL). 

This development positions PYUSD as a contender in the DeFi arena, although it still considerably trails industry leaders like Tether and Circle.

PYUSD finds its place in DeFi

A liquidity pool featuring PYUSD has been established on the Curve platform in a significant move for PayPal’s foray into decentralized finance. This pool, known as the FRAXPYUSD pool, allows users to trade between PYUSD, issued by regulated firm Paxos, and Frax Finance’s collateralized algorithmic stablecoin, FRAX. 

Launched on December 27th, the pool quickly gained traction and currently boasts a TVL of $135 million, making it the third-largest pool on Curve, following the immensely popular 3pool.

A liquidity pool represents a collection of two or more cryptocurrencies locked in a smart contract, facilitating the exchange of assets on a decentralized exchange (DEX). Curve, in particular, is a decentralized exchange traders use to swap stablecoins. The platform’s activity often serves as a gauge for larger investors, commonly called whales, looking to convert one stablecoin into another.

FRAXPYUSD pool: An on-ramp for PYUSD

The FRAXPYUSD pool is a vital link between the Frax Finance ecosystem and PayPal’s PYUSD. Traders holding FRAX tokens can swap them for PYUSD within this pool, enabling PYUSD on the PayPal app for various transactions, including purchases and remittances. 

The pool exhibits an imbalance, with FRAX accounting for over 80% of the total liquidity. This imbalance may reflect a strong demand for PYUSD and an eagerness to participate in DeFi activities.

Sam Kazemian, the founder of Frax Finance, emphasized the symbiotic relationship between FRAX and PYUSD, stating,

“FRAX is kind of like the on-chain liquidity for PYUSD, and the latter is the off-chain fiat ramp.” 

He also revealed that the pool has experienced an average daily trading volume of $5.5 million since its inception, highlighting the growing interest in PYUSD within the DeFi community.

PayPal introduced PYUSD in August, marking its initial venture into the decentralized finance space. While PYUSD has gradually gained traction, it faces stiff competition from established industry leaders like Tether (USDT) and Circle (USDC), which have significantly larger market shares. 

Data tracked by Kaiko indicates that PYUSD’s daily trading volume peaked at $9 million in December but has since settled at approximately $4 million. This figure pales compared to Tether’s USDT, which regularly records 24-hour trading volumes exceeding $55 billion.