The integration of PayPal’s dollar-backed stablecoin PYUSD into decentralized finance (DeFi) appears to be gaining momentum. PayPal provides payment services.
With PYUSD, a newly established liquidity pool on the automated market maker (AMM) platform Curve has a total value locked (TVL) of $135 million, making it the third largest after the well-known 3pool.
The collateralized algorithmic stablecoin FRAX, issued by Frax Finance, is included in the so-called FRAXPYUSD pool along with PYUSD, which is issued by the regulated business Paxos. The pool opened on December 27.
A liquidity pool is a smart contract-locked reserve of two or more cryptocurrencies that makes it easier to trade assets on a decentralized exchange. Stablecoin traders exchange their currencies on Curve, a decentralized exchange. Their activity on Curve is believed to represent whales trying to exchange one stablecoin for another.
Trades holding FRAX can be exchanged for PYUSD through the FRAXPYUSD pool, and the newly acquired coin can then be used on the PayPal app for payments and transfers. The pool was unbalanced at the time of publication, with FRAX holding more than 80% of the total liquidity.
With the rise of PayPal’s PYUSD, Frax has emerged as a key player in bridging the gap between traditional finance and DeFi. This on-chain liquidity pool has seen significant activity, averaging $5.5 million in daily trades, indicating a growing appetite for frictionless movement of funds between these two spheres.
For more information on PYUSD’s expanding use case in DeFi, CoinDesk has gotten in touch with PYUSD’s issuer, Paxos.
PayPal’s PYUSD, which debuted in August, is gradually making its way into decentralized banking, although it still lags far behind Tether and Circle, the leaders of the space. PYUSD’s daily trading volume, according to data maintained by Kaiko, peaked at $9 million in December and is currently at about $4 million. This is a far cry from Tether’s USDT, which had a 24-hour trading volume of nearly $55 billion.
The fact that DeFi’s liquidity is increasing is encouraging. According to an email from Kaiko’s research director, Clara Medalie, “It appears that Paypal is devoting resources to extending the stablecoin’s usage for cryptocurrency trading activities beyond just payments and within the Paypal app.”
The majority of cryptocurrency transactions and liquidity are currently denominated in USDT, so they are up against fierce competition. Additionally, Medalie noted that Circle’s USDC is by far the most liquid and a strong competitor on DeFi protocols.
Kazemian predicts that as Frax Finance investigates potential DeFi integration that PayPal’s payment software would make possible, the FRAXPYUSD will likely rise even further.
“Imagine if you open your PayPal app and you can save in PYUSD and Frax inside of Curve and earn the yield,” Kazemian joked.