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About a month and a half after the supply of PYUSD exceeded the supply of Ethereum, the PayPal stablecoin that Solana had been hiding has returned to Earth.
The supply of stablecoins, which once exceeded $660 million, has fallen to about $320 million, a decrease of about 50% in about a month. Ethereum currently has a supply of 377 million PYUSD.
The drawdown comes as Kamino and other DeFi protocols gradually wind down their once-lucrative liquidity incentive programs that generated yield for stablecoin holders. Now, these high-yielding farmers appear to be leaving in search of greener pastures, raising questions about how valuable these incentive investments will prove to be in hindsight. Masu.
PayPal’s PYUSD is issued by a company called Paxos, which is looking to strip liquidity from the USDT and USDC stablecoin duopoly by contracting with a company called Trident Digital for its liquidity program. Following the launch of PYUSD on Solana earlier this year, Trident Digital promoted liquidity incentive programs on multiple Solana DeFi platforms, temporarily increasing yields to ensure liquidity.
To that end, Trident Digital will fund its DeFi protocol and pass it on to users as part of the PYUSD supply on various platforms, which will be capped, according to people familiar with the matter. These caps have been gradually raised over time, and yields have also fallen over time.
At Solana PYUSD’s peak, $350 million in stablecoins was earning an 18% yield on Camino. Currently, the APY is 9.24%, which is still not much, but seems lower than what some investors are willing to accept. It’s unclear whether these incentives ultimately came from PayPal or the Solana Foundation’s coffers, and neither organization responded to requests for comment.
There is a version of this story that the funds for liquidity incentives were more like wasted funds.
“Mercenary capital has siphoned off Solana’s $pyUSD incentive and exited,” Kilian Boshoff, Swell’s chief commercial officer, wrote about X.
But at the same time, PYUSD was not primarily intended to be used for things like DeFi lending. PayPal is a payments company, and public messaging around PYUSD has centered around the stablecoin’s usefulness for things like money transfers and payments. For businesses that have to deal with the fees and headaches that come with moving money into and out of bank accounts around the world, being able to bypass banks certainly seems convenient.
Therefore, it is clearly an open question whether PYUSD’s liquidity incentives were a worthwhile or ill-advised investment, especially given the recent decline in supply. But it’s also too early to judge this development, which represents a big step for Solana, which remains one of the world’s largest fintech companies.
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