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PayPal’s PYUSD stablecoin, which has been trailing more established stablecoins such as USDT and USDC, is leveraging DeFi to give itself a liquidity boost.
PYUSD activated the Curve automated market maker in December and is seeking deployment on Aave.
PYUSD Turns To DeFi
PayPal took the plunge into the stablecoin ecosystem with its PYUSD stablecoin, generating considerable buzz because it was the first time an important financial entity was offering a stablecoin. However, with Tether (USDT) and Circle leading the race in the stablecoin market, there were several concerns about the viability of such a venture. Currently, PYUSD acts as a medium for trading cryptocurrencies on centralized exchanges.
However, PYUSD’s current trade volumes leave a lot to be desired when compared with the established stablecoins in the market. According to observers, PYUSD suffers from the “stablecoin Matthew effect,” where liquidity follows players already in play. Paxos, the entity behind the PYUSD stablecoin, has partnered with Trident Digital to address this issue. Trident Digital is a crypto platform focused on helping institutions improve a token’s liquidity on-chain. Trident Digital helped PYUSD activate the Curve automated market maker and is also helping it with its Aave proposal.
PYUSD On Curve
Curve launched the FRAXPYUSD liquidity pool on the 27th of December, 2023, with the pool boasting $135 million in total value locked (TVL). This makes the pool the third-largest liquidity pool on Curve, behind the highly popular 3pool. The pool also consists of Frax Finance’s collateralized algorithmic stablecoin, FRAX.
The FRAXPYUSD pool allows FRAX holders to swap the token for PYUSD and use it for purchases and remittances on the PayPal app.
“FRAX is kind of like the on-chain liquidity for PYUSD, and the latter is the offchain fiat ramp. Since inception, the pool has seen an average daily trading volume of $5.5 million.”
Paxos Seeks PYUSD Deployment on Aave
Aave is currently taking a vote regarding onboarding the PYUSD stablecoin into Aave’s Ethereum pool. The initial vote is scheduled to end on the 11th of January, 2024. If the proposal on Aave passes, Paxos and other associated parties would seed the liquidity pool with $5-10 million in liquidity, according to Trident, which is behind the proposal.
“Paxos and other parties will be contributing on day 1. Minimum 5 million, more likely 10 million. We are the team incentivizing the PYUSD/USDC pool on Curve. The idea is to keep yields quite high on Curve. This will create organic borrowing demand for PYUSD on AAVE. So while we don’t intend to provide direct incentives on AAVE, we believe our overall incentive strategy will allow for borrowing demand on day 1.”
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