What’s driving PayPal’s billion-dollar stablecoin?
A year after it launched, PayPal’s US dollar-pegged stablecoin PayPal USD (PYUSD) has reached a market capitalisation of over $1bn for the first time, making it one of the fastest growing stablecoins to be released.
Drivers behind PYUSD’s growth
PayPal announced that over the weekend of 24 August, PYUSD had passed the $1bn milestone, just over a year since it first launched the stablecoin to customers in the US. Since then its value climbed further, passing $1.2bn within days, although this dropped slightly below $1bn at month-end. Writing on LinkedIn, Jose Fernandez da Ponte, PayPal’s SVP of Blockchain, Crypto and Digital Currencies, characterised its $1bn status as “just the beginning”, adding that “stablecoins will help revolutionise commerce globally with faster, cheaper, programmable money movement”.
Crossing this threshold means that PYUSD has seen YoY growth of around 2000%, but recent growth has also been particularly strong, with month-on-month gains between July and August of more than 45%. So what has driven this surge? Here are some likely contributors:
- While it launched for PayPal users only, PYUSD was added to exchanges within months, meaning it could be easily bought and sold by users beyond the PayPal ecosystem. Popular trades currently include swaps with other stablecoins, particularly USDC and USDT, as well as US dollars and the cryptocurrency Ethereum.
- In March, PayPal added the ability for Xoom customers to fund remittances with PYUSD, removing the fee margin – one of the two components that make up the total costs – for those that did so. At the time we estimated that this would likely remove around 25% of the cost of sending a remittance with the company, and it appears to have helped drive circulation, with PYUSD’s market cap rising by 74% between March and April – its second biggest jump to-date.
- Most recently, the late-May launch of PYUSD on the Solana blockchain was also a key contributor. Supporting a high number of transactions per second, Solana is seen as a key blockchain for payments-focused Web3 applications and already supports other leading stablecoins USDC, USDP and USDT. Since launching on the blockchain, PYUSD’s circulation has more than doubled, with more than 60% of PYUSD now being on Solana.
- More generally, the stablecoin market has seen significant growth over the past year, with growing interest from the payments industry for infrastructure uses, reflected in Ripple’s recent announcement of its own stablecoin as well as a number of announcements of companies using blockchain-based infrastructure in parts of their payments networks.
While $1bn is a strong start, however, PayPal has some way to go. The three major US-based US dollar-pegged stablecoins – Paxos’s USDP, Circle’s USDC and PayPal’s PYUSD – saw their combined market cap increase by around 130% YoY to $36bn at the end of August, but market leader Circle makes up most of this value, accounting for around $35bn, while USDP has been sliding for much of the past year and now sits at just above $100m.
However, these are all dwarfed by Tether’s stablecoin USDT, which has a market cap north of $110bn and saw YoY growth of over 178%. While backed by audited reserves, USDT is underpinned by a broader range of asset types, with Bitcoin and precious metals alongside more conventional treasury bonds, and issuer Tether is incorporated in the British Virgin Islands. As a result, while it is highly popular as a non-volatile value store for retail crypto investors, it is not sufficiently regulated to see widespread use by the cross-border payments industry.
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