PayPal’s PYUSD stablecoin is surging as decentralised finance protocols and their users pile into the dollar-pegged token. Since September, the amount of PYUSD in circulation has jumped 224% to over $3.8 billion, making it the sixth-biggest stablecoin after World Liberty Financial’s USD1.Ethena, a DeFi protocol and issuer of the dollar-pegged USDe token, has become the single biggest holder of PYUSD, with $1.2 billion in custody through the custodian Copper, onchain records show. Ethena holds several stablecoins to back its USDe token, including Tether’s USDT and Circle’s USDC. It’s not clear why the protocol currently holds more PYUSD compared to its rivals. Ethena did not respond to a request for comment. PayPal’s stablecoin success comes as key crypto legislation in the US opens the industry to institutions.Wall Street players like BlackRock CEO Larry Fink have lauded the potential for greater efficiency and transparency that blockchain-based stablecoins offer. There’s also a substantial profit motive. Tether, the issuer of the USDT stablecoin, generated a record $13 billion in profit last year, mainly from yield-bearing US Treasury bonds that back its stablecoin. The excitement surrounding stablecoins is even percolating at the highest levels of the US government. Last month, Treasury Secretary Scott Bessent said he expects the stablecoin market to reach $3 trillion by 2030, up from his earlier projection of $2 trillion.Lucrative incentives PayPal launched its stablecoin in 2023 and was among the first US companies to do so.The firm has worked with crypto liquidity management firm Sentora to drive adoption. The pair have tried several initiatives, including so-called DeFi bribes on the decentralised exchange Curve Finance and incentives for users of PYUSD in DeFi protocols. Kamino, a Solana lending protocol, currently offers users almost 6% annual interest on PYUSD lending, partially subsidised by PayPal. Over the past three months, the amount of PYUSD on Solana increased from around $250 million to over $1 billion, according to DefiLlama data. Stablecoin issues like PayPal can afford to pay out such lucrative incentives by investing the funds that back their stablecoin in US Treasury bonds — the same way firms like Tether have achieved record profits. This strategy works well when interest rates are high, as they have been since early 2022.However, with the US Federal Reserve increasingly hinting at further rate cuts, the future of such adoption strategies could be cut short.Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.PayPal’s PYUSD stablecoin is surging as decentralised finance protocols and their users pile into the dollar-pegged token. Since September, the amount of PYUSD in circulation has jumped 224% to over $3.8 billion, making it the sixth-biggest stablecoin after World Liberty Financial’s USD1.Ethena, a DeFi protocol and issuer of the dollar-pegged USDe token, has become the single biggest holder of PYUSD, with $1.2 billion in custody through the custodian Copper, onchain records show. Ethena holds several stablecoins to back its USDe token, including Tether’s USDT and Circle’s USDC. It’s not clear why the protocol currently holds more PYUSD compared to its rivals. Ethena did not respond to a request for comment. PayPal’s stablecoin success comes as key crypto legislation in the US opens the industry to institutions.Wall Street players like BlackRock CEO Larry Fink have lauded the potential for greater efficiency and transparency that blockchain-based stablecoins offer. There’s also a substantial profit motive. Tether, the issuer of the USDT stablecoin, generated a record $13 billion in profit last year, mainly from yield-bearing US Treasury bonds that back its stablecoin. The excitement surrounding stablecoins is even percolating at the highest levels of the US government. Last month, Treasury Secretary Scott Bessent said he expects the stablecoin market to reach $3 trillion by 2030, up from his earlier projection of $2 trillion.Lucrative incentives PayPal launched its stablecoin in 2023 and was among the first US companies to do so.The firm has worked with crypto liquidity management firm Sentora to drive adoption. The pair have tried several initiatives, including so-called DeFi bribes on the decentralised exchange Curve Finance and incentives for users of PYUSD in DeFi protocols. Kamino, a Solana lending protocol, currently offers users almost 6% annual interest on PYUSD lending, partially subsidised by PayPal. Over the past three months, the amount of PYUSD on Solana increased from around $250 million to over $1 billion, according to DefiLlama data. Stablecoin issues like PayPal can afford to pay out such lucrative incentives by investing the funds that back their stablecoin in US Treasury bonds — the same way firms like Tether have achieved record profits. This strategy works well when interest rates are high, as they have been since early 2022.However, with the US Federal Reserve increasingly hinting at further rate cuts, the future of such adoption strategies could be cut short.Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.