PayPal Stablecoin Market Value Plunges by 40%, How Will DeFi Maintain User Focus After the Big Sell-Off

After reaching a market value of $1 billion in August, the USD stablecoin PYUSD launched by the payment giant PayPal quickly plummeted and is currently quoted by CoinMarketCap at approximately $610 million, equivalent to a 40% drop from its peak. Haseeb Qureshi, Managing Partner at DragonFly Capital, tweeted, "With the decreasing incentives from Kamino Finance, the market value of PYUSD has been heavily discounted, what can we learn from this?"

PYUSD Market Value Takes a Significant Hit Since August, Stablecoin Ranking Drops to Seventh

According to data from CoinMarketCap, the market value of PYUSD has dropped from $1 billion in August to $610 million. At its peak, PYUSD was the fourth-largest stablecoin, but now it has fallen to seventh place.

PayPal USD was launched on Ethereum in August 2023 and went live on Solana on May 29, 2024. The circulating supply of PYUSD on Ethereum is approximately $333 million, while on Solana it is $277 million according to DeFiLlama.

Decline in DeFi Annualized Returns Leads to Reduced Demand for PYUSD

A report attributes the growth of PYUSD to the partnership between PayPal and Kamino Finance, a lending protocol on Solana. Kamino Finance currently has a TVL of $1.62 billion, making it the second-largest protocol on Solana.

The protocol offers high annualized returns to PYUSD holders to attract users to deposit PYUSD, which in turn drives the demand for PYUSD. In recent weeks, the deposit yield on PYUSD in Kamino has dropped from around 17% to below 7%. Similarly, two other Solana DeFi protocols, Drift and Marginfi, have also seen their annualized returns drop from double digits to around 9%.

Liquidate the Tokens, What's Next? DeFi's Transformation of Loyal Users Becomes a Critical Issue

Previously, we reported that the stablecoin launched by PayPal emphasizes strong ecosystem support, fiat on/off ramps, and regulatory compliance. While most stablecoins with real-world asset reserves can be redeemed for fiat, this is mainly for institutional use. The advantage of PYUSD is that redemption is more convenient for retail users, which is why the decrease in DeFi's high annualized returns is directly reflected in its market value.

Decoding PayPal's stablecoin PYUSD | Profit mechanism, use cases? What are the advantages compared to USDT?

Haseeb Qureshi, Managing Partner at DragonFly Capital, also commented on the significant drop in PYUSD market value: "With the gradual reduction of rewards from Kamino Finance, the market value of PYUSD has been greatly discounted. What can we learn from this?" Liquidating tokens is not uncommon, which reminds the author of the recent hype surrounding the Sui ecosystem.

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As previously reported, the DeFi protocol Scallop on Sui also attracts users with high annualized returns. Currently, the supply annualized returns for stablecoins on the platform range around 10%. By pledging a certain amount of SCA tokens, the annualized return for lending stablecoins can reach 69%. Even without pledging SCA tokens, there is a guaranteed annualized return of 17%.

However, liquidating tokens will eventually come to an end, and this strategy is not necessarily a bad thing. The key is how to continue to create lending demand. Seeing the performance of PYUSD, the author believes that the next focus could be on how Scallop retains users and turns invested funds into loyal users.