PayPal’s stablecoin, PYUSD ($PYUSD), recently hit a major milestone by surpassing $1 billion in market capitalisation.
Launched in partnership with fintech company Paxos, $PYUSD has grown rapidly since June 2023, doubling its supply and gaining traction in the competitive stablecoin market.
When $PYUSD was first launched, its market capitalisation was modest, sitting at under $50 million. This made it a small player in the vast world of stablecoins.
However, things began to change in mid-2023. By October, the market cap had exceeded $100 million, and by November, it had reached $150 million.
The end of 2023 saw a surge in the cryptocurrency market, which also boosted $PYUSD. By December, its market cap had climbed to over $250 million, and it reached $300 million in January 2024.
Despite this impressive growth, $PYUSD still wasn’t considered one of the top stablecoins by market cap.
In March 2024, $PYUSD experienced a setback, with its market cap dropping below $200 million. However, the decline was short-lived, and by August 2024, the stablecoin had bounced back, crossing the $1 billion mark.
This growth was notable, especially as the broader crypto market had cooled off during the summer months.
Game-changing expansion to Solana
One of the key factors driving PYUSD’s growth was its expansion to the Solana blockchain.
Initially, $PYUSD was only available on the Ethereum network, where it struggled to gain significant traction. However, everything changed when $PYUSD expanded to Solana in May 2024.
Within just three months, the supply of $PYUSD on Solana skyrocketed from zero to $650 million, surpassing its supply on Ethereum. This rapid growth was driven by several factors.
Decentralised exchanges (DEXs) like Jupiter and Orca on Solana began using $PYUSD more frequently, boosting its adoption.
In addition, various decentralised finance (DeFi) protocols on Solana, including Kamino, Drift, and Marginfi, started offering attractive rewards for $PYUSD deposits.
These incentives included double-digit annualised yields, which encouraged more users to hold and use $PYUSD. Crypto custody firm, Anchorage Digital, also introduced rewards for $PYUSD deposits to institutions, further boosting its appeal.
However, there are concerns about the sustainability of this growth. Some experts believe that the current incentives driving $PYUSD’s popularity might not last forever.
A partner at research firm Anagram, David Shuttleworth, pointed out that these incentives are likely temporary and are meant to increase the circulation of $PYUSD and encourage new users to join the Solana ecosystem.
The big question now is whether $PYUSD can maintain its momentum if these incentives are reduced or phased out.
MiCA regulation
Another major factor contributing to $PYUSD’s growth is its compliance with the new European Union crypto regulation known as MiCA (Markets in Crypto-Assets). MiCA, which came into effect in June 2024, sets strict rules for stablecoins operating within the EU.
Stablecoins that do not comply with MiCA could face restrictions or be made unavailable in the European market.
$PYUSD is one of the few stablecoins that has already obtained MiCA approval. This compliance has given $PYUSD a competitive advantage, allowing it to capture market share from other stablecoins that have yet to meet the new regulatory requirements.
In fact, after MiCA came into force, $PYUSD’s market capitalisation jumped from $300 million in April 2024 to nearly $600 million in July 2024.
This rapid growth continued through August, pushing PYUSD’s market cap past the $1 billion mark.
The stablecoin now ranks fourth among the largest stablecoins that are fully backed by US dollars, trailing only behind giants like $USDT and $USDC.
As $PYUSD continues to grow, its future will likely depend on its ability to maintain compliance with MiCA and expand its user base, particularly in Europe.
