According to CoinDesk, PayPal's dollar-backed stablecoin, PYUSD, is gaining traction in decentralized finance (DeFi) as a recently launched liquidity pool on the automated market maker (AMM) platform, Curve, has $135 million in total value locked (TVL). The FRAXPYUSD pool, which went live on December 27, is the third largest behind the popular 3pool and consists of PYUSD, issued by regulated company Paxos, and Frax Finance's collateralized algorithmic stablecoin FRAX. A liquidity pool is a reserve of two or more cryptocurrencies locked in a smart contract, facilitating the exchange of assets on a decentralized exchange.
Curve is a decentralized exchange used by traders to swap stablecoins, and the activity on Curve is considered a proxy for whales looking to convert one stablecoin into another. The FRAXPYUSD pool allows traders holding FRAX to swap them for PYUSD and then use the newly acquired coin on the PayPal app for purchases and remittances. At press time, the pool was imbalanced, with FRAX accounting for over 80% of the total liquidity.
Sam Kazemian, founder of Frax Finance, said that since its inception, the pool has seen an average daily trading volume of $5.5 million. PayPal's PYUSD, which debuted in August, is slowly finding its way into decentralized finance, although it still lags behind industry leaders Tether and Circle by a significant margin. Data tracked by Kaiko show PYUSD's daily trading volume hit a high of $9 million in December and recently stood at around $4 million, compared to Tether's USDT recording a 24-hour trading volume of over $55 billion.
Clara Medalie, research director at Kaiko, said that it is a good sign that liquidity is growing in DeFi and that PayPal is investing resources into expanding the stablecoin's usage for crypto trading activities, beyond just payments and within the PayPal app. However, she noted that they face a lot of competition from USDT, which today denominates the majority of all crypto transactions and liquidity, and Circle's USDC, which is also a big competitor on DeFi protocols and is by far the most liquid. Kazemian added that the FRAXPYUSD pool will likely grow more, with Frax Finance exploring potential DeFi integration supported by PayPal's payment app.