PYUSD: the rise of PayPal’s stablecoin in the FRAXPYUSD liquidity pool on Curve

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In the dynamic realm of decentralized finance (DeFi), the collaboration between PYUSD, PayPal’s stablecoin, and the FRAXPYUSD liquidity pool on Curve has captured attention.

Boasting the third largest total value locked (TVL) with 135 million dollars, this partnership indicates the rise of PYUSD as a major player in the intricate cryptocurrency liquidity landscape.

The PYUSD stablecoin by PayPal emerges as a key player in the FRAXPYUSD liquidity pool on Curve

PYUSD, the PayPal-backed stablecoin pegged to the dollar, has recently gained importance in the decentralized finance (DeFi) space, particularly within the FRAXPYUSD liquidity pool on Curve.

Launched on December 27th, this pool quickly became the third in terms of total value locked (TVL), with a whopping 135 million dollars. 

In this article we delve into the technical complexities of this liquidity pool, exploring its composition, its functionality, and the growing role of PYUSD in the broader DeFi landscape.

The FRAXPYUSD liquidity pool on Curve is a decentralized reserve, operating on the automated market maker (AMM) platform Curve. 

Composed of PYUSD, the regulated stablecoin by PayPal, and the algorithmic stablecoin FRAX by Frax Finance, this pool allows users to seamlessly exchange between these assets.

The main purpose of a liquidity pool is to facilitate decentralized exchange activities, with smart contracts regulating the locking and swapping of assets.

The FRAXPYUSD pool, at the time of writing, is characterized by a total liquidity of 135 million dollars. 

It is important to note that over 80% of this liquidity is represented by FRAX, the algorithmic collateralized stablecoin provided by Frax Finance. This composition raises interesting considerations about the interaction between on-chain liquidity (FRAX) and off-chain fiat ramps (PYUSD).

Role of PYUSD in DeFi

The PYUSD by PayPal, introduced in August, is gradually making its way into decentralized finance. Despite strong competition from industry leaders such as Tether and Circle, PYUSD has demonstrated a daily trading volume that reached $9 million in December. 

Although this data is insignificant compared to Tether’s dominance, it signals a positive trajectory for PYUSD in the evolving DeFi landscape.

The data reveals that PYUSD must face formidable competition from established stablecoins, with Tether recording a 24-hour trading volume exceeding 55 billion dollars. 

In addition, Circle’s USDC emerges as a significant competitor in DeFi protocols. Analysts suggest that PayPal’s efforts to expand the utility of PYUSD beyond traditional payments, into cryptocurrency trading activities, mark a positive trend, but they acknowledge the challenges posed by established players.

Sam Kazemian, founder of Frax Finance, sheds light on the symbiotic relationship between FRAX and PYUSD within the liquidity pool. 

It foresees further growth of the FRAXPYUSD pool, with a potential DeFi integration supported by the PayPal payment application. 

Clara Medalie, research director at Kaiko, acknowledges PayPal’s efforts but highlights the intense competition, emphasizing the prevalence of USDT and USDC in the market.

Conclusions

In conclusion, the merger of PayPal’s PYUSD with Curve’s FRAXPYUSD liquidity pool not only consolidates its position as the third pool with a substantial TVL of 135 million dollars, but also marks a significant step for PYUSD in the evolving DeFi arena. 

As the dynamics of the pool continue to develop, the interaction between the on-chain liquidity represented by FRAX from Frax Finance and the off-chain fiat ramp provided by PYUSD presents a fascinating landscape to explore. 

Despite the competition from established stablecoins, the growing daily trading volume of PYUSD reflects a positive trajectory, suggesting its expanding role beyond conventional payments. 

The collaborative efforts of PayPal and Frax Finance, as highlighted by founder Sam Kazemian, suggest potential integrations with DeFi that could further enhance the utility and prominence of PYUSD in the cryptocurrency trading sphere. 

This partnership not only highlights the intricate nuances of stablecoin dynamics, but also contributes to the broader narrative of liquidity evolution in the decentralized financial ecosystem.