PayPal Offers 3.7% Yield on PYUSD Balances to Boost Stablecoin Usage

PayPal, a leading payments company, has announced plans to offer a 3.7% yield on balances held in its paypal USD stablecoin, PYUSD. This initiative is set to launch this summer and is designed to encourage more usage of the firm’s stablecoin. The rewards will be paid out in PYUSD and will accrue daily, with payments made on a monthly basis. This move is part of PayPal's broader strategy to increase the predominance of stablecoin and crypto payments on its platform.

According to a representative from PayPal, the new program aims to incentivize users to hold and use PYUSD. Users will have the flexibility to exchange PYUSD for fiat currency, spend it, or send it to other users. This feature is expected to drive higher adoption of stablecoin and crypto payments on the PayPal platform. The announcement follows PYUSD reaching a $1 billion market cap in the summer of 2024, although its current market cap is nearly a quarter lower at $873.3 million.

The introduction of a yield on PYUSD balances raises regulatory considerations. Tzahi Kanza, CEO of a crypto investment firm, noted that PayPal must ensure that offering interest does not cause its stablecoin to be classified as a security. He believes that PayPal can keep its promises, and the main risk for users is the stablecoin losing its peg to the dollar rather than interest-related issues. Stablecoins that do not offer yield are generally not considered securities, but yield-bearing stablecoins may fall under that classification.

PayPal's move to offer a yield on PYUSD is part of its broader bet on blockchain technology. The company has expanded its cryptocurrency offerings to include Chainlink (LINK) and Solana (SOL), allowing US-based users to buy, sell, and transfer these popular tokens. This expansion is seen as a catalyst for the growth of the stablecoin industry, with companies like PayPal integrating stablecoins driving their adoption.

PYUSD, launched in August 2023, is a US dollar-pegged stablecoin issued by Paxos Trust Company on behalf of PayPal. Each token is backed one-to-one by cash deposits, short-term US Treasury notes, and similar cash-equivalent assets in accounts overseen by the New York State Department of Financial Services. Initially compliant with the ERC-20 Ethereum standard, PYUSD has since been deployed on Solana (SOL).

Despite its growth, PYUSD's market cap is still significantly lower than that of Tether’s USDt (USDT), which stands at $145.32 billion. To compete effectively, PayPal could focus on compliance, transparency, and returns, areas where Tether does not excel. This strategy could help PayPal gain a stronger foothold in the stablecoin market and attract more users to its platform.