Although the stablecoin sector has emerged as one of the most prominent issues due to the recent pro-crypto stance of the U.S. government and the introduction of the GENIUS Act in the Senate, PayPal's PYUSD has not received much attention compared to other stablecoins such as USDC & USDT.
The SEC recently concluded its investigation into PYUSD. With regulatory uncertainty now resolved, PayPal plans to launch a rewards program in the summer of 2025 that will offer 3.7% interest on PYUSD balances held within the PayPal app.
If the GENIUS Act is passed, many banks, asset management firms, and IT companies are expected to enter the stablecoin issuance industry. This would likely intensify competition within the sector. While PayPal is well positioned to leverage its broad existing user base, it will need to provide a seamless crypto transaction experience, offer global support for PYUSD services, and actively integrate with on-chain DeFi services in order to secure a larger market share.
Source: AP Aphoto/Mark Humphrey
The current landscape surrounding stablecoins in the United States is becoming increasingly turbulent. The Trump administration has expressed support for the crypto and stablecoin industry, and unprecedented developments are unfolding. One notable example being the use of USD1, a stablecoin issued by World Liberty Financial (a firm linked to Trump’s family), in a $2 billion investment into Binance by Abu Dhabi-based investment firm MGX.
Until recently, the United States lacked a clear federal regulatory framework for stablecoins. However, this is beginning to change. The GENIUS Act, the first federal stablecoin regulation to be introduced in Congress, is now under active discussion. On March 13, 2025, the bill passed the Senate Committee on Banking, Housing, and Urban Affairs with a bipartisan 18 to 6 vote, and it is expected to be voted on by the full Senate in May.
If enacted, the GENIUS Act would resolve much of the current regulatory uncertainty surrounding stablecoins in the U.S., potentially opening the door for a wide range of financial and non-financial institutions to enter the stablecoin industry and accelerating its growth significantly.
In light of these developments, discussions around stablecoins have grown increasingly intense within the crypto community. However, despite this momentum, PYUSD—the stablecoin issued by PayPal—has attracted relatively little attention. This article aims to explore that gap in greater detail.
Source: PayPal
Before diving into PYUSD itself, there have been two major recent developments related to the stablecoin.
SEC Investigation Closed: In November 2023, the US SEC initiated an investigation by requesting documents related to the issuance structure of PYUSD. PayPal fully cooperated with the SEC's request, and in February 2025, the SEC officially notified PayPal that the investigation had concluded without any legal action. This marked a key moment for PYUSD, as it resolved regulatory uncertainty and reinforced its status as a more trustworthy stablecoin.
3.7% Annual Yield Program: Starting in the summer of 2025, PayPal announced that it would launch a program to pay an annual yield of 3.7% on PYUSD balances held in PayPal and Venmo wallets. The interest accrues daily and is paid monthly in PYUSD.
The combination of the government's crypto-friendly stance, the closure of the SEC investigation, and the upcoming reward program in the summer of 2025 suggests that PayPal is ready to aggressively expand its PYUSD business by eliminating regulatory uncertainties. Now, let us take a closer look at PYUSD.
PayPal is a global fintech company founded in the United States in 1998 and is considered a pioneer in online payment and money transfer services. PayPal offers users a digital wallet-based online payment system. Users can link bank accounts or credit cards to their PayPal account to fund their wallet or use it directly as a payment method. Transfers can be made with just an email address or mobile number, and online shopping is streamlined through the ability to pay using only a PayPal account. PayPal also enhances user convenience by masking buyers’ financial information when mediating between merchants and card issuers or banks and by offering buyer protection policies.
PYUSD is a US dollar-backed stablecoin jointly issued by PayPal, one of the leading fintech companies in the United States, and Paxos. PYUSD is maintained through a fully-backed model to preserve its value at one dollar. Its reserves consist of US dollar deposits, US Treasury securities and reverse repurchase agreements, and cash equivalents.
PYUSD is integrated into the PayPal app and is designed to be easily accessible for any PayPal user. Users can purchase PYUSD using their PayPal balance or a linked bank account or card. They can then convert it back to dollars or exchange it for other crypto assets. A key benefit is that PayPal users in the US can transfer PYUSD to each other instantly and without fees.
PYUSD can also be used as a payment currency. When users choose to pay with PYUSD at online merchants, PayPal automatically converts the PYUSD into dollars and settles the payment with the merchant. Additionally, users familiar with on-chain or DeFi environments can transfer PYUSD to their personal wallets through Ethereum or Solana networks.
The issuance and management structure of the PYUSD stablecoin is as follows:
Issuer: The official issuer of PYUSD is Paxos Trust Company. While PayPal handles distribution and branding, the actual issuance is conducted by Paxos, which is licensed by the state of New York.
Asset Custody and Management: The reserve assets, which include dollar deposits, US Treasuries, and cash equivalents, are segregated in customer trust accounts managed by Paxos and held at regulated financial institutions in the United States. These depository institutions include State Street Bank and Trust, Western Alliance Bank, and Customers Bank. All of these banks are FDIC-insured, and Paxos participates in pass-through FDIC deposit insurance. This means that even if one of the depository banks fails, customer funds are protected by FDIC insurance.
Transparency and Audits: Paxos provides monthly reports on its reserve assets and undergoes independent attestations by KPMG LLP in accordance with AICPA standards. The January reserve report, for example, shows that as of January 31, total PYUSD in circulation was $482,747,103 while total reserve assets amounted to $493,574,061, indicating that reserves exceeded the circulating supply. These reserves are composed of reverse repo agreements and bank deposits. (In a reverse repo, Paxos, as a stablecoin issuer, deposits cash with financial institutions or central banks and receives Treasuries as collateral, earning interest upon maturity. This is one of the main revenue sources for stablecoin issuers.)
Source: Paxos
Regulatory Oversight: Although the US does not yet have federal-level regulation specifically for stablecoins, state governments play a regulatory role. Paxos received a limited purpose trust charter from the New York State Department of Financial Services (NYDFS) in 2015 and is subject to strict capital and operational requirements.
Unlike USDC and USDT, PYUSD has not yet deeply penetrated the DeFi ecosystem. Despite the strong brand recognition of PayPal, PYUSD remains unfamiliar to many on-chain and DeFi users. So where is PYUSD actually being used?
Source: Dune Analytics (@steakhouse)
The total issuance of PYUSD has reached nearly $800 million. While this reflects rapid growth, it remains small compared to USDT's $149 billion and USDC's $61 billion. Current distribution shows that most PYUSD is held in EOAs or CEXs, with less than 2 percent deposited in DEXs or lending protocols.
When PayPal users purchase PYUSD within the app, it is recorded on-chain but is deposited into a centralized custody system operated by Paxos. In other words, most PYUSD exists either within the PayPal app or on centralized exchanges. This indicates that PYUSD has not yet achieved widespread adoption in on-chain ecosystems.
Source: Dune (@kodi2227)
PYUSD is supported on two networks: Solana and Ethereum. After PYUSD launched on the Solana network, its share on Solana grew quickly, although Ethereum has recently regained dominance in terms of circulating supply.
Despite its limited on-chain circulation, PYUSD is used in the following DeFi protocols:
Morpho: Morpho includes a PYUSD vault managed by Steakhouse Financial, where holders can deposit funds and earn approximately 2.8 percent interest. Currently, around $12 million is deposited.
Aave: In Aave V3's core market, users can deposit and borrow PYUSD. Currently, $17.2 million is deposited and $4.7 million is borrowed.
Kamino: On Solana’s lending protocol Kamino, about $27 million of PYUSD is deposited, with $18 million borrowed.
Orca: On Solana’s DEX Orca, approximately $5.5 million in PYUSD liquidity is available, allowing users to swap PYUSD with other tokens within the Solana ecosystem.
If passed, the GENIUS Act would become the first federal legislation dedicated to stablecoins. Senate Majority Whip John Thune is pushing the bill through a fast-track procedure, and a full Senate vote is expected before May 20. If approved by the Senate, the bill will proceed to the House and eventually require presidential approval before becoming law.
Once enacted, the GENIUS Act would allow not only banks but also non-bank entities including IT firms to issue stablecoins, provided they meet the following criteria:
1:1 Reserve Backing: Stablecoins must be fully backed by high-liquidity assets such as US dollars, short-term Treasuries, deposits, reverse repos, or cash equivalents.
Monthly Disclosure Reports: Issuers must publicly release monthly reports detailing reserve composition and outstanding stablecoin supply, reviewed by a certified accounting firm.
Annual Financial Audit: Issuers with more than $50 billion in outstanding stablecoins must undergo annual financial audits.
AML/KYC and Sanctions Compliance: Issuers must implement compliance programs covering anti-money laundering and sanctions rules, including KYC procedures.
Technical Control Capabilities: Issuers must have technical capabilities to freeze or burn stablecoins upon court order.
In the absence of clear federal law, PayPal previously partnered with Paxos, a NYDFS-regulated entity, to issue PYUSD. But once regulations are clarified, a wave of banks, asset managers, and fintech companies are expected to enter the stablecoin issuance market. For instance, Bank of America CEO Brian Moynihan signaled interest in issuing a stablecoin if regulations are clarified, and in March, Fidelity was reported to be testing its own stablecoin. Competition in this sector is expected to intensify.
In the face of growing competition, PYUSD must capitalize on PayPal’s unique strengths to quickly gain market share. So what advantages does PayPal have over Tether or Circle? The answer lies in its massive user base.
PayPal has 434 million active users across 200 countries, commands 45 percent of the global payments market, and processed an astonishing $1.68 trillion in transactions in 2024 alone (source). According to its Q4 2024 10-Q filing, PayPal also held approximately $16.1 billion in customer funds as of December 31, 2024. This immense liquidity base provides strong potential for conversion into PYUSD as PayPal ramps up its stablecoin business.
However, some fundamental challenges must be addressed for PYUSD to grow its market share. First, while users can convert PYUSD into major cryptocurrencies like BTC and ETH within the PayPal app, the service charges much higher fees than CEXs, making it less attractive. Second, from a typical user’s perspective, there is little incentive to use PYUSD over regular USD for payments or transfers. Although blockchain architecture could offer advantages in cross-border transfers, PYUSD is currently available only in the United States, making it difficult to leverage this benefit.
To drive broader adoption, the following issues must be addressed:
Seamless Crypto Trading Experience: PayPal should integrate CEX-like trading features directly into the app. While a strategic partnership with Coinbase allows for zero-fee conversions between USD and PYUSD on Coinbase, PayPal users still need to transfer PYUSD to their Coinbase accounts via Ethereum or Solana, a process that remains complicated.
Global PYUSD Support: If PYUSD becomes available in all countries where PayPal operates, it could unlock major advantages for international remittances and overseas payments. However, given that stablecoin regulation varies by country and is still in its early stages, this vision may take considerable time to materialize.
Robust On-Chain Integration: As DeFi history shows, utility is key to growing a stablecoin’s on-chain circulation. As the statistics show, current on-chain usage of PYUSD remains very low. Due to a lack of strong incentives and liquidity, DeFi users have little reason to adopt PYUSD. PayPal must collaborate with major DeFi protocols to expand PYUSD utility on-chain.
One promising development to watch is PayPal’s upcoming 3.7% yield reward program for PYUSD balances, launching in summer 2025. Unlike savings accounts from PayPal or Affirm that offer 3.8 to 4.3% interest but require users to move funds out of their payment balance, PYUSD pays interest directly on the wallet balance held within the PayPal account. This represents a significant UX upgrade and provides users with a strong reason to hold PYUSD instead of fiat, accelerating adoption.
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