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PayPal has collaborated with decentralized finance (DeFi) protocol Spark to enhance liquidity for its US dollar stablecoin, PayPal USD (PYUSD).
Since its August launch on SparkLend, a lending market centered on stablecoins, PayPal’s stablecoin has drawn over $135 million in deposits, according to a statement released on Thursday.
Launch in 2023 from the MakerDAO ecosystem, SparkLend was subsequently integrated into Sky, Maker’s successor entity. It operates the Spark Liquidity Layer, which is supported by over $8 billion in reserves of stablecoins, according to the protocol.
Sam MacPherson, co-founder and CEO of Phoenix Labs, which is a primary contributor to Spark, informed Cointelegraph that PayPal selected Spark because it “is the sole at-scale DeFi protocol capable of actively allocating capital into other protocols.” He further commented:
“DeFi will serve as the framework for all finance in the future, making a focus on that very logical as there is enormous growth potential.”
Spark presents a non-custodial lending protocol where participants deposit stablecoins into Spark Savings and obtain non-rebasing yield tokens. As per Messari, these tokens hold a steady balance yet increase in value over time, with yields determined by Sky governance and financed through protocol revenues.
PYUSD was incorporated into SparkLend after successfully passing the protocol’s risk evaluations.
Related: Aave, Sky float partnership to bridge DeFi, TradFi
Stablecoin market approaches $300 billion
With Europe’s Markets in Crypto-Assets Regulation (MiCA) coming into effect in January and the US enacting stablecoin regulations via the Genius Act in July, the stablecoin market has been experiencing a surge.
DefiLlama data indicates that the stablecoin market capitalization is nearing $300 billion, increasing by over $90 billion since the year’s beginning.
The overall expansion of stablecoins has paralleled a rising demand for yield-bearing stablecoins. Ethena’s USDe and Sky’s USDS have demonstrated significant momentum, with USDe’s supply increasing by 70% and USDS by 23% since July 18, when the Genius Act was enacted.
In August, Coinbase reinstated its Stablecoin Bootstrap Fund to infuse liquidity into USDC across DeFi platforms, including Aave and Morpho — although the exchange did not reveal the fund’s size.
A Binance Research report provided to Cointelegraph in September noted that as stablecoin adoption increases, “DeFi lending protocols are more frequently positioned to facilitate institutional engagement.”
The DeFi lending markets grew by over 70% year to date in September, with institutional interest identified as a crucial factor.
The trend toward yield-generating stablecoins has been labeled as “stablecoin 2.0.” In contrast to “first-generation” tokens like Tether’s USDt (USDT) that primarily focused on digitizing the US dollar and placing it on-chain, a “second generation” of stablecoins aims to create additional utility by producing yield concurrently with liquidity.
Magazine: How Ethereum treasury companies could ignite ‘DeFi Summer 2.0’
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