Solana occupies 64% of PYUSD market share, Kamino Finance becomes the biggest winner?

On August 27, according to official data, the market value of PayPal's stablecoin PYUSD has exceeded the $1 billion mark, and its supply has more than doubled since June. According to Visa's stablecoin dashboard, PYUSD's user activity has soared, with monthly active wallet addresses jumping to more than 25,000 in July, compared with 9,400 in May.

This is also the explosive growth of PYUSD after it expanded to the Solana network in May. It grew from zero to $650 million in just three months, exceeding the supply on the Ethereum chain. According to DefiLlama data, the supply of PYUSD on the Solana chain has increased by 171% in the past month.

Why did PayPal choose to build vigorously on Solana, and what drove the adoption of PYUSD? In response, the official account of Solana released a long push and tried to answer this question for us. Rhythm BlockBeats compiled as follows:

For more than two decades, PayPal has been committed to providing people with fast, low-cost and global payment services. This philosophy prompted the company to pioneer online payments. Now, PayPal is exploring what is considered the next generation of digital payments: on-chain payments.

On-chain payments have many advantages over traditional payment systems, including faster settlement, lower costs and programmability.

In August 2023, PayPal launched PYUSD on Ethereum. The stablecoin is issued by @Paxos and is regulated by the New York Department of Financial Services (NYDFS). The stablecoin is backed by 100% high-quality liquid assets and can be exchanged for US dollars at a 1:1 ratio.

PayPal believes that mass adoption of PYUSD will go through these three stages: awareness, utility, and popularity.

By deploying on Ethereum, PYUSD has taken the first step in increasing awareness. However, in order for PYUSD to better provide practical value to consumers and merchants, PayPal recognizes the need for a more efficient blockchain.

PayPal chose to expand PYUSD to Solana because of its nearly instant settlement and finality, median transaction fee rate of less than one cent, and an ecosystem of more than 2,500 developers. (Source: https://pyusd.mirror.xyz/TpEwPNybrwzPSSQenLtO4kggy98KH4oQRc06ggVnA0k) But equally important, Solana’s unique token scaling capabilities also became a key factor in making this decision.

PYUSD uses multiple token extensions, including confidential transfers, transfer pegs, and memo fields. PayPal said: "These features are not optional. If you want PYUSD to play a role in the wider commercial field, you must provide it to merchants."

Currently, Solana has become the main platform for PYUSD, with a market share of 64%, compared to Ethereum's market share of 36%.

To promote the adoption of PYUSD in DeFi protocols, PayPal has also launched token incentives, such as its use in @KaminoFinance. This helped drive growth. According to @Syndica_io, 81% of PYUSD on Solana is used in DeFi protocols.

And according to BlockBeats, Kamino Finance is the current "leader" project of Solana TVL. As of August 27, more than 45% of the circulating PYUSD supply was deployed to Kamino, totaling $460 million. So what is Kamino Finance, and why has it become the preferred staking protocol for PYUSD?

About Kamino Finance

Founded in 2022, Kamino Finance is a decentralized finance (DeFi) protocol that integrates lending, providing liquidity, and leverage. Users can use centralized liquidity positions as collateral and build automated liquidity strategies with one-click operations and automatic compounding liquidity strategies. Kamino has issued KMNO tokens on April 30 this year, with a total of 10 billion tokens and an estimated initial circulation supply of 1 billion tokens.

The Kamino Finance project is incubated by Hubble Protocol. Hubble Protocol is a stablecoin lending platform based on Solana. It completed financing of 3.6 million and 15 million US dollars in 2021 and 2022 respectively. Investors include Three Arrows Capital, Multicoin Capital, Jump Capital, DeFiance Capital, Digital Currency Group, Crypto. com Capital, etc.

Hubble Protocol founder Marius Ciubotariu (@y2kappa) was previously a senior software engineer at Bloomberg and graduated from the University of Exeter. His profile has now been changed to co-founder of KaminoFinance, and he is fully committed to developing the product. In March of this year, Kamino Finance received $10 million in financing from Early Stage VC, and more financing information has not yet been disclosed.

Today, Kamino has become Solana's largest lending platform, with a TVL of over $1.6 billion. On Kamino, 470 million PYUSD enjoy an annualized return of 13.24%, which means that depositors will receive an additional reward of over 1.2 million PYUSD per week. At the same time, large-scale PYUSD circulates on Solana at very low costs. According to @artemis__xyz, the median transaction fee for peer-to-peer PYUSD transfers is about one cent.

In addition, on Kamino, PYUSD borrowers pay an interest rate of 3.28% and a utilization rate of 5.31%, while on Kamino's competitor lending protocol MarginFi, the interest rate is 1.54% and the utilization rate is 4%.

And where does the interest come from for such a high annualized stablecoin? It also makes people question whether PYUSD can continue to grow without the incentives currently provided. In this regard, KOL @0xBalloonLover questioned, "You will never know how much rewards the Solana Foundation has paid to encourage people to mint PYUSD." Unexpectedly, perhaps these rewards did not come from the Solana Foundation. Under the KOL's tweet, Kyle Samani, managing partner of Multicoin Capital, and Mert, a core member of the Solana community and founder of Helius, both stated that the Solana Foundation did not actually pay a penny.

On August 20, well-known Web3 analyst Alpha Pls estimated that Kamino's annualized revenue was $17.4 million. This suggests that it may not be able to maintain the current reward increase for a long time. But if it weren't for the income support given by the Solana Foundation, who would have such a large amount of funds to maintain high financial incentives? After all, these subsidies are PYUSD, a real dollar stablecoin, not the project's own tokens that we have seen in DeFi mining before.

From this, we can also boldly speculate that if the beneficiary Solana Foundation does not bear this part of the subsidy to users, then the only other beneficiary and willing to give reward subsidies may be PayPal, the issuer of PYUSD?

In any case, Web2 giants have already set their sights on the encryption market, and Lily, president of the Solana Foundation, also pointed out at the Asian Blockchain Summit that PayFi will be the biggest theme in this round of encryption cycle, and Solana is also the best fertile ground for the concept to be actually implemented and widely used.

References:

https://x.com/solana/status/1828175011590664412

https://thedefiant.io/news/tokens/paypal-usd-surpasses-usd1b-market-cap