PayPal's stablecoin, PayPalUSD (PYUSD), which is growing based on the Arbitrum (ARB) network, has surpassed $4 billion (approximately KRW 5.8 trillion) in issuance this month. PYUSD is particularly gaining traction within the Arbitrum One network, rising to become the fourth-largest stablecoin.
According to data compiled by consulting firm Entropy Advisors, the current PYUSD circulating on the Arbitrum network has surpassed $220 million (approximately KRW 319 billion). DeFi data platform DefiLlama puts the figure at around $256.6 million (approximately KRW 372.1 billion). This makes PYUSD the fourth-largest stablecoin on Arbitrum, following USDai (USDAI), USD Coin (USDC), and Tether (USDT).
USDai Partnership Drives Explosion in PYUSD Demand
The expansion of PYUSD's supply within Arbitrum is believed to have been driven by the partnership between PayPal and Permian Labs, announced in mid-December of last year. Permian Labs is the core developer of USDai (USDAI), a stablecoin protocol specialized in AI infrastructure finance.
At the time, both parties agreed to incorporate PYUSD as a reserve asset in USDai and simultaneously utilize it as a settlement and liquidity asset. USDai is a protocol that provides financing for AI infrastructure assets such as GPUs and data centers, based on arbitrage. Its unique feature is that it connects capital raised on-chain to actual AI-related equipment and services.
This partnership also launched an incentive program offering a 4.5% annual interest rate (APY) for one year on PYUSD deposits of up to $1 billion (approximately KRW 1.45 trillion) within the USDai protocol. The market believes that this fixed-return incentive has led to a rapid increase in demand for PYUSD on Arbitrum.
PYUSD accounts for 43% of USDai deposits, emerging as a key liquidity source for the protocol.
According to DeFirama data, since the partnership, the majority of PYUSD on Arbitrum has been held within the USDai protocol. PYUSD currently accounts for over 43% of all token deposits within USDai, making it the second-largest token after WrappedM by M0 (WM), which serves as the underlying collateral asset. WM accounts for over 56% of the USDai protocol's total value locked (TVL).
“With this integration, USDai loans can be issued in PYUSD and repayments can be settled directly into PayPal accounts,” the USDai side explained through X (formerly Twitter) in December of last year. “Borrowers can pay for GPUs, data center costs, rent, subscription fees, and more through a single dollar-based rail.” In effect, PayPal’s payment infrastructure and DeFi lending system are connected as a single pipeline.
Through this, PYUSD is expanding its scope beyond being a simple payment stablecoin to a DeFi liquidity asset supporting AI infrastructure financing. By combining traditional payment companies and on-chain lending protocols via real-world infrastructure assets, Arbitrum and USDai are becoming testing grounds for the digital dollar ecosystem pursued by PayPal.
Incentives are an "initial bootstrap," signaling a shift in focus toward AI and GPU-collateralized lending.
However, USDai, through official documentation, draws a clear line, stating that the currently high level of incentives offered is merely a means to "bootstrap liquidity" and not the protocol's ultimate revenue model. In other words, while the initial incentive for stablecoin deposits will increase inflow, in the long term, the revenue generated from loans secured by GPUs and AI infrastructure will become the core source of interest and collateral.
Once this structure becomes somewhat established, stablecoin funds, including PYUSD, will likely move beyond simple deposits and into actual GPU and data center financing. This could also be interpreted as a variant of "RWA (Real Asset Tokenization)," where on-chain stablecoins are directly linked to real-world, service-oriented assets like AI infrastructure.
Arbitrum Expands PYUSD's Presence in Ethereum's L2 Phase
Arbitrum's network status also underlies this trend. According to L2Beat, Arbitrum One currently holds the most assets among Ethereum Layer 2 networks, with a total value of assets deposited (TVS) of $16.82 billion (approximately KRW 24.389 trillion).
In this way, on L2, where DeFi and on-chain assets are concentrated, PayPal's PYUSD has quickly secured its position as the fourth-largest stablecoin through its combination with USDai. Even if the incentive structure gradually weakens in the future, PYUSD's strategic value is expected to further increase if its role as a "payment and lending hub" connecting PayPal's payment network and AI infrastructure finance is maintained.
Currently, PYUSD is considered the fastest-growing stablecoin issued by a traditional fintech company, making the deepest inroads into the DeFi ecosystem. If this experiment, centered around Arbitrum and USDai, proves successful, similar structures are likely to spread to other Layer 2s and protocols.
On-chain stablecoins, AI, DeFi… Investors who understand this structure will ultimately survive.
This structure, which connects PYUSD–USDai–Arbitrage, is not simply positive news; it is a complex structure that intertwines stablecoin tokenomics, DeFi incentive design, and RWA/AI infrastructure financing.
Investors who only respond to the apparent ‘4.5% annual fixed return’,
① When and how incentives are reduced,
② Where the deposited assets actually flow,
③ Is this structure a business model that can be maintained in the long term?
Investors who check with data end up getting different results.
TokenPost Academy is a seven-step masterclass designed to create investors who can "read, dissect, and utilize" these complex structures. This PYUSD–USDai case study is also an area that can be fully analyzed using the curriculum.
- In Step 2, The Analyst, we dissect the tokenomics and on-chain structure of stablecoins like PYUSD. Beyond simple market cap and issuance, we examine reserve assets, incentive design, and distribution structures to discern whether these structures provide sustainable returns or are merely short-term bootstraps.
- Step 5, "The DeFi User," covers how to interpret TVL, deposit ratio, collateral structure, LTV, and liquidation risk, similar to USDai. You'll gain a design understanding of the DeFi yield structure and risks behind "PYUSD Deposit 4.5% APY."
- Step 7: The Macro Master examines how on-chain liquidity moves through L2 networks like Arbitrum, and what cycles are created when capital is concentrated in specific layers and sectors (e.g., AI infrastructure, RWA), using historical examples.
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🔎 Market Interpretation
PayPal's stablecoin PYUSD has surpassed $4 billion in issuance, making it the fourth-largest stablecoin on the Arbitrum One network.
Arbitrum is the largest Ethereum L2 holding over $16.8 billion in TVS, and PYUSD's presence is rapidly growing thanks to the concentrated DeFi liquidity environment.
The growing demand for PYUSD signals its transition beyond simple payments to a core liquidity asset bridging AI infrastructure financing and DeFi lending.
💡 Strategy Points
The PYUSD-USDai partnership offers a 4.5% APY incentive on up to $1 billion, with a significant portion of PYUSD on Arbitrum being locked in the USDai protocol.
With over 43% of USDai deposits held in PYUSD, PYUSD has established itself as the second most important collateral and liquidity asset after WM.
USDai defines the incentives as an "initial bootstrap," so in the medium to long term, revenue generated from loans secured by AI infrastructure, such as GPUs and data centers, is likely to become a core model.
As traditional fintech (PayPal) payment networks, on-chain lending (USDai), and AI infrastructure finance are connected, similar structures could spread to other L2 protocols, expanding the strategic value of PYUSD and its associated ecosystems.
📘 Glossary
PYUSD: A dollar-pegged stablecoin issued by PayPal, it is a digital dollar asset used for on-chain payments, remittances, and DeFi.
Arbitrum One: A Layer 2 network on Ethereum that offers faster, cheaper transactions and an ecosystem with a large collection of DeFi assets.
USDai (USDAI): A stablecoin and lending protocol developed by Permian Labs, it connects on-chain capital to AI infrastructure asset financing, such as GPUs and data centers.
TVL/TVS: This refers to the total amount of cryptocurrency assets deposited in a protocol or network, and is a key indicator for measuring the scale and activity of DeFi and L2.
RWA (Real-World Asset Tokenization): This refers to a structure that handles ownership and profit rights of real-world and real-service assets, such as real estate, bonds, and infrastructure, on-chain in the form of tokens.
💡 Frequently Asked Questions (FAQ)
Q.
Why is PYUSD's $4 billion issuance milestone significant for individual investors and users?
PYUSD is a US dollar-pegged stablecoin. As its issuance increases, its circulation and liquidity increase. This translates into reduced slippage and smoother deposits, withdrawals, and payments. It also signals that PayPal, a traditional payment company, is growing its influence in the on-chain ecosystem, increasing the likelihood of PYUSD support expanding to other services, exchanges, and DeFi protocols.
Q.
USDai offers 4.5% annual interest. What risks should I be aware of?
USDai's 4.5% APY is a temporary incentive to quickly gather liquidity and is not a permanent interest rate. There is a risk of principal loss due to smart contract vulnerabilities, protocol operational risks, regulatory changes, and fluctuations in the value of collateral assets (e.g., AI infrastructure assets). Therefore, before depositing, it's common practice to carefully review USDai's structure, collateral model, audit status, and team reliability, and to diversify your portfolio by investing only a portion of your portfolio.
Q.
How can a beginner understand the connection between PYUSD and AI infrastructure finance?
When users deposit stablecoins like PYUSD on-chain, the USDai protocol aims to use these funds to provide loans to AI infrastructure providers like GPUs and data centers. Investors deposit tokens on the blockchain and earn interest, effectively using the funds to expand AI computing facilities. In other words, it's a relatively easy-to-understand example of a modified RWA, implementing the traditional financial structure of "investing in corporate bonds and infrastructure bonds to earn interest" in an on-chain, tokenized form.
TP AI Precautions
This article was summarized using a TokenPost.ai-based language model. Key points in the text may be omitted or inaccurate.
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