PayPal has teamed up with Spark, a decentralized finance (DeFi) protocol, to enhance liquidity for its stablecoin, PayPal USD (PYUSD).
Since its August listing on SparkLend, a stablecoin-focused lending market, PayPal’s stablecoin has garnered over $135 million in deposits, as stated on Thursday.
Launched in 2023, SparkLend emerged from the MakerDAO ecosystem and was subsequently integrated into Maker’s successor, Sky. The platform operates the Spark Liquidity Layer, boasting more than $8 billion in stablecoin reserves, according to the protocol.
Sam MacPherson, co-founder and CEO of Phoenix Labs, a key contributor to Spark, informed Cointelegraph that PayPal selected Spark because it “is the only at-scale DeFi protocol that can actively deploy capital into other protocols.” He added:
“DeFi will be the rails for all finance in the future, so focusing on that makes a lot of sense as there is massive growth potential.”
Spark functions as a non-custodial lending protocol where users deposit stablecoins into Spark Savings and receive non-rebasing yield tokens. According to Messari, these tokens maintain a fixed balance but appreciate in value over time, with yields determined by Sky governance and funded through protocol revenues.
PYUSD was added to SparkLend after successfully passing the protocol’s risk assessments.
Related: Aave, Sky float partnership to bridge DeFi, TradFi
Stablecoin market nears $300 billion
As Europe’s Markets in Crypto-Assets Regulation (MiCA) takes effect in January and the US enacts stablecoin regulation with the Genius Act in July, the stablecoin market is experiencing significant growth.
DefiLlama data indicates that the stablecoin market capitalization is approaching $300 billion, an increase of over $90 billion since the beginning of the year.
The overall expansion of stablecoins has corresponded with a rising demand for yield-bearing stablecoins. Ethena’s USDe and Sky’s USDS have shown strong growth, with USDe’s supply increasing by 70% and USDS by 23% since July 18, when the Genius Act was signed into law.
In August, Coinbase reactivated its Stablecoin Bootstrap Fund to provide liquidity for USDC across DeFi platforms, including Aave and Morpho, although the size of the fund was not disclosed.
A Binance Research report, shared with Cointelegraph in September, noted that as stablecoin adoption accelerates, “DeFi lending protocols are increasingly positioned to facilitate institutional participation.”
DeFi lending markets saw a growth of over 70% year-to-date in September, with institutional demand cited as a major contributor.
The trend towards yield-generating stablecoins has been labeled “stablecoin 2.0.” Unlike “first-generation” tokens like Tether’s USDt (USDT), which aimed to digitize the US dollar and put it on-chain, a “second generation” of stablecoins strives to create new utilities by generating yield alongside liquidity.
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