Interpretation of the "100 billion U.S. dollars" logic behind PayPal's entry into the stablecoin market

Original Author: @TaikiMaeda2

Compilation of the original text: Rhythm BlockBeats

$PYUSD is intended to be a medium of exchange for any American to be able to send and receive U.S. dollars for purchasing goods. However, Venmo/PayPal works fine without a token, so why do you need $PYUSD?

First off, we all know how bad $PYPL (PayPal stock) is doing, it's down about 80% from its peak (which is even worse than BTC/ETH's performance). So, naturally, PayPal's management is under pressure to find new revenue streams to create value for shareholders.

Second, what is the most lucrative business in the world of cryptocurrencies? It's Tether. In the second quarter alone, Tether made more than $1 billion, and all they did was put their dollar reserves into national debt. USDT holders get nothing, Tether takes all the interest paid by the government on the national debt.

Combining the above two points, there is no doubt for PayPal to enter the stable Token market. PayPal has hundreds of millions of users, so they can integrate $PYUSD into PayPal and create demand, and make profits like Tether.

Coinbase earned $374 million from exchange fees in Q2 and $240 million from interest income from $USDC and Circle. This is what is true of cryptocurrencies — buying Treasuries is more profitable than running an exchange. This is why my DeFi strategy will focus on national debt tokenization and RWA for the rest of this year.

The discussion on stable Token regulation is getting more and more intense, and the entry of PayPal also means more "lobbying money". For example, MakerDAO has more than $2 billion in short-term treasury bonds, and the interest is flowing back into the Token repurchase, which makes us have a new meme of "the government is buying our bags".

I don’t think we will have a sustained DeFi bull market until on-chain yields (considered “very safe”) can be higher than risk-free rates, and RWA with DeFi “Lego” can achieve this. Take an example to illustrate the magic of DeFi "Lego" - assuming that the DSR is 3.49%, and the borrowing rate of AAVE's stablecoin $GHO is 1.5%, then pledge $DAI to get $sDAI, and use $sDAI as collateral to lend $GHO, Then buy $sDAI, then borrow $GHO... 5 times in a cycle, you can actually get close to 10% APY.

According to past experience, the stable token yield of 10% has certain risks and is subsidized by token inflation, but if it is subsidized by the interest paid by the government on national debt, this may become a "positive sum game". Economic value is created here and can be scaled up, not to mention that TradFi is optimistic about the Tokenization of securities, this is RWA!

Another project I'm interested in is $FXS. They created a non-profit C corporation in Delaware and combined it with FRAX v3, which was able to legally purchase bonds for the Frax agreement without charging any fees. $FXS hopes to vertically integrate tokenized treasury bonds into their entire DeFi stack, which consists of LSD (frxETH), financial market (Fraxlend) and AMM (Fraxswap).

While the Fed's rate cuts in 2024 could be a headwind for the track, that doesn't mean they still won't be printing money. For me, I "more" $MKR, closely observe $FXS, look for new national debt tokenization projects with good Tokenomics and sustainable business models, and build positions at an early stage. Also, I'm not too fond of other RWA sub-tracks (like real world lending) because they can't scale at this stage.

Possible risks come from the regulatory level and the Fed's interest rate cuts. On the regulatory side, I'm biased (and possibly wrongly biased) that there won't be much of a problem in the short to medium term until the track grows 100x its current size (from billions of dollars to hundreds of billions of dollars).