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

Author: Lila, BlockBeats

On August 27, according to official data, the market capitalization of PayPal's stablecoin PYUSD has surpassed $1 billion, with its supply more than doubling since June. According to Visa's stablecoin dashboard, the user activity of PYUSD has surged, with the number of monthly active wallet addresses rising to over 25,000 in July, compared to 9,400 in May.

This explosive growth followed PYUSD's expansion to the Solana network in May, where it grew from zero to $650 million in just three months, surpassing the supply on the Ethereum chain. According to data from DefiLlama, the supply of PYUSD on the Solana chain increased by 171% in the past month.

Why did PayPal choose to build heavily on Solana, and what is driving the adoption of PYUSD? In response, the official Solana account released a lengthy tweet to help answer this question.

For over twenty years, PayPal has been committed to providing fast, low-cost, and global payment services. This philosophy led the company to pioneer online payments. Now, PayPal is exploring what is considered the next generation of digital payments: on-chain payments.

Compared to traditional payment systems, on-chain payments offer numerous advantages, including faster settlement speeds, lower costs, and programmability.

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

PayPal believes that the widespread adoption of PYUSD will go through three stages: awareness, practicality, and popularity.

By deploying on Ethereum, PYUSD achieved the first step of increasing awareness. However, to provide better practical value for consumers and merchants, PayPal recognized the need for a more efficient blockchain.

PayPal chose to expand PYUSD to Solana due to its near-instant settlement and finality, a median transaction fee of less than one cent, and an ecosystem with over 2,500 developers. (Source: https://pyusd.mirror.xyz/TpEwPNybrwzPSSQenLtO4kggy98KH4oQRc06ggVnA0k) Equally important, Solana's unique token extension capabilities were also a key factor in this decision.

PYUSD utilizes multiple token extension features, including confidential transfers, transfer hooks, and memo fields. PayPal stated, "These features are not optional. If PYUSD is to play a role in a broader commercial landscape, they must be provided to merchants."

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

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

Moreover, according to BlockBeats, Kamino Finance is currently the "leading" project in Solana's Total Value Locked (TVL). As of August 27, over 45% of the circulating PYUSD supply is deployed in 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, liquidity provision, and leverage functionality. Users can automatically compound liquidity strategies with a one-click operation, use concentrated liquidity positions as collateral, and build automated liquidity strategies. Kamino issued its KMNO token on April 30 this year, with a total supply of 10 billion tokens and an expected initial circulating supply of 1 billion tokens.

The Kamino Finance project was incubated by Hubble Protocol, which is a stablecoin lending platform based on Solana. Hubble completed financing rounds of $3.6 million and $15 million in 2021 and 2022, respectively, with investors including Three Arrows Capital, Multicoin Capital, Jump Capital, DeFiance Capital, Digital Currency Group, and Crypto.com Capital.

Marius Ciubotariu (@y2kappa), the founder of Hubble Protocol, was previously a senior software engineer at Bloomberg and graduated from the University of Exeter. He has since changed his profile to co-founder of KaminoFinance, focusing on product development. In March of this year, Kamino Finance secured $10 million in funding from Early Stage VC, with more funding details yet to be disclosed.

Today, Kamino has become the largest lending platform on Solana, with a TVL exceeding $1.6 billion. On Kamino, 470 million PYUSD enjoys an annualized yield of 13.24%, meaning that depositors will receive over 1.2 million PYUSD in additional rewards each week. Meanwhile, large amounts of PYUSD are circulating on Solana at very low costs. According to data from @artemis__xyz, the median transaction fee for peer-to-peer PYUSD transfers is about one-hundredth of a cent.

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

Such a high annualized yield for stablecoins raises questions about the source of interest. It also leads to skepticism about whether PYUSD can continue to grow without the current incentives. KOL @0xBalloonLover raised the question, "We never know how much the Solana Foundation has paid to encourage people to mint PYUSD." Surprisingly, these rewards may not be coming from the Solana Foundation. In the comments under this 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 has not contributed a dime.

On August 20, well-known Web3 analyst Alpha Pls estimated that Kamino's annual revenue is $17.4 million. This suggests that it may not be able to sustain the current reward boosts in the long term. However, if the Solana Foundation is not providing the financial support for these rewards, who else could have such a large capital base to maintain high funding incentives? After all, these subsidies are in PYUSD, real dollar stablecoins, rather than the native tokens commonly seen in DeFi mining projects.

Thus, we can boldly speculate that if the benefiting Solana Foundation is not bearing this part of the user subsidies, then the only other party willing to provide reward subsidies could be the issuer of PYUSD, PayPal.

Regardless, Web2 giants have set their sights on the crypto market, and previously, Solana Foundation President Lily pointed out at the Asia Blockchain Summit that PayFi will be the biggest theme in this crypto cycle, and Solana is the best soil for this concept to take root and be widely applied.