Original Author: @TaikiMaeda2
Translated by: Cookie, Rhythm BlockBeats
$PYUSD aims to serve as a medium of exchange for purchasing goods, allowing any American to send and receive US dollars. However, Venmo/PayPal already functions well without a token, so why do we need $PYUSD?
Firstly, it's clear that the performance of $PYPL (PayPal stock) has been poor, as it has dropped approximately 80% from its peak (even worse than BTC/ETH). Therefore, the management team of PayPal naturally faces pressure to find new revenue sources to create value for shareholders.
Secondly, what is the most profitable business in the world of cryptocurrency? It's Tether. In just the second quarter, Tether earned over $1 billion by simply investing its US dollar reserves into government bonds. Tether's holders gained nothing, while Tether took all the interest income paid by the government.
Combining these two points, it's without a doubt that PayPal is entering the stablecoin market. With hundreds of millions of users, PayPal can integrate $PYUSD and create demand, just like Tether, and generate profits.
In the second quarter, Coinbase earned $374 million through exchange transaction fees and $240 million from interest income on $USDC and Circle. This is the reality of the cryptocurrency industry - the profit margin of buying government bonds is higher than operating an exchange. That's why my DeFi strategy for the remainder of this year will focus on tokenizing government bonds and RWA.
Discussions on the regulation of stablecoins are becoming increasingly intense, and PayPal's entry also means more "lobbying money." For example, MakerDAO has over $2 billion in short-term government bonds, with interest flowing back into token repurchases, giving us a new catchphrase: "government is buying our bags."
I believe that we won't have a sustained DeFi bull market until on-chain yields (considered "very safe") can surpass risk-free rates. RWA combined with DeFi "legos" can achieve this. Let's illustrate the magic of DeFi "legos" with an example - assuming DSR is 3.49% and the borrowing rate for $GHO, AAVE's stablecoin, is 1.5%. By staking $DAI to receive $sDAI, using $sDAI as collateral to borrow $GHO, then buying $sDAI, and borrowing $GHO again... repeating this cycle 5 times, you can actually achieve an APY close to 10%.
Based on past experience, there is a certain risk in a stable token yield of 10% and it is subsidized by token inflation, but if it is subsidized by government-paid bond interest, it could be a "win-win game". Economic value is created here and can be scaled up, not to mention TradFi's optimism about security tokenization, this is RWA!
Another project that interests me is $FXS. They have established a non-profit C-corporation in Delaware and combined it with FRAX v3, which allows the company to legally purchase bonds for the Frax protocol without charging any fees. $FXS aims to vertically integrate tokenized national debt into their entire DeFi stack, which consists of LSD (frxETH), financial markets (Fraxlend), and AMM (Fraxswap).
Although the Fed's interest rate cut in 2024 may have a negative impact on this track, it doesn't mean they won't print money anymore. For me, I am "long" on $MKR, closely watching $FXS, looking for new national debt tokenization projects with good tokenomics and sustainable business models, and building positions early. Additionally, I'm not very fond of other RWA sub-tracks (such as real-world loans) because they cannot scale at this stage.
Possible risks come from regulatory aspects and the Fed's interest rate cut. As for regulatory aspects, I am biased (and possibly wrong) in thinking that there won't be major issues in the medium term until the scale of this track grows to 100 times what it is today (from billions of dollars to trillions of dollars).
