Payments behemoth PayPal plans to offer a 3.7% yield on balances held in its PayPal USD stablecoin.

According to an April 23 Bloomberg report, a PayPal representative said that the measure aims to encourage more usage of the firm's stablecoin.

PayPal plans to offer a 3.7% yield on balances held in its PayPal USD stablecoin to encourage more usage of its coin, according to a Monday, April 23 report by Bloomberg.

The report also notes that the company is planning to launch this summer.

The program will reward users with PYUSD for holding the stablecoin in their account. Users will be able to exchange PYUSD for fiat currency, spend it or send it to other users. Rewards will accrue daily and will be paid out on a monthly basis. The company hopes this feature will lead to a higher predominance of stablecoin and crypto payments on its platform.

The report comes after PayPal USD reached a $1 billion market cap in the summer of 2024. At the time of publication, the stablecoin’s market cap is nearly a quarter lower at $873.3 million.

Tzahi Kanza, CEO of crypto investment firm Syndika, told Cointelegraph that “from a regulatory standpoint, PayPal must ensure that offering interest doesn’t cause its stablecoin to be classified as a security. “When it comes to financial risks for the users, he said that PayPal can keep its promises, and the main risk is losing the peg to the dollar rather than interest-related issues. He said:

“The risk for users is slim. It’s unlikely that PayPal wouldn’t pay out the promised interest and faces no major financial risks. The primary risk is the stablecoin losing its peg to the dollar, which could impact the value of the earned interest.”

PayPal is betting on crypto

PayPal is betting on blockchain technology with its continued product development. Reports from earlier in April show that PayPal has expanded its cryptocurrency offerings to include Chainlink (LINK) and Solana (SOL), giving US-based users the ability to buy, sell and transfer the popular tokens.

In fact, PayPal was cited by Polygon Labs CEO Marc Boiron as one of the catalysts for the stablecoin industry’s rapid growth in recent years. In an interview with Cointelegraph, Boiron said, “Companies like Stripe and PayPal integrating stablecoins is likely the primary catalyst for their growth.”

Related: PayPal, Ernst & Young settle first corporate payment via PYUSD stablecoin

The story of PayPal USD

PYUSD is a US dollar-pegged stablecoin issued by Paxos Trust Company on behalf of PayPal in August 2023. At the time of the launch, PayPal became the first major payment network to launch its own stablecoin, with Venmo rolling out support in September 2023.

Each token is purportedly backed one-to-one by cash deposits, short-term US Treasury notes and similar cash-equivalent assets in accounts overseen by the New York State Department of Financial Services. Initially, PYUSD was a token compliant with the ERC-20 Ethereum standard, but has since also been deployed on Solana (SOL).

PayPal USD’s current market cap is still a far cry from the top stablecoin, Tether’s USDt (USDT). At the time of writing, CoinMarketCap data shows that USDT’s market cap stands at $145.3 billion, 17,255% higher than PYUSD’s. Kanza said that “Tether’s strength lies in its market dominance — not in its regulatory compliance, transparency, or yield” since it does not offer those. He added:

“Tether’s vast size and market presence enable it to absorb any potential imbalances in the dollar peg. This is a significant advantage over smaller stablecoins that might struggle to maintain their peg if faced with large withdrawal volumes.”