Left hand PYUSD, right hand Open USD: PayPal's stablecoin risk "hedge"

Original: Odaily Planet Daily (@OdailyChina)

Author: jk

Recently, payment giant PayPal released its Q2 earnings report: revenue of $8.68 billion, beating market expectations, with total payment volume reaching $486.4 billion, up 10% year-over-year.

Additionally, PayPal positioned PYUSD (PayPal USD) as a "major enabler" for the PayPal World platform, emphasizing its core role as a "commerce-first" stablecoin geared toward mainstream consumer and merchant use cases.

In the fiercely competitive stablecoin market, PYUSD has remained relatively lukewarm. What does its future development outlook hold? And can PayPal truly bear the cost of this endeavor?

Q2 Earnings: Where Does PYUSD Stand?

PayPal's quarterly revenue came in at $8.68 billion, up approximately 5% year-over-year, beating analyst expectations of $8.47 billion; adjusted earnings per share (EPS) were $1.38, also surpassing the market consensus of $1.28, while GAAP EPS was $1.26, slightly missing estimates. Total payment volume reached $486.4 billion, up 10% year-over-year, or 9% on a currency-neutral basis. The company raised its full-year adjusted EPS guidance to approximately $5.38.

Looking at these core metrics alone, this is a slightly better-than-expected earnings report.

The stock price has been rising over the past month. Source: Google

But the other side of the margin story tells a different tale. GAAP margin fell to 16.4% from 18.1% in the same period last year, and the company attributed a net loss of $81 million to strategic investments and crypto assets held for investment purposes, excluding it from non-GAAP results. In other words, crypto assets have already exerted some pressure on PayPal's book profits. However, whether this loss is merely a temporary mark-to-market decline due to market downturns or reflects the company proactively absorbing costs to drive related business expansion remains unclear at this point.

Meanwhile, PayPal established a new "Payment Services & Crypto" division this quarter, placing PYUSD under the same line as its merchant processing business. CEO Enrique Lores stated on the earnings call that the company plans to launch more merchant products powered by PYUSD and AI-driven agentic payments. PYUSD has been integrated into PayPal's core merchant payment infrastructure, no longer just a relatively standalone innovation project. Compared to management's verbal assertions about its "strategic value," this organizational restructuring better reflects PayPal's actual positioning of PYUSD.

However, the company has still not disclosed PYUSD's specific contribution to revenue, merchant retention, or transaction margins. Investors can only infer from aggregate data and management commentary how much this stablecoin is actually driving performance — an information gap worth tracking closely in the coming quarters.

PYUSD's Strategic Significance to PayPal: Expanding Narrative, Shrinking Supply

Since its issuance in August 2023, PYUSD has undergone a cycle of expansion and contraction alongside bull and bear market phases.

In March of this year, the company expanded its reach to 70 markets, with supply briefly surging to around $4.2 billion — a year-over-year growth rate of nearly 680%, making it the fastest-growing major stablecoin. To date, PYUSD has been deployed across nine public chains: Ethereum, Solana, Arbitrum, Stellar, Avalanche, Aptos, Sei, Tron, and Abstract. In February of this year, PayPal also set Solana as its default payment processing network.

On July 9, PYUSD went live natively via Polygon's Open Money Stack, integrating wallets, fiat on-ramps, compliance tools, and on-chain settlement capabilities, explicitly targeting enterprise-grade cross-border payment scenarios. The PYUSDx framework launched in partnership with MoonPay allows developers to issue application-specific stablecoins backed by PYUSD reserves, aiming to turn PYUSD into an infrastructure layer that others can build upon, rather than just an end-consumer product. Kraken recently also announced support for PYUSD deposits and withdrawals on the Stellar network, further expanding its exchange-side applications.

Together, these moves sketch out the story PayPal wants to tell: PYUSD is evolving from a balance tool for PayPal users into a payment infrastructure layer that third-party wallets, exchanges, and developers can directly call upon.

In other words, businesses looking to accept global payments in the future could directly use or build their own PYUSD-based collection tools, receiving fees from around the world — without the lengthy customs and forex processes required for fiat, and without being limited to crypto-native users like other stablecoins. This is a scenario every cross-border trader dreams of: all funds settle in real-time, costs are lower than before, and payers barely notice any friction. The fiat currency paid by the sender is converted into PYUSD in the background, then converted back into another fiat currency on the recipient's side — the entire process is fast and seamless.

This is also why PayPal pairs it with AI in its earnings report. The company says it is using machine learning to optimize fraud detection, reduce processing costs, and support automated conversions between fiat and stablecoins based on exchange rates and user behavior.

But the on-chain data tells a less favorable story: after peaking at $4.2 billion in March, PYUSD's supply fell approximately 31% by the end of Q2, to around $2.7 billion — the first significant decline since issuance, primarily attributed to reduced incentive programs and capital rotation into other assets. As of early August, PYUSD's circulating supply stood at approximately 2.7 billion tokens, with a market cap of around $2.72 billion, ranking roughly 32nd among stablecoins on CoinGecko.

PYUSD's scale is declining. Source: Coingecko

This means that while the earnings narrative emphasizes breadth of coverage and on-chain integration, the actual circulating supply contracted by nearly a third during the same period. The expanding narrative coexists with contracting supply, reflecting a harsh reality: the uniqueness of its market share and regulatory status (PYUSD is the first dollar stablecoin issued by a federally regulated entity, Paxos — a position further cemented when Paxos transitioned to OCC federal oversight at the end of 2025) does not necessarily translate into sustained holding demand. Once incentive measures were withdrawn, the earlier numbers did not convert into stable usage, and the competition with USDC remains a long road ahead. If subsidies and the playbook of early crypto industry tactics don't prove effective, then PYUSD's current slice of the pie cannot continue to grow either.

PYUSD vs. Open USD: Why Did PYUSD Come Earlier but Gain Less Traction?

If PYUSD represents the single-issuer model of stablecoins, then Open USD, which emerged on June 30, represents a structurally different path — and the timing lands less than a month before PayPal's Q2 earnings release.

Open USD is operated by Open Standard, a newly established independent company, with founding CEO Zach Abrams, co-founder of Stripe's Bridge. It has signed up over 140 partners, covering nearly the entire roster of major players in payments and finance: Visa and Mastercard on the payment network side; Stripe and Shopify on payment infrastructure; BlackRock, BNY, and Standard Chartered in asset management and banking; Google and IBM among tech platforms; and Coinbase, Solana, and Aave in the crypto-native camp. The project is expected to launch in the second half of 2026 and has not yet been officially issued.

The most fundamental difference between Open USD and PYUSD lies in their economic structure and governance model: put simply, PYUSD benefits only PayPal, while Open USD benefits everyone.

PYUSD is issued by Paxos as the sole issuer, which custodies reserve assets and earns floating returns, while PayPal as the brand owner drives the product roadmap and market strategy — the classic model USDT and USDC have followed to this day. Open USD, by contrast, reverses this: minting and redemption are completely free for partners with no supply caps, and the yield generated from reserve assets — after deducting a small management fee — is passed back to partner institutions involved in distribution, rather than being monopolized by a single issuer. Governance is also delegated to a board composed of partner institutions, rather than controlled by any single company. In the words of industry commentators, this more closely resembles the governance logic of interbank clearing networks like ACH or SWIFT, rather than today's USDC or USDT model.

An easily overlooked detail that is critical to understanding PayPal's position is that PayPal itself is one of Open USD's 140+ signatories, even though PYUSD will continue to exist as a separately issued asset. This means PayPal has not fully committed itself to the PYUSD ship alone, but has instead secured a position in both stablecoin models — continuing to double down on PYUSD as its proprietary brand asset while also signing onto Open USD as a hedge against potential industry shifts.

In contrast, Circle and Tether are absent from Open USD's partner list. Circle's stock fell more than 16% at one point on the day of the announcement. CEO Jeremy Allaire subsequently responded publicly, emphasizing USDC's network effects and distribution depth, citing Paxos's consortium-modeled USDG stablecoin as a precedent, noting that its supply has only reached approximately $3 billion over two years since launch — far below initial optimistic expectations.

Looking at all three together, the competitive landscape PayPal faces is becoming more complex. PYUSD has leveraged its first-mover advantage to build a certain degree of brand recognition and a multi-chain deployment foundation, but its absolute scale remains only about one-twentieth of USDC's, and it has recently shown signs of supply contraction. If Open USD successfully launches, its real threat lies not in poaching PYUSD's existing holders, but in attempting to redefine the distribution economics of the entire industry. If distribution players at the level of Stripe, Visa, and Mastercard can share reserve yields through a consortium model, single-issuer stablecoins could be entirely displaced.

PayPal's decision to hedge its bets on both sides is, to some extent, an acknowledgment of this uncertainty — rather than betting on one model winning out, it's keeping a seat at the table in both. For PYUSD, what truly needs to be proven in the coming quarters is not how many markets or blockchains it covers, but whether it can convert its established distribution network into sustained demand that doesn't rely on subsidies once incentives are gone. If it ultimately fails to chart that path, then $2.7 billion may well be PYUSD's current peak.