PYUSD has become the fourth-largest stablecoin on L2 Arbitrum after a partnership with USDai.
PayPal’s PYUSD stablecoin crossed $4 billion in total market capitalization this month, while its supply on Layer 2 Arbitrum One rose enough to rank it the network’s fourth-largest stablecoin.
According to data compiled by consulting firm Entropy Advisors, Arbitrum now has over $220 million worth of PYUSD circulating on the network, next only to USDAI, USDC and USDT. DefiLlama data records the PYUSD supply on Arbitrum at $256.6 million.
As analysts at Entropy Advisors explained in an X post on Feb. 16, PYUSD’s increase on Arbitrum appears to be tied to a partnership announced in mid-December between PayPal and Permian Labs, the core developer behind USDai (USDAI).
Under the agreement, PYUSD was added as a reserve asset backing USDAI and a settlement and liquidity asset for the protocol, which is primarily based on Arbitrum and is tied to financing for AI infrastructure, such as GPUs and data centers.
Per the announcement, up to $1 billion in PYUSD deposits on USDai will earn 4.5 % APY as part of a one-year incentive program.
“With this integration, USDAI’s loans can be issued in $PYUSD and settled directly into PayPal accounts. Borrowers can pay for GPUs, data center costs, rentals, and subscriptions using a single dollar based rail,” USDAI said in a December X post.
Following the integration, data from DefiLlama shows that nearly all of PYUSD’s supply on Arbitrum is deployed within USDai. PYUSD now accounts for more than 43% of all token deposits on the protocol, second only to WrappedM by M0 (WM), USDAI’s base asset, which makes up more than 56% of its TVL.
However, USDAI’s own documentation states that “incentives are used early to bootstrap liquidity, but they are not the end‑state yield source,” implying that stablecoins are deployed mainly to support settlement in the early phase, while the protocol is meant to transition toward GPU and AI-backed lending as its primary yield and collateral source.
Arbitrum One is currently the largest Ethereum L2 by total value secured, with $16.82 billion, according to data from L2Beat.