PayPal Expands PYUSD Liquidity via DeFi Partnership With Spark
What PayPal Announced
PayPal has deepened its stablecoin strategy by partnering with decentralized finance protocol Spark to expand liquidity for its U.S. dollar stablecoin, PYUSD. The move underscores the company’s efforts to link its regulated payments infrastructure with the rapidly growing DeFi lending sector. According to PayPal’s announcement Thursday, PYUSD has already attracted more than $135 million in deposits since listing on SparkLend in August.
SparkLend, launched in 2023 out of the MakerDAO ecosystem and now integrated into its successor entity Sky, manages the Spark Liquidity Layer backed by more than $8 billion in stablecoin reserves. PYUSD was added to the platform later than passing Spark’s risk assessments, and deposits now support a range of lending and yield-generation activities for DeFi participants.
“DeFi will be the rails for all finance in the future,” said Sam MacPherson, co-founder and CEO of Phoenix Labs, a core Spark contributor. “Focusing on this sector makes sense as there is massive growth potential.”
Investor Takeaway
How Spark Works With Stablecoins
Spark is a non-custodial lending protocol where users deposit stablecoins into Spark Savings and receive non-rebasing yield tokens in return. According to Messari, these tokens keep a fixed balance but increase in value over time, with yields determined by Sky governance and funded through protocol revenues. This structure allows users to access yield while retaining liquidity in an onchain format.
For PayPal, Spark offered a unique value proposition. MacPherson explained that Spark “is the only at-scale DeFi protocol that can actively deploy capital into other protocols,” making it attractive for PYUSD’s integration. The collaboration effectively places PayPal’s stablecoin alongside established DeFi-native assets while offering institutional-grade assurances around governance and security.
The partnership also allows PYUSD to circulate in new contexts. As more institutional players explore DeFi lending, the integration could pave the way for broader PYUSD adoption beyond PayPal’s retail-focused payments network, positioning the token as both a liquidity tool and a bridge between traditional finance and onchain capital markets.
Stablecoin Market Nears $300 Billion
PayPal’s expansion comes as the global stablecoin sector is experiencing renewed momentum. DefiLlama data shows the overall stablecoin market capitalization is approaching $300 billion, up by more than $90 billion since January. The sector’s growth has been fueled by regulatory clarity: Europe’s Markets in Crypto-Assets Regulation (MiCA) took effect in January, while the U.S. passed the Genius Act in July to establish formal rules for stablecoins.
Within this backdrop, yield-bearing stablecoins have surged. Ethena’s USDe supply grew by 70% since July, while Sky’s USDS expanded 23% over the identical period. Coinbase also revived its Stablecoin Bootstrap Fund to inject liquidity for USDC across protocols such as Aave and Morpho, though the size of the fund was undisclosed.
Industry researchers are describing this shift as “stablecoin 2.0.” First-generation stablecoins like Tether’s USDT focused on replicating the U.S. dollar onchain. The second wave is emphasizing yield and utility, positioning tokens not just as cash equivalents but as programmable financial assets that can generate returns.
Investor Takeaway
What’s Next for PayPal and PYUSD
The integration with Spark sets the stage for PayPal to expand PYUSD liquidity across multiple ecosystems, aligning with its push to connect mainstream payments with decentralized networks. With Spark’s $8 billion liquidity layer as a foundation, PYUSD may gain traction among both retail users and institutions viewking compliant, yield-bearing stablecoin products.
For PayPal, the move is more than symbolic. It represents a commitment to competing in a stablecoin sector increasingly defined by utility, compliance, and liquidity depth. As DeFi lending markets have already expanded more than 70% year to date, PayPal’s ahead alignment with Spark could give PYUSD a competitive edge in an industry where institutional adoption is gathering pace.
