The "billion-dollar" logic behind PayPal's entry into the stablecoin market.

$PYUSD aims to serve as a medium of exchange for purchasing goods that any American can send and receive US dollars. However, Venmo/PayPal operates well without tokens, so why is $PYUSD needed?

First of all, we are all aware of the poor performance of $PYPL (PayPal stock), which has dropped about 80% from its peak (even worse than the performance of BTC/ETH). Therefore, the management of PayPal is naturally under pressure to find new sources of revenue to create value for shareholders.

Secondly, what is the most profitable business in the world of cryptocurrency? It is Tether. In just the second quarter alone, Tether earned over $1 billion by simply investing their US dollar reserves into government bonds. USDT holders gained nothing, while Tether took all the government bond interest payments.

Coinbase earned $374 million in trading fees and $240 million in interest income from USDC and Circle in the second quarter. This is the reality of the cryptocurrency industry - the profit margin of operating an exchange is lower than buying government bonds. This is why my DeFi strategy for the rest of the year will focus on tokenizing government bonds and RWA.

The discussion on stable token regulation is becoming increasingly heated, and PayPal's entry also means more lobbying money. For example, MakerDAO has over $2 billion in short-term national debt, with interest flowing back into token buybacks, which has given rise to the new meme "government is buying our bags".

I believe that we will not have a sustained DeFi bull market until on-chain yields (considered "very safe") can exceed risk-free rates, and RWA combined with DeFi "Lego" can achieve this. An example to illustrate the magic of DeFi "Lego" - assuming DSR is 3.49%, and AAVE's stablecoin $GHO borrowing rate is 1.5%, pledging $DAI to obtain $sDAI, using $sDAI as collateral to borrow $GHO, buying $sDAI again, and borrowing $GHO... repeating this process 5 times, can actually achieve an APY close to 10%.

Based on past experience, a 10% stable token yield carries some risk and is subsidized by token inflation. However, if it is subsidized by government-paid bond interest, it could become a "positive-sum game". Economic value is created and can be scaled, not to mention that TradFi is bullish on tokenization of securities, which is RWA!

Another project that interests me is $FXS. They have created a non-profit C-corporation in Delaware and combined it with FRAXv3, which allows them to legally purchase bonds for the Frax protocol without charging any fees. $FXS hopes to integrate tokenized government bonds into their entire DeFi stack, which consists of LSD (frxETH), financial markets (Fraxlend), and AMM (Fraxswap).

Although the Fed's interest rate cuts in 2024 may have a negative impact on this industry, it does not mean that they will not continue to print money. For me, I am "long" on $MKR, closely watching $FXS, looking for new bond tokenization projects with good Tokenomics and sustainable business models, and building positions early. In addition, I am not very fond of other RWA sub-sectors (such as real-world loans) because they cannot scale at this stage.

Possible risks come from regulatory issues and the Fed's interest rate cuts. Regarding regulatory issues, I have a bias (and possibly a wrong one) that there won't be significant problems in the short to medium term until the scale of this industry grows to 100 times its current size (from billions of dollars to trillions of dollars).

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