PYUSD Yield Rises on Aave as Utilization Tightens

PayPal USD is earning a supply rate of roughly 3.7% on Aave’s Ethereum lending market as relatively high borrowing demand meets a much smaller deposit base than earlier this year. Aave currently shows approximately $8 million of PYUSD supplied against $6.74 million borrowed, leaving the market with comparatively little idle liquidity.

According to Aave’s stablecoin infrastructure analysis, PYUSD previously became one of the protocol’s fastest-growing stablecoin markets after receiving targeted supply incentives. PYUSD deposits on Aave had reached roughly $400 million by early 2026, repeatedly filling supply caps and requiring risk managers to expand capacity.

That scale has since contracted substantially. Current Aave data places the Ethereum V3 PYUSD supply rate near 3.66%, while DeFiLlama recently tracked the same pool at approximately 3.67%. The current yield therefore coincides with a deposit base of only about $8 million rather than the hundreds of millions previously held in the market.

High Utilization Supports PYUSD Lending Rates

Aave‘s lending model links supplier returns primarily to borrowing demand and asset utilization. With roughly 84% of supplied PYUSD currently borrowed, most available liquidity is already deployed to borrowers, supporting a higher supply rate than would typically be expected in a lightly utilized pool.

Historical data illustrates that relationship. In March, Aave held roughly $445 million of PYUSD while the supply rate averaged around 1.64%; by September, deposits had fallen below $8 million while average supply rates approached 4%. Higher yield has therefore accompanied tighter available liquidity rather than growth in total deposits.

This distinction also limits how the current rate should be described. Aave previously used PYUSD incentives to attract liquidity, but there is no clear evidence that the latest supply-rate increase represents a fresh incentive campaign. The base lending rate itself changes dynamically as borrowing, repayments and deposits alter utilization.

The trend comes as Aave continues scaling its broader lending architecture. Its Aave V4 deployment previously approached $100 million in deposits after repeated cap adjustments, showing how the protocol uses risk limits to expand individual markets gradually as liquidity and borrowing conditions evolve.

Morpho Comparison Depends on Market Structure

Comparisons with Morpho require additional context because Morpho does not operate one unified PYUSD lending pool equivalent to Aave’s Ethereum V3 market. PYUSD liquidity on Morpho is distributed across individual lending markets and curated vaults with different collateral, utilization and incentive structures.

For example, a direct Morpho Blue PYUSD market recently showed a supply rate near 3.9%, while larger curated PYUSD vaults have offered net rates above 5% when rewards are included. Aave’s roughly 3.7% rate therefore does not currently establish a blanket yield advantage over competing PYUSD products.

Morpho’s largest PYUSD vaults also operate at a dramatically different scale, with hundreds of millions of dollars allocated across several underlying lending markets. Comparing their headline APYs directly with Aave’s $8 million single-asset pool can obscure differences in diversification, incentives, liquidity and risk configuration.

The more significant signal on Aave is the relationship between borrowing and available supply. PYUSD has shifted from a heavily incentivized, hundreds-of-millions-dollar deposit market into a smaller but highly utilized lending pool, where borrowing demand now supports a supply rate near 3.7% despite substantially lower deposited capital.