Where does all the cash come from? It came from the customers themselves! People buying hashlets directly, their 10% cut of market sales, hashstaker sales, etc.
No, that would be a Ponzi scheme, almost by definition.
The initial cash comes from the fund. Since about half of Paycoins will be immediately staked, GAW is betting that they have enough support in that fund to withstand the initial massive dump. After that, the value added is the ability for cryptocurrency to do what Apple Pay and Paypal do, only much more cheaply. The transaction costs are so much lower with crypto that there will be incentive to use the system, and companies/people will buy coins, thus providing the cash. Paycoin will be chosen over other crypto because its tiered system allows for instant transactions with low overhead and because the price support will add stability to the coin's value relative to other currencies.
At least, that's the theory. As should be obvious, there are a lot of ways this could go sour.