From a market perspective, there are really two distinct markets: temporary paper users (newspapers, mailers, the stuff you write your school papers on...) and archival paper users (eg libraries). For archival users, the biodegradability of paper is a bug, not a feature, even though for the bulk of overall paper users are probably the temporary users, and need to be able to compost or recycle your waste paper.

Imagine being able to drop your book in the bathtub and just shake it off; imagine future historians finding a thousand year old abandoned library in mint condition. A non-biodegradable paper wouldn't replace wood/rag pulp paper in any meaningful way, but it would have its uses.