TL;DR
-With the improvement of underlying infrastructure, both institutions and individuals have developed new interest in crypto payments, bringing a spring breeze to PayFi.
-PayFi has many advantages, including improving capital efficiency, and serves as a central hub connecting traditional financial institutions, merchant networks, DeFi, and RWA tightly together.
-The marginal improvements brought by PayFi in cross-border payments and subscription billing are most evident, making it the most likely first mover area.
The summer of DeFi, triggered by liquidity staking in 2020, has passed for over four years. The political wave of Donald Trump's re-election as a Republican presidential candidate and gaining majorities in both houses has revived interest in the cryptocurrency market. In 2024, will PayFi, a relatively new concept and track, be able to stand out in this bull market?
1. Crypto Payments and PayFi
1.1 Blockchain Transformation of Payment Systems
On November 1, 2008, Satoshi Nakamoto published a paper titled 'Bitcoin: A Peer-to-Peer Electronic Cash System,' which pointed out that the original intention behind Bitcoin was to completely revolutionize the traditional payment system, aiming to create a decentralized electronic trading system without mutual trust between transaction parties. Although Bitcoin is currently viewed more as a 'store of value' rather than a currency for everyday transactions.
In the payment field, blockchain technology further approaches this original intent. By reducing intermediaries, accelerating transaction processing, and lowering costs, blockchain has brought significant innovation to payment methods. Traditional payment systems rely on banks or payment processors to complete transactions and settlements, which not only prolongs transaction times but also incurs high fees, particularly in cross-border payments, where complex correspondent banking networks further increase costs and reduce efficiency. Blockchain achieves peer-to-peer payments through distributed ledgers, allowing users to send cryptocurrency directly by providing the recipient's 'wallet address.' The entire payment process is transparent and traceable, significantly reducing intermediary steps, enhancing payment speed, and drastically lowering costs.
Moreover, blockchain technology offers significant advantages in privacy protection and data security. Since transaction records are encrypted and stored in a distributed manner, transaction information can be verified across all network nodes, effectively avoiding the risks of information leakage and tampering present in traditional payment systems. This decentralized, distributed payment method addresses several core issues within traditional payment systems: low transparency, long transaction times, and high costs due to multiple intermediaries. Thus, the application of blockchain in the payment field significantly improves the user payment experience and enhances the efficiency of fund flows.
1.2 The Prosperity of the Crypto Payment Market is the Spring Breeze for PayFi's Narrative
As 2024 approaches, blockchain payments have suddenly accelerated. Many mainstream financial institutions have begun to increase their support for blockchain payments:
On September 26, BlackRock partnered with Ethena to issue the US dollar stablecoin USDb.
On October 3, PayPal partnered with Ernst & Young to complete the first stablecoin commercial remittance using its self-issued PYUSD.
On October 3, VISA announced the VTAP platform to help institutions independently issue and operate stablecoins.
On October 3, SWIFT also announced it would start experiments with digital currencies and digital asset trading in 2025.
On October 16, internet payment giant Stripe announced a partnership with Paxos to support stablecoin payments.
On October 19, Societe Generale issued the euro stablecoin EUR CoinVertible.
On October 21, Stripe announced the acquisition of stablecoin payment startup Bridge for $1.1 billion.
On October 22, the BRICS summit in Kazan, Russia announced the BRICS Pay payment system to compete with SWIFT.
On October 24, Coinbase and A16Z jointly invested in Skyfire, a blockchain payment company that integrates AI technology.
In addition to substantial investments from prominent traditional financial institutions and cryptocurrency market investors, the general public has also demonstrated support for crypto payments through their choices. As of November 20, 2024, the global market capitalization of stablecoins has significantly increased by 46% this year, exceeding $190 billion. According to a report released by Visa in September 2024, over 20 million addresses are involved in stablecoin transactions on public blockchains each month. In just the first half of 2024, the settlement amount for stablecoins surpassed $2.6 trillion. Stablecoins offer significant advantages over existing payment systems: on-chain programmability, strong audit capabilities, transaction settlement upon execution, self-custody of funds, and interoperability.
Geoff Kendrick, Head of Digital Assets Research at Standard Chartered Bank, and Nick Philpott, Co-founder of Zodia Markets, point out that the application of stablecoins is expanding from trading collateral to areas such as cross-border payments, payroll, trade settlement, and remittances, gaining widespread recognition in emerging markets like Brazil, Turkey, Nigeria, India, and Indonesia. Blockchain payments, with their ability to cross trust boundaries, significantly enhanced efficiency, reduced costs, and broad support from the younger generation, are becoming an undeniable force in the global financial system.
Crypto payments are the foundation of PayFi; without widespread and convenient crypto payments, there can be no true PayFi. The resurgence of the crypto payment market is the spring breeze for PayFi.
1.3 The New Narrative of PayFi
Based on blockchain, especially the Solana blockchain, PayFi innovatively proposes a new payment finance (PayFi) model. This model combines blockchain and smart contracts to manage fund flows through digital assets and decentralized finance (DeFi) tools. The core idea of PayFi is to maximize the time value of money (TVM) and significantly shorten settlement cycles using decentralized technology. Unlike traditional payment methods, PayFi is not just a payment tool but aims to create an open, decentralized financial ecosystem.
PayFi highlights its disruptive concept through 'Buy Now, Pay Never.' This concept allows users to deposit funds into a decentralized lending platform to earn interest through smart contracts, using these earnings to pay for daily expenses without touching the principal. This model enables users to benefit from the time value of money and effectively disrupts the traditional concept of cash flow in payments. PayFi's approach to maximizing time value is particularly suitable for users looking to manage funds more efficiently. Through liquidity management and incentive mechanisms, PayFi not only excels in payment efficiency and costs but also further expands the application scenarios of payment finance, showcasing a more efficient and intelligent payment experience.
1.3.1 Advantages of PayFi
Improve Capital Utilization Efficiency
The core idea of PayFi is 'Time Value of Money' (TVM). Users can lock their funds on lending platforms to generate interest, using this interest to pay for daily expenses without touching the principal. This model effectively enhances the utilization efficiency of funds, allowing users to continue earning returns on their funds even when they are not actively used.
Fast, Low-Cost Payments
Traditional payment systems (like SWIFT) often require days for settlement and incur high fees. Based on blockchain technology, PayFi automates payment processes through smart contracts, achieving transaction processing in seconds at extremely low costs. For businesses and individuals needing rapid capital turnover, PayFi's high efficiency significantly enhances the payment experience.
Tokenization of Real Assets
PayFi can tokenize real assets such as real estate and accounts receivable to promote efficient global capital flow. Tokenization improves the liquidity of physical assets and simplifies cross-border payment processes. Particularly for small businesses, financing by using accounts receivable as collateral allows for quicker access to cash flow, alleviating financial pressure.
Decentralization and Openness
PayFi builds an open decentralized financial ecosystem that does not rely on traditional banks or financial institutions. Any user can use payment and financial services within the system. This decentralized model grants users greater financial autonomy while extending financial services to unbanked groups.
Innovative Cross-Border Payment Solutions
With the growth of international trade, the demand for cross-border payments continues to rise. PayFi's decentralized cross-border payment solution eliminates cumbersome intermediary processes, enabling rapid settlement and reducing risks from exchange rate fluctuations, especially suitable for businesses and individuals frequently engaging in cross-border transactions.
1.3.2 Development of PayFi's Ecosystem
The PayFi platform serves as a central hub, tightly connecting traditional financial institutions, merchant networks/e-commerce payment platforms, DeFi infrastructure, and real-world assets (RWA).
The modules for fiat currency acceptance, data management, asset custody, and compliance in traditional financial systems demonstrate PayFi's connection with banks and other financial institutions. This integration allows PayFi to better leverage the liquidity of traditional finance and meet the payment needs for fiat currencies.
Stablecoins and crypto wallets provide users with decentralized payment and transaction services through compliant crypto exchanges (such as HashKey Exchange) and on-chain DeFi/DEX. This part supports cross-border payments and low-cost transfers.
The DeFi infrastructure module includes decentralized data sources, revenue aggregators, custody, investments, etc., which provide technical support for PayFi and enhance the platform's decentralized attributes.
The real-world asset user (RWA) module showcases how PayFi applies to real-world scenarios, such as cross-border financing, accounts receivable financing, and credit loans, providing users with genuine financial services. Overall, the PayFi ecosystem connects blockchain technology and traditional financial services on multiple levels, offering flexible and efficient payment and financing solutions to users.
2. Similarities and Differences between DeFi and PayFi
PayFi is not entirely equivalent to DeFi. The essence of payment is the transfer of value based on real-world transactions (value exchange) - exchanging money for goods/services. Therefore, PayFi is more about the process of sending and settling digital assets rather than the mainstream trading behaviors of DeFi. Additionally, seamlessly connecting Web3 payments with DeFi through blockchain and smart contract technology is also an important advancement for creating financial derivative services related to payments (such as lending and wealth management).
However, PayFi is a new entity based on the modular development of DeFi business and revenue streams, meaning PayFi is built on the composability of DeFi and the acquisition of revenue. In the DeFi business, liquidity pools need to be contributed by liquidity providers (LP), and their incentives often require token rewards; however, the liquidity pools in PayFi's business are generated from cash flows locked during the payment process.
3. Analysis of PayFi's Specific Application Scenarios
The PayFi model combines payment and financial services (such as loans, savings, remittances, etc.), providing a one-stop solution through stablecoins and blockchain technology. Its main features include: (1) Low-cost, efficient payments: Payments made through stablecoins, especially in cross-border payments and remittances, have significant cost advantages compared to traditional financial systems. PayFi helps individuals and businesses reduce fees and improve fund transfer efficiency through stablecoin payments; (2) Integration of Financial Services: In addition to payment functions, PayFi also offers more financial services to businesses and consumers, such as micro-lending, cryptocurrency payroll payments, and yield-generating stablecoins. These services can attract more users and enhance customer loyalty.
A. Tokenization of Real Assets to Build a Payment Framework with Stablecoins
PayFi utilizes stablecoins as a key tool for transferring traditional payment logic onto the blockchain, with broad applications. Stablecoins like USDT, USDC, PYUSD, etc., combine the value of fiat currencies with cryptocurrencies, providing a more stable and low-volatility payment method. Unlike the speculative activities of high-yield lending or liquidity mining in DeFi platforms, stablecoins primarily focus on the smoothness of payments and widespread application.
Application Example:
Stablecoin Payments: Users can use stablecoins for everyday payments, especially globally, where stablecoins provide a convenient, low-cost option for cross-border payments. For example, users can make payments almost in real-time and at low cost anywhere in the world using stablecoins like USDC or USDT. PayFi's advantage lies in its ecosystem integration. By leveraging automated compliance tools and transparent blockchain technology, PayFi enhances payment speed, security, and significantly reduces transaction costs.
DeFi Integration: Stablecoins are not only payment tools but also core assets of DeFi. They can serve as a funding source for liquidity pools, enabling DeFi protocols to provide efficient trading and lending functions. By depositing stablecoins into liquidity pools, users can earn transaction fees before making payments, capturing this 'time value' to provide passive income while enhancing liquidity during the payment process.
In these application scenarios, the greatest advantage of stablecoins lies in their programmability and compatibility with other blockchain applications. Users can automate payment and reward mechanisms through smart contracts, further enhancing the intelligence and automation of payments.
B. Payment Token - Tokenized Financial Assets
Due to the process of generating time value of money, a debt relationship is formed between the seller of goods or services and the buyer, and this debt can be re-financed before it is settled, minimizing the demand for and occupation of funds and stimulating asset liquidity (similar to undiscounted banker's acceptances). When this debt is re-packaged and traded, forming financial products similar to undiscounted banker's acceptances, it will further stimulate the financial attributes and liquidity of the PayFi ecosystem. The payment token model represents the tokenization of traditional financial products (such as US government bonds, money market funds, etc.) and their introduction into the blockchain, providing investors with new revenue opportunities while enhancing capital efficiency in payment scenarios.
Application Example:
Ondo Finance tokenizes low-risk, stable-return financial assets (such as short-term US government bonds) to create the Ondo US Dollar Yield Token (USDY). This tokenized product allows users not only to participate in stable-return investments but also to perform more capital operations using these tokens within DeFi platforms. Ondo Finance also provides financial assets with risk grading on the blockchain, such as government bonds and corporate bonds, allowing investors to allocate funds according to their risk preferences.
USDY Tokenization: USDY is a token backed by short-term US government bonds and demand deposits, allowing investors to purchase USDY and enjoy the returns from tokenized notes. Compared to traditional bank savings or low-risk investments, USDY offers users high liquidity, allowing them to utilize it for capital composition and appreciation on DeFi platforms. For example, USDY holders can use USDY as collateral to obtain loans on lending platforms, increasing the liquidity of funds. This asset tokenization approach provides high liquidity and payment convenience.
USDY's APY: Ondo Finance adjusts the annual percentage yield (APY) of its tokens based on market conditions. For example, investors can earn continuous returns based on the yield of their USDY holdings. Unlike traditional financial instruments, USDY can be embedded in DeFi protocols in the form of smart contracts, making investment returns automated and programmable. Users can also earn stable annual percentage yields (APY) while making payments. This approach, which combines investment returns with payment functions, helps users achieve capital appreciation and flexibility in their transactions.
Through this approach, Ondo Finance not only provides investors with the opportunity to tokenize US government bonds but also further enhances capital efficiency and flexibility through DeFi integration, assisting users in capital operations within the decentralized financial ecosystem.
C. DeFi Lending and Real-World Asset (RWA) Financing
Huma Finance demonstrates how to provide financing for real-world assets (RWA) through DeFi lending, achieving transparent and efficient payments on the blockchain. In this model, Huma Finance tokenizes real assets such as corporate receivables, enabling businesses to secure funding and solve liquidity issues through cross-border payments.
Application Example:
Asset Tokenization: Huma Finance tokenizes accounts receivable, future income, and other RWAs to enhance asset liquidity. Through this approach, businesses can raise funds at lower costs and with higher transparency. These tokenized assets can serve as collateral for loans, further facilitating capital flow.
Cross-Border Payments: Huma Finance, through integration with the Arf platform, addresses the pain points of global enterprises in cross-border payments. Businesses can use tokenized accounts receivable as collateral to apply for USDC credit lines, thus avoiding the pre-locking of funds. After completing cross-border payments, businesses need to repay in the short term, which not only improves the efficiency of fund usage but also simplifies the cross-border transaction process.
Low-risk, high-return lending model: Through collaboration with Arf, Huma provides a low-risk, high-return lending model. In this model, investors can support enterprises' cross-border payments with funds, earning relatively high annual returns, while enterprises can use this mechanism to solve liquidity shortages.
Investor Protection: Huma Finance protects investors' rights by introducing a risk grading model, for example, allocating high-risk assets to investors who are more willing to take risks while providing low-risk assets to attract more conservative investors.
This RWA tokenization lending model not only enhances the practical applications of DeFi platforms but also provides a stable and efficient financing solution, especially significant for small and medium-sized enterprises and cross-border payments.
D. Payment Incentives and Creator Earnings
Application Example: SOEX
SOEX tokenizes traditional exchange trading behavior, allowing users to earn commissions through small transactions while participating in exchanges (such as Binance, OKX, etc.). This socialized mechanism incentivizes ordinary users to participate, enhancing the trading volume of exchanges and optimizing commission distribution.
Socialized Commissions: Traditional exchanges typically offer higher commissions to institutional investors, making it difficult for retail users to achieve similar returns. SOEX integrates retail trading behaviors to form a larger trading pool, thereby obtaining higher commissions and distributing them based on each user's contribution. This mechanism significantly increases ordinary users' participation and earning opportunities in exchanges.
Application Example: DePlan
DePlan provides users with flexible subscription payment options by tokenizing unused subscription services. Users can rent out their unused subscription time to others who need temporary access, earning income from it. This innovative model not only addresses the issue of resource waste under traditional subscription systems but also offers users a more efficient payment method.
Tokenization of Subscription Time: DePlan allows users to track the actual usage time of their subscription content and tokenize the unused portion. Each token represents a certain amount of unused time, and users can rent these tokens to other users to earn corresponding income.
Pay-as-you-go: For users who only need temporary access to an application or service, DePlan offers pay-per-use options. This flexible payment method allows users to choose the most suitable payment plan based on their actual needs, avoiding the long-term fixed costs of traditional subscription systems.
DePlan provides consumers with higher payment flexibility through this innovative Web3 payment method, while also addressing waste and inefficiencies in traditional subscription services through blockchain technology.
4. Potential First-Mover Areas of PayFi
According to Newton's third law, the greater the action, the greater the reaction. The most likely area for PayFi to emerge is those business segments where crypto payment operations bring significant cost savings and decentralized advantages.
Cross-Border Payments
Currently, PayFi, based on blockchain payments, thrives primarily in payments. The most vibrant area for blockchain payments appears to be cross-border payments. Cross-border payments should not merely be understood as payments and settlements across different nations or administrative boundaries, but rather as overcoming settlement barriers between different financial systems, countries, and even organizations. From a macro perspective, the original cross-border payment and settlement system aggregated individual trading needs into a centralized system, with different centralized systems interacting through information and capital flows, and ultimately feedbacking individual trading needs through the centralized system.
In the field of cross-border payments, traditional financial systems face many challenges, particularly in currency controls, capital movement restrictions, and longer settlement cycles. Cross-border payments typically rely on correspondent banks and systems like SWIFT, which require layers of review and intermediary verification, extending settlement times and increasing costs. In this process, traditional financial institutions often use prefunded accounts to provide real-time payment experiences; however, this model results in a large amount of capital being locked, limiting the time value of funds. According to Arf's research, over $4 trillion of funds in global prefunded accounts remained illiquid in 2022. This not only leads to a significant waste of time value but also makes cross-border payments more expensive and inefficient.
Blockchain payments completely deconstruct the macro-centralized financial payment and settlement system into a transaction payment system between micro-individuals through blockchain technology. In this deconstruction process, existing transaction costs (including contract costs, time costs, rent-seeking space, and seigniorage) disappear, resulting in a decentralized, flat transaction payment system. If this system can be practiced in cross-border payments, where contract costs and time costs are high, and traditional financial intermediaries dominate, it will bring significant marginal improvements and release a large amount of idle funds in the cross-border payment system. PayFi reduces the need for intermediaries in cross-border payments, enabling faster and lower-cost transactions. The PayFi system can achieve decentralized fund flows without the complex intermediary processing required by traditional systems, thereby accelerating settlement speed and reducing capital usage costs. By merely reducing the fees extracted by intermediaries and releasing the liquidity locked in cross-border clearing accounts, PayFi creates a substantial funding pool.
Subscription Billing Model
Traditional subscription services require users to pay regularly, regardless of actual usage. In traditional subscription service models, users usually need to pay a fixed fee regularly, irrespective of their actual usage. This model lacks flexibility and does not adjust based on users' actual needs. PayFi introduces a pay-per-use model through the innovative DePlan project, allowing users to pay according to their actual service usage, thus achieving a more flexible consumption method.
Liquidity Management
Supply chain finance is an essential component of global commerce, but traditional supply chain financing often leads to slow capital turnover due to complex legal processes and approval stages. This inefficient financing method limits liquidity for businesses and increases operational costs. PayFi enables businesses to obtain funds more quickly through decentralized liquidity pools, improving capital flow speed and reducing reliance on traditional banks. In supply chain finance, the decentralized model of PayFi allows businesses to accelerate capital turnover, mitigate the issues of capital occupation due to lengthy payment cycles, and relieve funding pressure on small startups.
5. Challenges that Hinder the Widespread Adoption and Operational Efficiency of PayFi
5.1 Complexity of Cross-Border Payments
Although PayFi aims to simplify cross-border transactions, it still faces unresolved issues such as regulatory barriers, currency controls, and enterprise-level integration.
First, there are regulatory barriers; each country has different regulatory policies regarding currency flow and cross-border transactions, making cross-border capital movement complex and time-consuming. The lack of uniform regulation and the differences in compliance requirements across regions lead to high costs and inefficiencies, increasing transaction complexity and management difficulty. Secondly, there are currency control issues; for instance, many countries have strict foreign exchange controls on capital inflows and outflows, and PayFi must adapt to the policies of different countries and regions to expand its business globally. This raises the bar for capital settlement processes and requires compliance with local foreign exchange regulations, or else it may face hefty fines or even operational bans.
Cross-border payments also pose technical challenges. For example, real-time payment technology (RTP) has been implemented in several countries, such as Brazil's PIX system and ASEAN's low-value cross-border system. However, since different countries' payment systems have not fully achieved interoperability, this has led to fragmentation of the cross-border payment network, affecting the immediate liquidity of funds. Although many fintech companies are leveraging artificial intelligence and real-time processing technology to optimize payment routing and reduce operational costs, compatibility issues between different systems remain prominent. Lastly, the difficulty of enterprise-level integration also hinders the further popularization of PayFi. Enterprise users often need to seamlessly integrate with their existing ERP, CRM systems, etc., to meet business needs. However, such integration typically requires long timeframes and high technical requirements. In cross-border payments, enterprises especially rely on efficient integration between systems to ensure the accuracy and timeliness of payments, but this deep integration can be a burden for small and medium-sized enterprises, preventing their demand for PayFi from being fully realized.
5.2 Adoption of Subscription Billing Models
PayFi offers an innovative pay-per-use model, but due to technical limitations and insufficient user awareness, its market penetration remains low.
One of the main obstacles to promoting PayFi's subscription billing model is technical limitations. Traditional payment systems face issues of insufficient flexibility under a pay-per-use model. For blockchain payment solutions like PayFi, achieving automated real-time billing and payments is complex, especially when integration with traditional banking systems or existing financial infrastructures is required. This is particularly important in handling micropayments (i.e., small periodic payments), as micropayments require high-frequency processing of small transaction amounts, which usually demands higher stability and accuracy from the system. Therefore, PayFi needs to invest significant resources to optimize its technical architecture to meet market demands for security, accuracy, and timeliness.
Additionally, insufficient user awareness also affects the adoption of PayFi's subscription billing model. Since the concepts of blockchain and crypto payments are relatively new to the public, many consumers and merchants still have low understanding and acceptance of this model. Compared to traditional payment methods, the pay-per-use subscription model requires users to have a deeper understanding of the fee structure and payment processes. However, there is currently a lack of education and publicity in the market, leading users to prefer familiar traditional payment methods when choosing payment options. To address this issue, PayFi needs to invest more resources in market promotion to increase users' understanding and acceptance of its pay-per-use model.
The low market penetration is closely related to the integration difficulties faced by merchants. For most merchants, adopting a pay-per-use model means needing to update and transform their payment systems. This not only increases the technical investment and maintenance costs for merchants but may also impact the existing customer experience. Additionally, different merchants have varying needs for pay-per-use; for instance, some traditional enterprises may prefer annual or monthly subscription models and have lower demand for immediate billing. Therefore, PayFi must adjust its product design and service offerings according to the diverse needs of different merchants when promoting the pay-per-use model to better meet market demand.
5.3 Liquidity and Capital Flow Issues
Although PayFi has simplified supply chain financing, the liquidity integration with traditional finance (RWA) is still developing, resulting in slow capital turnover for enterprises.
PayFi encounters significant challenges in liquidity integration due to the immature integration with traditional financial institutions regarding real-world assets (RWA). RWA refers to physical assets in the real economy, such as real estate, commodities, or stocks, and their connection with digital finance is relatively complex. PayFi has simplified the supply chain financing process, but the liquidity integration with traditional finance is still in its early stages, directly affecting the capital turnover efficiency of enterprises. Incomplete integration with RWA can not only increase the capital turnover costs for enterprises but also lead to excessively long settlement times, posing liquidity risks for businesses.
The capital efficiency problems existing in the blockchain financial system also limit the liquidity of PayFi. Due to the decentralized nature of blockchain itself, liquidity varies between different on-chain protocols, and involves different governance mechanisms and token standards, leading to restricted capital flows between different protocols. This means that when users attempt cross-chain operations on the PayFi platform, liquidity may be significantly impacted, making it challenging to meet the dynamic needs of enterprises.
At the same time, PayFi faces certain difficulties in integrating liquidity pools and staking in cross-chain and multi-chain operations. Although liquidity pools can provide funding support for users, implementing cross-chain liquidity pools requires solving interoperability issues between different blockchains, which are not yet fully mature. The technical complexity of cross-chain liquidity management leads to increased operational costs and also exposes users to higher risks when using liquidity pools. This instability of liquidity pools not only limits PayFi's liquidity supply capabilities but also diminishes users' trust in its platform.
Capital flow limitations are also related to the performance of the blockchain infrastructure itself. Blockchain systems often face performance bottlenecks when handling high-frequency transactions, especially in scenarios with high liquidity demands. For example, issues like high transaction fees and network congestion on the Ethereum network restrict the efficient flow of large amounts of capital. While some emerging blockchains (like Solana and Polygon) are working to resolve these performance issues, PayFi's liquidity management is still affected by infrastructure performance due to the need to ensure interoperability between different blockchains.
5.4 Usability and Integration Barriers
Ordinary users still find it difficult to manage wallets across multiple blockchains and experience difficulties in liquidity pools and staking.
The promotion of PayFi is limited by many usability and integration issues, particularly in user management of cross-chain wallets and operations involving liquidity pools and staking. Although the platform aims to provide simplified payment solutions, the complexity of cross-chain operations makes it difficult for ordinary users to manage assets across multiple blockchains. Due to significant differences in protocols and operations among different blockchains, users often encounter technical barriers and inconveniences during actual operations. As cross-chain technology develops, security issues still exist, raising concerns for users regarding asset management.
Liquidity pools and staking mechanisms also present technical barriers and uncertainties for novice users. These functions often involve relatively complex mechanisms and operational steps. For example, users participating in liquidity pools need to understand the potential risks and returns of providing liquidity, while staking operations involve token locking, yield distribution, and other relatively complex economic structures. Many users, lacking sufficient blockchain knowledge, can easily suffer financial losses due to misunderstandings. Thus, these high-threshold functions further reduce ordinary users' enthusiasm for participation, limiting PayFi's appeal among a broader user base.
In enterprise applications, PayFi also faces significant challenges in integrating with traditional enterprise systems. The decentralized data structure of blockchain and centralized systems of traditional enterprises are difficult to fully reconcile, especially when interfacing with existing enterprise systems like ERP, where data format and security issues are particularly prominent. Enterprises often need to invest significant technical resources to resolve these compatibility issues, indirectly increasing the integration costs and technical difficulties for PayFi systems, thereby hindering their application and promotion in traditional industries.
To address these challenges, PayFi can enhance user-friendliness, simplify operations, and improve system compatibility. One direction for improving user experience is to provide a more intuitive user interface and simplify cross-chain operation processes. Additionally, PayFi can develop compatible interfaces through deep cooperation with traditional financial systems to reduce integration costs for enterprises. Such improvements can enhance PayFi's market competitiveness and further promote its adoption.
6. Summary
6.1 PayFi is the Integration of Payment, RWA, and DeFi
PayFi is not an innovative independent concept but an integrated application of Web3 crypto payments, RWA, and DeFi. This new entity encompasses payment and trading of digital assets with off-chain goods and services, as well as various financial activities like lending, wealth management, and investment, stimulating new asset liquidity. Based on blockchain and smart contracts, the PayFi ecosystem reshapes the global payment system while reducing the friction and costs associated with intermediaries in traditional financial markets.
6.2 PayFi Relies on High-Performance Settlement Systems and Relatively Stable APY
6.2.1 High-Performance Settlement Systems
Low-latency, low-transaction-fee, high-speed blockchain settlement systems are the shared expectation of the entire crypto world. PayFi, as a business deeply integrating crypto payments, RWA, and DeFi, serves as one of the trading bridges between the on-chain and off-chain worlds. High-performance settlement is a prerequisite for the large-scale promotion of the PayFi ecosystem, meaning PayFi relies on low-latency, low-transaction-fee, and high-speed blockchain systems. Moreover, PayFi's payment characteristics inherently involve many transactions with relatively low amounts and high immediacy requirements, further raising the demands for low-latency, low-transaction-fee, and high-speed handling capabilities of the settlement system.
6.2.2 Relatively Stable APY
In terms of revenue sharing, the PayFi ecosystem, which has a massive funding pool as its foundation, also needs relatively stable revenue cash flow to realize the time value of currency. The investment targets required for the funding pool need to have relative stability, as the prior goods or services have already completed physical transactions while awaiting sufficient funds to settle the transactions. Thus, the yield of investment targets will significantly affect the duration of settlement. Therefore, products with relatively stable yields need to be available. With the rise of RWA, tokenized offline assets such as gold and government bonds will provide a relatively stable investment product portfolio for the funding pool aggregated during the payment process.
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