By IOSG Ventures
Proof of Success for Web3 Payments
The rapid growth of stablecoin payments is reshaping global finance, with transaction volumes on par with major payment networks. However, this is just the beginning of a transformative financial era.
Inefficiencies in traditional systems, such as cross-border payments, create huge opportunities for stablecoins:
“Cross-border payments typically incur high transaction fees, exchange rate marks, and intermediary fees (and take a long time to complete settlement)…The market for B2B cross-border payments is huge…FXC Intelligence estimates that B2B cross-border payments will be The total market size is US$39 trillion and is expected to grow 43% to US$53 trillion by 2030.” - (The Future of Payments) by Andreessen Horowitz.
Real-world adoption is already underway:
“There are now ~30M active users moving $3.2T worth of stablecoins per month, where traditional payment rails are too difficult, slow, and expensive.” - Sequoia Capital, (partnering with Bridge: A Better Way to Move Money)
The advantages of a blockchain-based payment system are obvious:
“Unlike most traditional financial payment methods, which take days to settle, blockchain rail can settle transactions almost instantaneously across the globe…Due to the elimination of various intermediaries and superior technological infrastructure, crypto Enabled payments can offer significantly lower costs than existing products” - (The Future of Payments) by Andreessen Horowitz.
Traditional finance giants are taking notice: “These numbers are growing rapidly as industry heavyweights including Stripe launch new payment options for these assets… Bridge is built on the blockchain, it operates 24 hours a day, in nearly every country – at just 10% of the cost of traditional FX rails.” - Sequoia Capital, (Working with Bridge: A Better Way to Move Money)
PayFi: The Smart Dollar
Not every dollar is created equal. Some are able to enter into premium opportunities while others are waiting to depreciate.
PayFi integrates DeFi into payments, turning every dollar into smart, autonomous money. It transforms idle funds into productive assets that can generate yield while maintaining liquidity. Historically, access to premium financial opportunities has been limited to large capital holders due to high minimum investment requirements, exclusive access to private markets, and barriers to entry to specialized financial vehicles like hedge funds or private equity. PayFi democratizes this advantage, enabling even small amounts of money to earn competitive yields without sacrificing accessibility. Smart stablecoins can solve the time, risk, and liquidity trilemma, such as allowing users to earn discounts by paying bills in advance.
Advantages of Web3 Payments
Web3 payments are like high-speed trains: they move value around the world efficiently, quickly, and reliably. PayFi goes a step further and adds an intelligent layer similar to an automated logistics network. Not only does it move value quickly, it also provides some key features:
Smart Routing: Automatically directs assets based on user-defined logic (smart contracts).
Aggregation efficiency: Merging multiple trades to achieve better liquidity.
Dynamic optimization: redirection during times of congestion or high network costs.
Programmable Finance: Automate payments based on complex conditions.
Asset conversion: Interchange assets as needed during the journey.
PayFi does more than just move money—it makes money smarter and more efficient. Almost all products use one or more of these features.
Solving the “cash problem”
While cash remains king due to its liquidity, autonomy, global offline acceptance, and privacy, it has one key flaw: depreciation. Inflation continuously erodes its value, forcing users to choose between liquidity and yield. Traditional fintech applications like PayPal and Venmo offer yield products, but these solutions are fragmented, provide limited returns, and require users to actively move funds to specific accounts. PayFi revolutionizes this space with a seamless solution. Whether in the form of stablecoins, loyalty points, or pending refunds, funds within the PayFi system seamlessly generate yield, whether they are stored in wallets, payment channels, or shopping platforms. Users enjoy returns comparable to their investments while keeping their funds instantly available. This means: no idle capital, every dollar is constantly working; global yield, even non-cash assets can generate yield. For example, interest-bearing stablecoins show how PayFi integrates earning opportunities into the everyday financial system.
Chance
By leveraging the composability of blockchain, PayFi unlocks top financial opportunities for everyone, every asset, everywhere. Developers can build on existing protocols without having to start from scratch and provide a seamless user experience.
Financial products when paying
User profile/needs: Targeted at individuals or SMEs with a stable source of income but tight cash flow. The goal is to provide flexible payment options, relieve cash flow pressure, and reduce the risk of overdue payments. Users benefit through tailored financial planning, cost reduction through exclusive discounts, and uninterrupted access to essential goods and services even when cash flow is tight. Merchants benefit from reduced payment delays, faster reinvestment of funds into operations, and enhanced customer loyalty through flexible supply. These products provide users and merchants with greater flexibility and fairness in financial transactions. For example:
Early payment discounts: Users can enjoy a small discount if they pay their bills immediately after receiving funds, incentivizing timely payment.
Installment and buy now, pay later options give consumers the ability to manage their cash flow, making large purchases more affordable without having to pay the full amount up front.
Accelerated Payments for Merchants: Merchants can capture payments faster, which, although incurring a small fee, improves liquidity and smooths cash flow.
Some Web2 projects, such as Affirm, Afterpay, Klarna, and PayPal, offer installment payment solutions.
Embedded Revenue Solutions
User profile/needs: Targeted at individuals who hold mainstream currencies and have some idle funds, focusing on small-scale fund management. The product provides a low-risk, high-liquidity, convenience, and flexibility USD yield solution. Users want to easily grow a small amount of capital while maintaining strong liquidity for financial needs. Some users have preferences for specific assets, such as US Treasuries or DeFi lending yields. PayFi transforms idle assets into yield-generating capital. Compared to traditional "yield" products, PayFi's embedded yield solution works seamlessly across a variety of asset types and products, such as points in online stores, pending refunds, or gift cards.
Common yield solutions on the market include farm modules embedded in wallets, stablecoins with yield, and flexible yield products on centralized exchanges (CEX). Yields mainly come from DeFi lending, protocol airdrops, delta neutral strategies, and US bonds. On-chain embedded yield solutions are somewhat superior to fintech and traditional banking solutions, mainly due to liquidity management limitations caused by the custodial nature of funds in traditional systems.
Embedded yield solutions improve transparency and capital efficiency by enabling users to self-custody and manage their own liquidity. For example, Revolut held $13 billion in deposits last year, but could only offer 3% interest due to liquidity constraints. Moving such systems on-chain will enable users to directly control their funds, allocate funds to liquidity pools or other yield opportunities, and maximize returns without the constraints of centralized management. For users and institutions, this improves access to loan and credit products that are different from traditional finance. Payments are a complex process, and there is a lot we can do to improve capital efficiency by financing each step.
PayFi apps often rely on third-party integrations, making the space competitive. However, PayFi can stand out by focusing on three core strengths:
User attraction: Build a moat through high transaction volume and frequency.
Orchestrate complexity: Simplify the fragmented payment process for users.
Functionality: Provides functionality that traditional Web2 systems lack.
Also to be considered are: the efficiency gains they bring, their role in the payments process and the potential market size in terms of regulation and risk management.
PayFi Pillars Infrastructure: Huma Huma built everything from scratch, introducing the PayFi stack. • Transaction layer: handles payment processing and settlement • Currency layer: manages stablecoins and digital assets • Custody layer: ensures secure storage of assets • Financing layer: provides lending and credit services • Compliance layer: maintains regulatory compliance • Application layer: provides user-facing services What makes Huma different is its focus on short-term financing within the payment and supply chain space. The platform enables real-time credit assessment and automated underwriting through smart contracts, making it possible to provide instant funding decisions for payment transactions. Some other Web3 RWA funding platforms include Centrifuge (the first RWA project) and Ondo. Similar Web2 players: SWIFT, Visa, Mastercard
Payments: Fun Fun.xyz launches Checkout, an all-in-one tool designed to simplify any on-chain action by allowing users to complete transactions with any asset at the point of purchase. Checkout aggregates a variety of payment options, improving user experience and maximizing dApp conversion. • Liquidity Aggregator: Aggregates funds from EVM wallets, Solana wallets, centralized exchanges, and credit cards to enable cross-chain payments. • Routing Engine: Executes complex, batched on-chain actions while ensuring transaction finality and price optimization. • Checkout SDK: A lightweight integration that increases app conversion by accommodating users’ preferred payment methods. Fun.xyz’s advantage is that it removes common friction in Web3 transactions, making it easier for users to perform on-chain actions without the hassle of asset conversion or deposits and withdrawals.
Other players include Aeon, which provides a one-stop checkout experience in the Telegram Mini App.
Embedding Profits: Morpho
Morpho is a modular lending protocol. It offers different segregated high-yield pools to potential investors. Its magic lies in its modular approach. It is embedded in many asset management protocols like Brahama and Infinex to provide savings yield. We are looking for more embedded yield products. Wallets or any product involving capital custody can be integrated with a few lines of code. This way, interest can be earned no matter where the funds are.
Web3 Card: Offramp
Offramp offers stablecoin holders a USD-based product that provides up to 5% yield on USD, a stablecoin-backed crypto card, and ACH and wire payment acceptance. It functions like a neo-bank, offering bank accounts, payments, and savings capabilities.
This is a mature space with numerous card issuers, KYC providers, and upstream/downstream products. Different card issuers vary in terms of regulation, fees, payment support (e.g. physical cards, Apple Pay). Some players include Rain and Immersive, the latter of which is also a principal member of the Mastercard network.
However, these are typically prepaid debit cards that require users to deposit funds before use, unlike traditional credit cards. With credit cards, users can use the interest generated by DeFi protocols to pay off credit debt, although credit also incurs costs due to interest payments over time. Crypto credit cards are a valuable asset to DeFi protocols because they allow users to seamlessly access their funds for daily spending without having to withdraw funds from the protocol.
Deposit and Withdrawal: Bridge
Bridge simplifies global payments through stablecoin-based solutions, enabling businesses to move, store and manage money at internet speeds. Through its Orchestration APIs, Bridge eliminates the complexity of compliance and regulation, allowing for seamless integration of stablecoin payments with just a few lines of code. Bridge supports USD, EUR and major stablecoins like USDC and USDT, with reserves invested in US Treasuries, offering yield opportunities of over 5%. Through Bridge's issuance APIs, companies can issue their own stablecoins, expanding global markets by offering USD and EUR accounts and international currency transfer options.
Vision
As a transformative solution, PayFi effectively solves the "impossible triangle" in traditional finance: yield, liquidity, and risk. In traditional finance, investors often face a trade-off: achieving high returns usually requires sacrificing liquidity or accepting higher risks, while maintaining liquidity and security usually means having to accept lower returns. This triangle has long limited financial opportunities, especially for small capital investors. PayFi breaks this pattern using blockchain and DeFi. By integrating payment infrastructure with DeFi capabilities, PayFi transforms every dollar into smart, autonomous capital that can automatically seek opportunities to generate income. With the rapid settlement of blockchain, the US dollar can maintain liquidity while providing good returns.
