Written by: IOSG Ventures
1. What does Stripe's largest acquisition Bridge mean for the cryptocurrency industry?
Stripe is one of the largest online payment service providers and processors in the world, helping businesses accept online and face-to-face payments through its developer-friendly API. In 2023 alone, Stripe processed over $1 trillion in transaction volume, with its adoption ranking second only to ApplePay.
Last month, Stripe made a significant acquisition, purchasing the stablecoin platform Bridge for $1.1 billion, marking the largest acquisition in cryptocurrency history.
Recent cryptocurrency merger activities, such as Robinhood's $200 million acquisition of Bitstamp, reflect the growing demand among tech/finance giants to engage with 2B and 2C cryptocurrency businesses that prioritize compliance and have established user bases. Bridge is no exception.
You may have noticed a surge in the adoption of stablecoins globally. According to a16z's report, trading volume for stablecoins reached $8.5 trillion in Q2 2024, more than twice that of Visa's $3.9 trillion during the same period.
Stripe sees potential in stablecoins as the perfect medium for achieving a smooth and efficient process for asset conversion. Although Bridge generates only $10 million to $15 million in revenue per year, Stripe paid nearly 100 times the premium to acquire the company. This highlights that Stripe's motivation is not only related to Bridge's current revenue but also to the compliance, partnerships, and technology that Bridge can bring to the Stripe ecosystem.
2. What is Bridge?
Bridge is a stablecoin platform that allows businesses or users to transfer tokenized US dollars using blockchain. Users can wire/ACH transfer to whitelisted banks, purchase cryptocurrencies with fiat, or sell cryptocurrencies for fiat by sending assets to designated wallets. It also offers custodial wallets to help businesses accept, store, or transfer stablecoins through a simple set of APIs.
In the background, Bridge handles KYC, regulatory compliance, etc., enabling businesses to easily integrate and start accepting cryptocurrency as a payment method. Currently, Bridge supports USD/EUR as fiat currency payments and accepts five stablecoins across nine different chains.
Regarding the team, Bridge founders Zach Abrams and Sean Yu previously worked at Coinbase as head of consumer products and senior developer, respectively. Before the acquisition, Bridge raised a total of $58 million from various venture capital firms, with about $40 million coming from Sequoia Capital. This indicates that investors were confident in the product even before the acquisition.
2.1 Advantages and Moat of Bridge:
Bridge is not the first product to address the issue of cross-border transaction services. In fact, Ripple (XRP) has been providing cross-border transfers and payment services for the past three years, but it relies on its own currency as a medium, placing the burden of currency downside risk on users. However, in an era where regulated stablecoins like USDC provide greater protection and flexibility, such solutions have become outdated. Bridge addresses this issue in a more efficient and compliant manner.
2.2 Compliance and Collaboration
The advantages of Bridge lie in its achieved compliance and collaboration. Firstly, according to a report from Sequoia, Bridge complies with all U.S. and European financial regulations and anti-money laundering laws, holding remittance licenses in 22 states and collaborating with the U.S. State Department and Treasury for asset transfers. Before integrating with Bridge, businesses need to provide ownership and incorporation documents to prove their credibility. For more details, see the following documents: As pointed out by SY Lee, founder of Story Protocol, content businesses often lack network effects, forcing them to rely on large content production and marketing budgets to survive. This overwhelming negotiating power makes it difficult for smaller IPs to profit, often leading to their failure before launch. Even large IP studios hesitate to develop new IPs, choosing instead to focus on expanding existing IPs.
The credibility and reputation that Bridge gains from compliance will significantly improve and expand its business channels, as seen in their recent partnership with SpaceX, where Bridge will be used for stablecoin management in its global financial operations (Source: Ledger).
In addition to compliance, Bridge also allows businesses to customize and issue stablecoins using Bridge's orchestration API, with the underlying USD invested in U.S. Treasury bonds to achieve a 5% yield or remain idle. This provides possibilities for businesses and even CBDCs to create and customize their tokenized dollars for various use cases while complying with regulations, with all reserves held in the form of cash and treasury securities within Bridge.
2.3 Use Cases of Bridge:
2.4 In Today's Payment Solutions:
The global demand for electronic payment solutions is rising, with the electronic payments industry expected to grow at a rate of 9.9% per year, reaching a market size of $90 billion.
Today's digital payment solutions, especially in the U.S., charge transaction fees of up to 1.5-3.5% per transaction (Visa charges 1.5-3.5%, Stripe charges 3.4%, with a European cap of ~0.3%, and global payments like PayPal capped at ~2%).
Bridge transaction fees are expected to be much lower as they primarily consist of blockchain transaction fees and developer or issuer fees.
In October, Stripe launched a feature called 'Pay with Stablecoins' in its customer checkout product, charging a 1.5% transaction fee. While it has not yet been confirmed whether this feature was co-created with Bridge or if the fee was designed by Stripe, it indicates that Bridge, as an alternative payment solution, has the potential to provide a more cost-effective option for digital payments.
Moreover, data breaches have long been a problem in the traditional electronic payment industry. The tamper-proof nature and security of smart contracts can effectively address these issues. In addition to saving costs, Bridge unlocks access to $180 billion in stablecoin liquidity within the blockchain ecosystem, allowing Stripe to extend its influence into the cryptocurrency market.
In unbanked regions:
Bridge can provide solutions for businesses in underserved areas, allowing them to store USD or EUR in custodial wallets, thereby establishing better systems for remittances, payments, or investment in tokenized dollars based on their needs.
Additionally, financial institutions can begin offering more complex structured products, accepting stablecoins as deposits, creating more business opportunities for them to leverage on-chain funds.
Since these transactions occur on the blockchain, the selected chains can also benefit from the associated transaction fees. Therefore, Bridge can enhance on-chain transaction activity and potentially increase rewards for validators and stakers.
In DeFi:
Businesses can also participate in DeFi for additional yields. For example, they can borrow or lend tokenized dollars on platforms like Aave to earn interest or leverage potential returns from cryptocurrency investments.
Alternatively, users can provide liquidity for stablecoin pairs on Uniswap V2/V3 to earn trading fees. While DeFi investments come with significant risks, they offer opportunities to maximize idle asset capital efficiency.
Given the dominance of USDC and USDT in the market, I believe the integration of Bridge can further solidify their roles in the evolving cryptocurrency space.
3. Market Outlook
Until recently, the use cases for cryptocurrencies were largely hindered by their adoption as a payment solution. However, Stripe's acquisition of Bridge has the potential to change the trend, making cryptocurrency payments as seamless and indistinguishable from traditional fiat transactions, and may become a pillar of future PayFi.
The largest merger in cryptocurrency history highlights that stablecoins and the regulated payments industry have achieved a significant product-market fit and undeniable utility. Value transfer remains the most compelling use case for cryptocurrencies, with regulated stablecoins becoming the main medium of payment.
4. Key Points
Bridge is a stablecoin platform that enables businesses and users to transfer, store, and pay with tokenized US dollars using blockchain technology. Bridge manages all compliance and regulatory issues in the background.
The advantages of Bridge lie in its compliance and established partnerships. It adheres to all U.S. and European financial regulations and anti-money laundering laws, collaborating with reputable partners such as the U.S. State Department and Treasury.
Regions with limited access to the financial system can greatly benefit from Bridge due to the economic security provided by the U.S. dollar.
Businesses can now participate in DeFi and maximize the capital efficiency of idle assets. Bridge serves as a link to inject more capital into stablecoins, which is expected to boost the overall DeFi economy.
Lower fees, faster settlements, and data security are some of the main advantages of blockchain compared to today's electronic payment solutions. Bridge has the potential to replace or become a better alternative to current payment systems.
