Written by: IOSG Ventures
1. What does Stripe's largest acquisition of Bridge mean for the crypto 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 just 2023, Stripe processed over $1 trillion in transaction volume, second only to ApplePay in adoption.
Last month, Stripe made a major acquisition, acquiring the stablecoin platform Bridge for $1.1 billion, the largest acquisition in cryptocurrency history.
Recent cryptocurrency merger activities, such as Robinhood's $200 million acquisition of Bitstamp, are beginning to reflect the growing demand from tech/financial giants to prioritize compliance and have access to mature user bases in 2B and 2C cryptocurrency businesses. Bridge is no exception.
You may have noticed a surge in the adoption of stablecoins globally. According to a16z's report, the trading volume of stablecoins reached $8.5 trillion in the second quarter of 2024, more than double Visa's $3.9 trillion during the same period.
Stripe believes that stablecoins have the potential to be the perfect medium for achieving a smooth and efficient process for asset conversion. Although Bridge generates only $10 million to $15 million in revenue annually, 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 dollars using blockchain. Users can wire/ACH transfer to whitelisted banks, purchase cryptocurrency with fiat currency, or sell cryptocurrency for fiat currency by sending assets to a designated wallet. 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, serving as head of consumer products and senior developers, respectively. Before being acquired, 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 Bridge's Advantages and Moat:
Bridge is not the first product to address the issue of cross-border transaction services. In fact, Ripple (XRP) has been offering cross-border transfers and payment services for the past three years but relies on its own currency as a medium, which exposes users to the downside risk of that currency. However, in an era where regulated stablecoins like USDC offer greater protection and flexibility, such solutions are becoming outdated. Bridge addresses this issue in a more efficient and compliant manner.
2.2 Compliance and Collaboration
Bridge's advantages lie in its compliance and collaborations. Firstly, according to Sequoia's report, Bridge adheres to all U.S. and European financial regulations and anti-money laundering laws, holds remittance licenses in 22 states, and collaborates with the U.S. State Department and Treasury for asset transfers. Before integrating with Bridge, businesses are required to provide ownership and incorporation documents to prove their credibility. For more details, please refer to the following document: Bridge. As pointed out by Story Protocol founder SY Lee, content enterprises often lack network effects, forcing them to rely on large content production and marketing budgets to sustain themselves. This overwhelming negotiating power makes it difficult for smaller IPs to be profitable, often leading to failure before they launch. Even large IP studios hesitate to develop new IPs and instead choose to focus on expanding existing IPs.
The reputation and credibility that Bridge gains from compliance will significantly improve and expand its business channels, as evidenced by their recent collaboration 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 base dollar investments in U.S. Treasury bonds for a 5% yield or to remain idle. This provides possibilities for businesses and even CBDCs to create and customize their tokenized dollars for various use cases while adhering to compliance, with all reserves held in cash and treasury bills within Bridge.
2.3 Use Cases of Bridge:
2.4 In today's payment solutions:
Global demand for electronic payment solutions is rising, and the electronic payment industry is 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 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's transaction fees are expected to be much lower as they are primarily composed of blockchain transaction fees and fees for developers or issuers.
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 been confirmed whether this feature was co-created with Bridge or if the fee was designed by Stripe, it indicates that Bridge has the potential to offer a more cost-effective option for digital payments as an alternative payment solution.
Moreover, data breaches have been a long-standing issue in the traditional electronic payment industry. The tamper-proof nature and security of smart contracts can effectively address these issues. In addition to cost savings, Bridge unlocks access to $180 billion in stablecoin liquidity within the blockchain ecosystem, allowing Stripe to expand its influence in the cryptocurrency market.
In unbanked regions:
Bridge can provide solutions for underserved regions, allowing businesses to store U.S. dollars or euros in custodial wallets, thereby establishing better systems for transfers, payments, or investing tokenized dollars based on their needs.
Moreover, financial institutions can begin offering more complex structured products, accepting stablecoins as deposits, creating more business opportunities for them to leverage on-chain funds.
As these transactions occur on the blockchain, the selected chains can also benefit from the associated transaction fees. Thus, Bridge can enhance on-chain transaction activity and potentially increase the earnings of validators and stakers.
In DeFi:
Businesses can also engage in DeFi for additional returns. For example, they can borrow or lend tokenized dollars on platforms like Aave to earn interest or leverage potential gains from cryptocurrency investments.
Alternatively, users can provide liquidity for stablecoin pairs on Uniswap V2/V3 to earn transaction fees. While DeFi investments come with significant risks, they offer opportunities to maximize capital efficiency on idle assets.
Given the dominance of USDC and USDT in the market, I believe that the integration of Bridge can further solidify their roles in the evolving cryptocurrency space.
3. Market Outlook
Until recently, the use cases for cryptocurrency were largely hindered by its 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 currency transactions, and could become a pillar of future PayFi.
The largest merger in cryptocurrency history highlights that stablecoins and the regulated payment industry have already achieved significant product-market fit and undeniable utility. Value transfer remains the most compelling use case for cryptocurrency, with regulated stablecoins becoming the primary medium of payment.
4. Key Points
Bridge is a stablecoin platform that enables businesses and users to transfer, store, and pay with tokenized dollars using blockchain technology. Bridge manages all compliance and regulatory issues in the background.
Bridge's advantages lie in its compliance and established partnerships. It adheres to all U.S. and European financial regulations and anti-money laundering laws and collaborates with reputable partners such as the U.S. State Department and Treasury.
Regions that cannot directly access the financial system can benefit significantly from Bridge due to the economic security provided by the U.S. dollar.
Businesses can now participate in DeFi and maximize capital efficiency on idle assets. Bridge acts as a link to inject more capital into stablecoins, which is expected to boost the overall DeFi economy.
Compared to today's electronic payment solutions, lower fees, faster settlements, and data security are some of the main advantages of blockchain. Bridge has the potential to replace or become a better alternative to current payment systems.
