Musk's journey is toward the stars and the sea. Similarly, for the $20 trillion crypto market aiming for Mass Adoption, the $400 trillion - $600 trillion traditional financial market is also the stars and the sea.
We can see some paths, such as the rise of tokenization, but currently, the early RWA 1.0 assets are migrating to on-chain, yet the relatively illiquid model is not a long-term solution. Even if DePIN can revive the Internet of Things, it still struggles to hit the core.
Thus, we see Web3 payments can promote the large-scale adoption of stablecoins, which is core, especially for non-trading scenarios. The VISA stablecoin report tells us: the total supply of stablecoins is about $170 billion, settling assets worth trillions of dollars each year. Approximately 20 million addresses engage in stablecoin transactions on-chain each month. More than 120 million addresses hold non-zero stablecoin balances on-chain.
Web3 payments can bring traditional financial payment networks advantages such as instant settlement, 24/7 availability, and low-cost transactions, but this is far from enough; we should see that the innovative applications of PayFi bring about a brand new financial market. PayFi, which can integrate Web3 payments, RWA, and DeFi, can help us reach for the stars and the sea.
Therefore, this article will first introduce what PayFi is, and its relationship with Web3 payments, DeFi, and RWA, and then look at how Solana, which proposed PayFi, is gradually building its PayFi ecosystem.
1. What is PayFi
PayFi, or Payment Finance, refers to an innovative application model that combines payment functions with financial services based on blockchain and smart contract technology. The core of PayFi is to use blockchain as the settlement layer, combining the advantages of Web3 payments and decentralized finance (DeFi) to promote the efficient and free flow of value (Value Movement).
The goal of PayFi is to realize the vision of the Bitcoin white paper, building a peer-to-peer electronic cash payment network that does not require a trusted third party, while fully leveraging the advantages of DeFi to create a brand new financial market, including providing new financial experiences, building more complex financial products and application scenarios, and ultimately integrating into a brand new value chain.
PayFi was first proposed as a new narrative by Lily Liu, chairwoman of the Solana Foundation, at the 2024 Hong Kong Web3 Carnival. In her view, PayFi is a newly constructed financial market centered around the time value of money (Time Value of Money, TVM). These are difficult or impossible to achieve in traditional finance.
In this brand new PayFi financial market, not only can it achieve efficiency improvements of Web3 payments compared to traditional finance: instant settlement, lower costs, transparency, and global reach, but it can also realize the decentralization, permissionless access, asset ownership, and personal sovereignty of the global network based on decentralized finance.
2. The Relationship between PayFi and Web3 Payments, DeFi, RWA
PayFi is not entirely equivalent to Web3 payments. Although Web3 payments have achieved many efficiency improvements for traditional finance based on blockchain technology, PayFi is a further construction, expansion, and deepening based on Web3 payments, introducing DeFi to build a brand new financial market.
PayFi is not entirely equivalent to DeFi. The essence of Payment is based on the transfer of value in the real world (Exchange of Value)—money exchanged for goods/services. Therefore, PayFi is more about the process of sending and settling digital assets rather than the mainstream trading behavior of DeFi. Additionally, seamlessly connecting Web3 payments with DeFi through blockchain and smart contract technology is essential to create financial derivative services related to payments, such as lending and wealth management.
PayFi is not entirely equivalent to RWA. The term RWA has two layers of meaning: the first layer is asset tokenization, meaning that only after assets are tokenized and put on-chain can value flow seamlessly on the blockchain and use smart contracts to build trading and settlement processes, for example, the tokenization of dollars—stablecoins;
The second layer is RWA fundraising, which provides liquidity support for the financing needs in PayFi scenarios. This is what Lily Liu described as: 'PayFi is a new financial market created around the time value of money (Time Value of Money). This on-chain financial market can achieve new financial paradigms and product experiences that traditional finance cannot.'
Therefore, PayFi is not an innovative independent concept, but rather an innovative application that integrates Web3 payments, DeFi, and RWA. This model not only encompasses payment and trading of digital assets but also includes financial activities such as lending, wealth management, and investment. Through blockchain and smart contract technology, PayFi not only makes global financial payment activities faster and cheaper but also reduces friction and costs in traditional financial payment services.
3. The Significance and Value of PayFi
Literally, PayFi is not fundamentally different from GameFi and SocialFi, but the real meaning of PayFi lies in promoting the application of digital assets in real-world scenarios.
From a positive perspective, PayFi can align with the migration of Web2 communities to Web3, such as how traditional financial payment companies can leverage blockchain technology to gain a larger market share and avoid missing out on the tide of the times.
Conversely, the Web3 community can use Payment as a vehicle to leverage blockchain technology to address the pain points of the traditional financial system, achieving new financial paradigms and product experiences that traditional finance cannot.
Currently, Web3 payments are still in a relatively early stage of basic services and primitive states, more about using digital currencies as payment mediums, such as cross-border remittances, OTC, Payment Cards, etc. This semi-centralized approach struggles to connect with the on-chain DeFi ecosystem and has limited scenarios.
However, with the development and promotion of PayFi, this value transfer method based on blockchain and smart contract technology can accelerate the integration of Web3 payments and DeFi financial services, making digital assets more practical and efficient in daily transactions and more complex financial environments.
The emergence of PayFi can solve the situation where traditional finance and crypto finance 'have lived together for thirty years until the building collapses.' In the future global financial ecosystem, PayFi will undoubtedly become a key aid for Crypto to move towards Mass Adoption.
Raymond, co-founder of PolyFlow, has a deeper understanding of PayFi: 'What PayFi solves is not the apparent issues that Web3 payments need to address, such as the challenges of cross-border fund transfers or low financial inclusivity; rather, it needs to solve the most fundamental problem at present: effectively separating the information flow and capital flow of transactions, allowing everyone to form a consensus on the capital flow on the blockchain's unified ledger, thereby improving the efficiency of the entire Web3 industry and promoting true Mass Adoption.'
4. Solana's Path to PayFi
To this question, Lily Liu's answer is: 'Solana possesses three major advantages: high-performance public chain, capital liquidity, and talent mobility.' These advantages create a threshold that is currently difficult for other competitors to overcome.
In addition, we can also look from the perspective of the PayFi Stack: what kind of infrastructure does PayFi need?
4.1 Blockchain Settlement Layer (Transaction Layer)
As the underlying infrastructure for settlement, while there are many blockchain settlement networks to choose from, Solana undoubtedly stands out. High throughput, low cost, fast settlement, and further performance improvements brought by the Firedancer upgrade can all facilitate the rapid landing of PayFi projects.
4.2 Currency Layer (Currency Layer)
In addition to the efficiency and smoothness of the underlying settlement network, sufficient liquidity support is also needed, especially for stablecoins as on-chain trading mediums. We can see Solana's collaborations with Ondo Finance, Visa, Circle, Stripe, and the PYUSD launched this June.
According to DeFilama data, in August of this year, PYUSD on Solana accounted for 64% of the market share, while Ethereum only accounted for 36%. Since 2023, the on-chain stablecoin volume has gradually increased from $1.8 billion to the current $3.6 billion, mainly including USDC, USDT, PYUSD, and USDY.
4.3 Asset Custody Layer (Custody Layer)
Asset custody (on-chain/off-chain) is crucial in finance. For blockchain-based PayFi, considerations include how to ensure the security of smart contracts, private key management, and compatibility with traditional finance and DeFi.
On-chain asset custody is key to achieving personal sovereignty. Not your Key, Not your Coin.
4.4 Compliance Layer (Compliance Layer)
As we know, only through compliance access for users can we further promote the healthy development of the financial payment ecosystem and services. At this level, it is fundamental to ensure that all transactions and fund flows comply with KYC/AML/CTF requirements, while adapting to the laws and regulations of local jurisdictions.
4.5 PayFi Application Layer (Application Layer)
Based on the above foundational layers, it is possible to support the actual implementation of PayFi applications.
At this year's Singapore BreakPoint event, we can see that Solana has already built numerous application scenarios on the consumer end through its infrastructure, and its Consumer segment has formed a trend of collective combat, with far greater construction reserves than other public chains.
According to @ZKwifgut, the payments at the BreakPoint event included:
- Payment scenarios: online shopping, social e-commerce, offline events, games
- Payment mediums: PayPal PYUSD, merchandise available on-site; MakerDAO bridging StableCoin to Solana via Wormhole; SOL debit card by Sanctum; Fusewallet virtual Visa card; Kast bank card;
- Payment gateways: using StableCoin for shopping through Shopify Blinks; accepting StableCoin payments for booking flights and hotels based on Helio Pay/Solana Pay;
- Supply side of goods: consumer-grade hardware such as mobile phones/Sim cards/watches, exhibition tickets, peripherals, e-commerce products (integrating Shopify), game items, etc.
- Payment hardware: Solana official second-generation phone Seeker; sports watch Showtime.
Solana is also actively laying out the B-end market. Through RWA fundraising, it provides liquidity support for payment scenarios in cross-border trade and supply chain finance.
Compared to Ethereum's 'asset chain' positioning, Solana is firmly establishing its position as a 'payment chain', currently seen as the optimal blockchain solution for consumer retail and payment-related products. In the words of @ZKwifgut:
PayFi and DeFi are the two legs of Solana's vast crypto ecosystem; so far, no other ecosystem has such a clear strategy: building an On-chain Economy through DeFi and moving towards Mass adoption with PayFi.
5. Conclusion
In the long term, the entire Web3 industry turning towards off-chain and real consumption scenarios has become a trend. Whether it's 'making DeFi great again' or 'moving Crypto towards Mass Adoption', these often mentioned slogans in the market can finally be realized through PayFi.
This time, the wolf has truly arrived.
Blockchain and smart contract technologies can make traditional payments faster and cheaper than ever before, but these use cases that help traditional markets reduce costs and increase efficiency are more about capturing value in the traditional payment B-end, which is good, but not what you and I desire.
PayFi can truly bridge the traditional financial market and the crypto financial market, and by leveraging the rise of stablecoins, accelerate the integration of payment and financial services, not just reducing costs and increasing efficiency, but creating a brand new financial market. In this market, you have me, and I have you.
In the future financial ecosystem, PayFi will become a key driving force.
