Preface:
Web3Port Foundation is a cryptocurrency fund focused on blockchain and Web3 ecology, dedicated to promoting the widespread adoption of Web3 technology through strategic investment and incubation of startups and projects with innovative potential.
We are currently researching the Web3 payment and PayFi tracks. By studying the concepts, payment types, and typical cases of the Web3 payment/PayFi tracks, we understand the overall situation of the tracks and assist in business investment decisions. The content is for industry learning and communication purposes only and does not constitute any investment reference.
Web3 Payments
With the expansion of stablecoins and the expansion of application scenarios, Web3 payment has become a hot track in the crypto market. Web3 payment covers a wide range of business scenarios and categories, including stablecoins, wallets, asset custody, transactions, payments, deposits and withdrawals, credit cards, etc. Traditional financial institutions and Web3 entrepreneurs have combined blockchain technology and cryptocurrency to build numerous Web3 payment projects and use cases.
concept:
Traditional Payment: Monetary transactions conducted through the traditional financial system, usually involving centralized institutions such as banks, credit card companies, and payment processing companies (such as PayPal, Visa, Mastercard, etc.). The payment process is verified, cleared, and settled by these financial institutions. Traditional payments include cash payments, bank transfers, credit card payments, debit card payments, electronic checks, and electronic wallets.
Web3 Payment: Web3 payment is a payment method based on blockchain and cryptocurrency technology. It completes transactions through smart contracts, decentralized applications (DApps) and cryptocurrencies. Web3 payment does not rely on traditional financial institutions, but directly transfers value between users through a decentralized network.
Traditional Payment VS Web3 Payment
Traditional payment is a payment method based on an account system, where the transfer of value is recorded in the accounts of intermediaries (such as banks and third-party payment companies). Due to the large number of participants, the fund transfer process is very cumbersome and the friction cost is also very huge, so the cost is high.
Web3 payments are based on blockchain network infrastructure, allowing cryptocurrencies to be transferred between senders and receivers. They can solve problems such as high fees, inefficiency in cross-border transfers, and high costs in traditional payments.
Web3 Payment Types
Specific scenarios of Web3 payments include consumers using crypto assets to interact on the chain, paying for consumption to businesses/merchants, cross-border transfers, crypto asset payments between businesses, etc. In summary, there are two main types of Web3 payments:
On Ramp & Off Ramp refers to the exchange and payment between cryptocurrency and legal tender. Deposit refers to the exchange of legal tender (Fiat) for cryptocurrency, and withdrawal refers to the exchange of cryptocurrency for legal tender.
Cryptocurrency payment, including 2 types:
On-chain native payment: **refers to using cryptocurrency to participate in transactions in Web3 native scenarios, such as using cryptocurrency to purchase NFTs, launching new products on LaunchPad, swapping between different cryptocurrencies, and on-chain fees;
Off-chain physical payment: **refers to the direct use of cryptocurrency to purchase goods or services in the offline real economy, such as using cryptocurrency to pay for offline consumer orders, cross-border transfer transactions, etc.
Web3 payment connects fiat currency and cryptocurrency through deposit and withdrawal payments, and enables crypto assets to circulate in payment and consumption scenarios through cryptocurrency payments (on-chain/off-chain payments), thus building a complete closed-loop payment ecosystem.
Web3 Payment Business Model
Based on the needs and types of Web3 payment scenarios, common Web3 payment projects/companies have the following profit-making methods:
Deposit and withdrawal fees: Users need to pay deposit and withdrawal fees when conducting cryptocurrency and fiat currency deposit and withdrawal transactions through third-party payment institutions. Generally, third-party payment institutions charge 0.6% of the transaction amount as a fee. The fee is ultimately paid by consumers/merchants and distributed to payment participants (third-party payment institutions, aggregators, issuing banks and international card organizations).
Access service fee. This scenario involves the aggregation of payment and settlement networks, that is, integrating existing third-party payment products into its own product system as one of the underlying payment channels to broaden the ability to transfer funds, and providing Web3 payment and settlement services to merchants and institutions, and charging access service fees in the process.
Blockchain Gas network fee: When using Web3 payment, the final result of the payment needs to be confirmed and processed on the chain, which generates blockchain network Gas fees.
Foreign exchange spreads. This only involves cross-border payment products. As a payment channel for the transfer of funds in different currencies, a fund pool will be generated. At this time, when there is a cross-currency transaction, the bank can be bypassed to directly exchange currencies for users, thereby obtaining exchange spreads.
Among them, deposit and withdrawal fees and access service fees are one of the main profit methods for Web3 payment projects/companies. These two profit methods rely heavily on network effects (referring to the phenomenon that the value of a product or service increases as the number of users increases). The more users and merchants use Web3 payment, the greater the transaction volume generated, and the more revenue can be generated. At the same time, as the number of users increases and the transaction volume expands, the market share and influence of the Web3 payment network built by the Web3 payment project/company will also increase, further promoting its brand and market influence.
Web3 payment track participants:
Participating roles
Crypto exchanges: Exchanges generally conduct payment services by cooperating with centralized financial systems to issue credit cards. Coinbase, Binance, Crypto.com, etc. all launched payment services around 2020, cooperating with Mastercard or Visa to issue cryptocurrency credit cards, supporting users with crypto assets to use credit cards for consumption worldwide.
Independent payment institutions: such as Moonpay, BitPay, Paypal, Stripe, Mastercard, etc., gradually open/access Web3 payment services and scenarios around their main businesses, including wallets, custody, payment, transactions and stablecoins, and eventually gradually cover their entire ecosystem to form a logical closed loop.
Web3 aggregate payment platform and Web3 bank: connect to multiple independent deposit and withdrawal payment institutions to form an aggregate platform, and provide multi-account banking services for Web3 users. For example, Alchemy Pay is a hybrid cryptocurrency payment gateway solution that supports two-way exchange and payment of legal currency and crypto assets; Fiat24 creates an on-chain bank account for users, providing a series of Web3 banking services such as deposit and withdrawal, encrypted consumer payment, savings, transfer, and currency exchange.
Cryptocurrency retail terminals: including crypto ATMs (leading project Bitcoin Depot) and offline convenience store retail terminals POS (typical project Pallapay)
According to Galaxy Ventures' research, participants in the Web3 payment track can be divided into four categories from the perspective of technology stack:
Typical projects and cases:
Alchemy Pay: is a company that provides cryptocurrency and fiat payment solutions, aiming to connect the traditional financial system with the world of decentralized finance (DeFi). Alchemy Pay provides merchants and consumers with a hybrid payment gateway that allows them to use cryptocurrencies and fiat currencies for transactions, thus simplifying the use and popularization of cryptocurrencies. It plans to expand the global coverage of crypto payments and has obtained more than 20 regulatory licenses worldwide. It currently has more than 2 million users and supports crypto payments in 180+ countries and regions.
Fiat24: is a fintech company licensed by the Swiss Financial Market Supervisory Authority (FINMA). It has launched a Web3 banking protocol driven by smart contracts, creating an on-chain bank account (IBAN+Card) for users, and providing a series of Web3 banking services and Crypto services such as deposits and withdrawals, encrypted consumer payments, savings, transfers, and currency exchanges.
Helio: A platform focused on cryptocurrency payments and Web3, providing a set of tools for receiving, processing and managing cryptocurrency payments. It is the leading Web3 payment platform on Solana, with over 450,000 unique active wallets and 6,000 merchants. With its Solana Pay plugin, millions of Shopify merchants can now settle payments in cryptocurrency and convert USDY to other stablecoins such as USDC, EURC, and PYUSD in real time.
Moonpay: is a global cryptocurrency payment infrastructure provider that allows users to purchase cryptocurrencies using credit cards, debit cards, bank transfers, etc. Moonpay is currently the leading cryptocurrency deposit and withdrawal project, with more than 20 million registered users, supporting crypto payments in more than 160+ countries and regions, supporting the exchange of more than 80 cryptocurrencies and more than 30 legal currencies, holding payment business licenses in most jurisdictions, and has processed more than 6 billion+ transactions.
BitPay: is a cryptocurrency payment processing company founded in 2011, dedicated to helping merchants and individuals use Bitcoin and other cryptocurrencies for payments and transactions. BitPay provides a range of services that allow merchants to accept cryptocurrency payments and convert these payments into fiat currency, helping users to more easily use cryptocurrency for daily consumption. Currently, BitPay enables merchants to accept payments from customers in 229 countries and regions using 16 different cryptocurrencies, and has processed more than 10 million transactions with a total value of more than $5 billion.
Coinify: is a cryptocurrency exchange and payment processing service provider. Coinify's payment solutions allow merchants to let their customers pay with 10 supported cryptocurrencies while getting paid in the fiat currency of their choice. The company operates in more than 180 countries and is serving more than 45,000 merchants.
CoinPayments: Founded in 2013, it is one of the world's leading crypto payment service providers. The company is serving more than 100,000 merchants from more than 190 countries. CoinPayments' payment solutions enable merchants to accept payments in more than 175 cryptocurrencies. The company also provides merchants with many tools, including shopping cart plugins, payment buttons, APIs, invoice generators, and sales tools. As of October 2022, the company has processed more than $10 billion worth of crypto payments.
PayPal: In August 2023, it will launch the stablecoin "PayPal USD" (PYUSD) pegged to the US dollar, and use the PYUSD stablecoin as a bridge for the exchange between fiat currency and cryptocurrency, and for transfer, payment and other businesses.
MetaMask: MetaMask itself does not provide direct fiat currency exchange functions, but through integration with third-party services (such as MoonPay, Wyre, Transak, etc.), users can easily convert between fiat currency and cryptocurrency (deposit and withdrawal operations). Currently, MetaMask Portfolio DApp has aggregated functions such as Sell, Buy, Stake, Dashboard, Bridge and Swap to help users manage assets conveniently and realize unified on-chain asset operations.
Web3 Payment Regulatory Compliance
Regulatory compliance for the Web3 payment track mainly requires that the project party must meet compliance requirements such as licenses, qualifications, and permits before it can carry out Web3 payment business in compliance with the standards.
Different countries and regions have different regulatory requirements for Web3 payment services. Therefore, if Web3 payment track projects want to conduct related businesses in certain countries and regions, they need to apply for corresponding licenses.
PayFi track concept and its business scenarios and case studies
PayFi Concept
Lily Liu, Chairman of the Solana Foundation, proposed the concept of PayFi at the Hong Kong Web3 Carnival:
PayFi is motivated by the original vision of Bitcoin payment. PayFi is not DeFi, but a new financial market built around the time value of money. This on-chain financial market can realize new financial paradigms and product experiences that traditional finance cannot achieve.
PayFi can be understood as the integration of DeFi + Web3 payment, with the focus on helping users maximize the time value of money. PayFi is suitable for Web3 transactions, off-chain consumption scenarios, retail environments, creator monetization, accounts receivable, payment processing, private credit pools and other scenarios. Through the interoperability, programmability and composability of blockchain, it creates a new paradigm of on-chain finance.
PayFi Market Outlook:
Since 2015, stablecoins have grown exponentially, providing effective payment and settlement for the $2 trillion crypto market. The overall market value of stablecoins has exceeded $171B, and the market value of Tether USDT has further increased from $83B in 2022 to the current $117.9B, an increase of 42%, showing a sharp increase in the demand for stablecoins in the crypto market.
In addition to serving as a unit of account in cryptocurrency transactions, stablecoins are also gradually exerting their influence in traditional payment tracks, cross-border financial trade, etc., and are changing the global payment landscape. The PayFi market, which combines stablecoins and Web3 payments, will further expand the demand scenarios for stablecoins and provide financial support for on-chain and off-chain payment applications.
PayFi can:
Put trillions of offline traditional payment volumes on the chain to better optimize the time value of currency.
Delivering sustainable risk-adjusted returns: single-digit to double-digit returns.
Rapidly expand scale with extremely low systemic risk and improve asset liquidity.
Relying on the convenience of smart contracts, we provide more efficient and richer new financial paradigm applications.
PayFi business scenarios and cases:
1. Innovative Web3 payment services integrating DeFi:
Combining on-chain DeFi finance and instant settlement capabilities, users can use the real-time income generated by on-chain DeFi finance to pay for off-chain instant consumption.
Case: Buy Now Pay Later: A user deposits $50 in the on-chain DeFi protocol and earns an interest of $5.5, which can be used for instant settlement and payment to buy a cup of coffee (for free).
2. Web3 Bank:
Combine Web3 and Web2 banking to provide users with digital banking services.
Case: Fiat24 is a financial service platform based on blockchain technology, dedicated to providing users with decentralized digital banking services. Fiat24 establishes a Swiss bank account (Cash Account) for users who have passed KYC. On the one hand, it can integrate Web3 payment services into it, enabling currency acceptance and Web3 payment; on the other hand, Fiat24's Swiss bank account is directly connected to the Swiss National Bank, the European Central Bank and the VISA/Mastercard payment network, enabling traditional banking services such as fiat currency savings, currency exchange, merchant settlement, etc.
3. RWA Finance:
Putting offline RWA assets on-chain can capture the time value of assets and provide crypto users with more asset investment categories and returns.
Case: Ondo Finance is an RWA tokenized U.S. debt protocol dedicated to providing institutional-grade financial products and services to everyone. Ondo Finance tokenizes low-risk, stable interest-bearing, scalable fund products (such as U.S. Treasuries, money market funds, etc.), providing on-chain investors with a way to earn income with stablecoins. USDY (Dollar Yield Token) was launched for non-U.S. users, which is the world's first permissionless, yield-generating tokenized note backed by U.S. Treasuries. USDY can be used for a variety of use cases, including lending, cash management, payments, etc., while earning income. USDY has also made breakthroughs in Web3 payments. With USDY, users and merchants can now use yield-generating assets for payment or settlement, which means that merchants can now earn interest on balances by accepting USDY as a settlement method. More and more projects are starting to use USDY to promote wider adoption of crypto payments.
4. Payment Financing:
Use DeFi loan funds to solve financing needs in real payment transaction scenarios and realize on-chain settlement of payment financing income.
Case: Huma Finance is a PayFi network that allows businesses and individuals to borrow against future income by connecting them to global investors on the chain, providing financing and liquidity support for global payments. Its specific use cases include cross-border payment financing, digital asset credit cards, RWA instant settlement, trade financing, DePIN financing, etc.
5. PayFi Crypto Payment Network:
Utilize Web3 payment and blockchain DID identity to build an encrypted payment network to adapt to offline payment scenarios.
Case: PolyFlow is a modular decentralized crypto asset operation protocol that aims to build the PayFi crypto payment network. Through modular design, it has launched two key components, Payment ID (PID) and Payment Liquidity Pool (PLP), which can abstract and separate the information flow of payment transactions from the capital flow and extract value from them. PID is a digital identity system used for KYC identification, identity authentication, compliance access, and data rights confirmation. PLP uses smart contracts to process the capital flow of service providers to achieve capital management and payment settlement. Polyflow incentivizes merchants and liquidity providers by providing liquidity for payment transactions and providing nearly risk-free DeFi returns. This model not only opens up new sources of income, but also encourages a wider range of stakeholders to participate in the DeFi ecosystem and promote the development and popularization of crypto payments.
6. Consumer Crypto Payment Applications:
Use on-chain credit and Web3 payments to transform traditional consumption scenarios.
Case: Blackbird is a Web3-based restaurant loyalty platform that focuses on the restaurant industry. It builds on-chain payment and loyalty programs based on Blackbird Pay (on-chain credit card) and $FLY (on-chain consumer points), and uses payment services as a lever for growth to drive the development of the entire ecosystem. Currently, 40,056 wallets hold 125,571 Blackbird restaurant membership cards (NFTs), and 142 restaurants have signed in.
7. Flow payment:
Streaming payments are an emerging payment method that allows the transfer of value (usually currency or cryptocurrency) from the payer to the receiver continuously and in real time over a period of time, rather than completing the entire payment at once. Streaming payments are mainly suitable for billing or payment of ongoing services, such as hourly work, network services charged by traffic, content subscriptions or consumption, ongoing contracts and lease payments, etc. In the future, streaming payments will have a profound impact on value streams, working capital management, IoT payments, and even the valuation models of large companies.
Examples:
Sablier is a token distribution protocol that creates token flows using the Sablier protocol, handles token vesting, payroll, airdrops, grants, etc., and recipients can track and withdraw flow funds at any time. This payment method enables users to make continuous real-time payments in units of seconds, enabling seamless, frictionless transactions and increasing financial flexibility for users, businesses, and other entities. Sablier uses the passage of time itself as a trust constraint mechanism, unlocking business opportunities that were previously unavailable.
Zebec is a decentralized infrastructure network that aims to create a future where real-world value flows freely and seamlessly, giving individuals, businesses, investors and teams instant access to funds and tokens; providing instant financial control and promoting a more inclusive and accessible financial environment. Zebec's integrated products include RWA payments (real-time payroll and cross-border remittances), on-chain payment infrastructure (Zebec Cards), and networked DePIN (PoS retail devices that provide merchants and consumers with convenient, instant, all-in-one crypto payment processing solutions).
Reference articles:
1. Web3 Payment Research Report: The full-scale attack of industry giants is expected to change the existing encryption market landscape
https://mp.weixin.qq.com/s/oWec4gDu8Hqk86aLs3K9Qw
2. Web3 Payment Research Report: From Electronic Cash, Tokenized Currency, to the Future of PayFi
https://mp.weixin.qq.com/s/gzr9q9kM3j-R0ec7sCb3NQ
3. Panoramic interpretation and trend analysis of Web3 payment track｜ZONFF Research
https://mp.weixin.qq.com/s/5QuHqzvTNmG546CeGbt6og
4. Blackbird’s Trojan Horse: Turning Crypto Consumer Companies into Payment Companies, Using Payments to Drive Growth
https://www.web3brand.io/p/web3brand-blackbird-crypto-payment
5.IOSG Weekly Brief | Flow Payment — A new payment paradigm enabled by blockchain #154
https://mp.weixin.qq.com/s/TOZ48uRmTfRbf17wDxnQew
6. Research on the development of crypto payments｜THUBA Research
https://mp.weixin.qq.com/s/_5oQMNT8I1OsW8ZgmkAebg
7. Current status of the crypto payment track in 2022: Despite the bearish market, the demand for crypto payments is still rising
https://mp.weixin.qq.com/s/xgs1XpHKfaWP_32pZY0wdA
8.【English long push】An overview of the crypto payment market: Which trends and innovations are worth paying attention to?
https://x.com/kay_phillips_/status/1713941226624307691
