Written by: IOSG Ventures
1. What does Stripe's $1.1 billion 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 in-person payments through its developer-friendly API. In just 2023, Stripe processed over $1 trillion in transaction volume, with its adoption ranking second only to ApplePay.
Last month, Stripe made a major acquisition, acquiring the stablecoin platform Bridge for $1.1 billion, which is the largest acquisition in cryptocurrency history.
Recent cryptocurrency mergers and acquisitions, such as Robinhood's $200 million acquisition of Bitstamp, have begun to reflect the growing demand from tech/financial 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 that the adoption of stablecoins has surged globally. According to a16z's report, the transaction volume of stablecoins reached $8.5 trillion in Q2 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 of asset conversion. Although Bridge generates only $10 to $15 million in revenue each 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 dollars using the blockchain. Users can wire/ACH transfer to whitelisted banks, purchase cryptocurrency with fiat currency, or sell cryptocurrency for fiat currency 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 backend, Bridge handles KYC, regulatory compliance, etc., allowing 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 already indicates that investors were confident in the product 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 transfer and payment services for the past three years, but it relies on its own currency as a medium, with users bearing the downside risk of the currency. However, in an era where regulated stablecoins like USDC offer greater protection and flexibility, such solutions have become outdated. Bridge addresses this issue in a more efficient and compliant manner.
2.2 Compliance and Partnerships
The advantages of Bridge lie in the compliance and partnerships it has gained. First, according to a report by Sequoia, Bridge complies with 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 need to provide ownership and incorporation documents to prove their credibility. Detailed information can be found in the following documents: As pointed out by SY Lee, founder of Story Protocol, content businesses often lack network effects, forcing them to rely on substantial content production and marketing budgets to survive. This overwhelming negotiating power makes it difficult for smaller IPs to be profitable, often leading to their failure before launch. Even large IP studios hesitate to develop new IPs, choosing instead to focus on scaling existing IPs.
The credibility and reputation that Bridge gains from compliance will significantly enhance and expand its business channels, as evidenced by 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 allows businesses to customize and issue stablecoins using Bridge's orchestration API, with the underlying dollars invested in U.S. Treasury bonds for a 5% yield or left 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:
The global demand for electronic payment solutions is on the rise, with the electronic payment industry expected to grow at an annual rate of 9.9%, 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's transaction fees are expected to be much lower, as they are primarily composed of blockchain transaction fees and fees from 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 yet 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 alternative for digital payments as an alternative payment solution.
Additionally, data breaches have been a long-standing issue in the traditional electronic payments industry. The tamper-proof characteristics and security of smart contracts can effectively address these issues. Besides saving costs, Bridge also unlocks access to $180 billion of liquidity in stablecoins within the blockchain ecosystem, allowing Stripe to extend its influence into the cryptocurrency market.
In unbanked regions:
Bridge can provide solutions for underserved areas, allowing businesses to store dollars or euros in custodial wallets, thereby establishing better systems for transferring, paying, or investing tokenized dollars according to their needs.
Additionally, financial institutions can begin offering more complex structured products, accepting stablecoins as deposits to create more business opportunities by utilizing on-chain funds.
Since these transactions are conducted 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 the earnings of validators and stakers.
In DeFi:
Businesses can also participate in DeFi to earn additional returns. For example, they can borrow or lend tokenized dollars on platforms like Aave to earn interest or leverage cryptocurrency investments for potential returns.
Alternatively, users can provide liquidity for stablecoin pairs on Uniswap V2/V3 to earn transaction fees. Although DeFi investments come with significant risks, they provide opportunities to maximize the capital efficiency of 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 ever-evolving cryptocurrency space.
3. Market Outlook
Until recently, the use cases for cryptocurrency have largely been 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 transactions, and possibly becoming a pillar of future PayFi.
The largest acquisition in cryptocurrency history highlights that stablecoins and the regulated payments industry have 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 for payments.
4. Key Takeaways
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.
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, 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 dollar.
Businesses can now participate in DeFi and maximize the capital efficiency of idle assets. Bridge serves as the link to inject more capital into stablecoins, which is expected to promote 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 the current payment systems.
