Author: IOSG Ventures
1. What does Stripe's largest acquisition of Bridge mean for the cryptocurrency industry?
Stripe is one of the world's largest online payment service providers and processors, helping businesses accept online and in-person payments through its developer-friendly API. In 2023 alone, Stripe processed over $1 trillion in transaction volume, second only to ApplePay in adoption.
Last month, Stripe made a major acquisition, purchasing the stablecoin platform Bridge for $1.1 billion, marking the largest acquisition in cryptocurrency history.
Recent cryptocurrency acquisition activities, such as Robinhood's $200 million acquisition of Bitstamp, reflect the growing demand among tech/financial giants to engage in 2B and 2C cryptocurrency businesses that prioritize compliance and have an established user base. Bridge is no exception.
You may have noticed that the adoption of stablecoins has surged globally. According to a16z's report, the trading 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 serve as the perfect medium for achieving a smooth and efficient asset conversion process. Although Bridge only generates $10 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 cryptocurrencies with fiat currency, or sell cryptocurrencies for fiat by sending assets to designated wallets. It also provides 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., 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 on 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 the acquisition, Bridge raised a total of $58 million from various venture capital firms, with approximately $40 million coming from Sequoia Capital. This already indicates that investors had confidence 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 remittance and payment services for the past 3 years, but it relies on its own currency as a medium, exposing users to currency downside risk. 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 Collaboration
The advantage of Bridge lies in its compliance and partnerships obtained. Firstly, according to a Sequoia report, Bridge complies with all US and European financial regulations and anti-money laundering laws, holding remittance licenses in 22 states, and collaborates with the US State Department and Treasury for asset transfers. Before integrating with Bridge, businesses need to provide ownership and incorporation documents to prove their credibility. For detailed information, please refer to the following documentation: As pointed out by SY Lee, the founder of Story Protocol, content enterprises 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 become profitable, often leading to their failure before launch. Even large IP studios hesitate to develop new IPs and instead choose to focus on expanding existing IP.
The reputation and credibility that Bridge gains from compliance will significantly improve and expand its business channels, as seen from 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 underlying US dollars invested in US Treasury bonds for a 5% yield or kept idle. This creates possibilities for businesses and even CBDCs to create and customize their tokenized dollars for various use cases while remaining compliant, 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 rising, with the electronic payment industry expected to grow at a rate of 9.9% annually, reaching a market size of $90 billion.
Today's digital payment solutions charge transaction fees of up to 1.5-3.5% for each transaction (Visa charges 1.5-3.5%, Stripe charges 3.4%, Europe has a cap of ~0.3%, and global payments such as PayPal have a cap of ~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 Stablecoin' 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 whether the fee was designed by Stripe, it indicates that Bridge has the potential to provide 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 extend its influence into the cryptocurrency market.
In unbanked regions:
Bridge can provide solutions for businesses in underserved regions, allowing them to store US dollars or euros in custodial wallets, thereby establishing better systems for remittances, payments, or investing in tokenized dollars according to their needs.
Additionally, financial institutions can begin to offer more complex structured products, accepting stablecoins as deposits to create more business opportunities for utilizing on-chain funds.
Since these transactions are conducted on the blockchain, the selected chains can also benefit from associated transaction fees. Therefore, Bridge can enhance on-chain transaction activities and potentially increase yields for validators and stakers.
In DeFi:
Businesses can also participate in DeFi for additional returns. For example, they can borrow or lend tokenized dollars on platforms like Aave to earn interest, or leverage cryptocurrency investments for potential gains.
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 the capital efficiency of idle assets.
Given the dominance of USDC and USDT in the market, I believe that Bridge's integration can further solidify their roles in the evolving cryptocurrency landscape.
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 currency transactions, and could become a pillar of future PayFi.
The largest acquisition in cryptocurrency history highlights that stablecoins and the regulated payment industry have achieved a 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 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 advantage of Bridge lies in its compliance and established partnerships. It adheres to all US and European financial regulations and anti-money laundering laws and collaborates with reputable partners such as the US State Department and Treasury.
Regions that cannot directly access the financial system due to the economic security provided by the US dollar can benefit immensely from Bridge.
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 settlement, 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.
