Author: IOSG Ventures
1. What does Stripe's largest acquisition of Bridge mean for the crypto 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 APIs. In 2023 alone, Stripe processed over $1 trillion in transaction volume, ranking just behind ApplePay in adoption.
Last month, Stripe made a significant acquisition by purchasing the stablecoin platform Bridge for $1.1 billion, marking the largest acquisition in cryptocurrency history.
Recent cryptocurrency merger activities, such as Robinhood's $200 million acquisition of Bitstamp, reflect the growing demand among tech/finance giants to engage in 2B and 2C cryptocurrency businesses that prioritize compliance and have mature user bases. Bridge is no exception.
You may notice that the adoption of stablecoins has surged 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 sees stablecoins as having the potential to serve as a perfect medium for a smooth and efficient asset conversion process. Although Bridge generates only $10 million to $15 million in revenue annually, Stripe paid nearly 100 times the premium to acquire the company. This underscores 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, or sell cryptocurrencies for fiat by sending assets to a designated wallet. 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., enabling businesses to easily integrate and start accepting cryptocurrencies 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 the Consumer Product Lead and Senior Developer, 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 indicates that investors were already confident in the product before the acquisition.
2.1 Advantages and Moats of Bridge:
Bridge is not the first product to solve cross-border transaction service issues. 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, which subjects users to downside currency risk. However, in an era where regulated stablecoins like USDC provide 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 its compliance and partnerships. Firstly, 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. Department of State and the Department of Treasury for asset transfers. Before integrating with Bridge, businesses need to provide ownership and incorporation documents to prove their credibility. For details, please refer to the following documents: As noted by Story Protocol founder SY Lee, content businesses often lack network effects, which forces them to rely on large content production and marketing budgets to sustain themselves. This overwhelming bargaining power makes it difficult for smaller IPs to turn a profit, often leading to failure before launch. Even large IP studios hesitate to develop new IPs, choosing instead to focus on expanding existing IPs.
The credibility and reputation 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 the underlying dollar investments in U.S. Treasury bonds for a 5% yield or kept idle. This provides 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, and the electronic payment industry is 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 primarily consist of blockchain transaction fees and developer or issuer fees.
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 suggests that Bridge, as an alternative payment solution, has the potential to provide a more cost-effective option for digital payments.
Additionally, 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 problems. Besides saving costs, Bridge also 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 underserved areas, allowing businesses to store dollars or euros in a custodial wallet, thereby establishing better systems for transfers, payments, or investments in tokenized dollars based on their needs.
Additionally, financial institutions can start offering 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, selected chains can also benefit from the associated transaction fees. Therefore, Bridge can enhance on-chain transaction activity and potentially improve returns for validators and stakers.
In DeFi:
Businesses can also participate in DeFi to gain 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 transaction fees. Although 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 the integration of Bridge can further solidify their roles in the evolving cryptocurrency space.
3. Market Outlook
Until recently, the use cases for cryptocurrencies were largely hindered by their adoption as payment solutions. 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 may become a pillar of future PayFi.
The largest merger 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 cryptocurrencies, and regulated stablecoins are 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 complies with all U.S. and European financial regulations and anti-money laundering laws and collaborates with reputable partners such as the U.S. Department of State and the Department of Treasury.
Regions that cannot directly access financial systems 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 acts as a link to inject more capital into stablecoins, which is expected to facilitate 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.
