The Bitcoin white paper in 2008 described a peer-to-peer electronic cash payment network that does not require any trusted third party. Payment is one of the earliest promises made to us by digital currency and blockchain technology.
To this day, the payment network in the digital age is still built on the old track when the Internet emerged twenty years ago. When faced with emerging digital assets such as cryptocurrencies, it has been difficult to meet people's desire for freedom of payment and the free flow of assets around the world.
The endowment of blockchain is financial infrastructure. PolyFlow is integrating the transformative power brought to us by cryptocurrency and blockchain technology to create a new decentralized PayFi encrypted payment network, promote people to shift to an innovative financial paradigm, and release the true value of Web3.0. Ultimately, make the grand vision in the Bitcoin white paper a reality.
1. Introduction to PolyFlow
PolyFlow, the first decentralized PayFi infrastructure, connects RWA and DeFi, aiming to further promote the efficient and free flow of value. As the infrastructure layer of the blockchain network, PolyFlow integrates traditional payments, encrypted payments and decentralized finance (DeFi), and processes real payment scenarios in the real world in a decentralized manner, thereby promoting the establishment of a new financial paradigm and industry standards.
PolyFlow supports the construction and implementation of different PayFi application scenarios through modular design, and further introduces the composability and scalability of the DeFi ecosystem. Overall, it builds a business architecture for PayFi applications that is lightly regulated, compliant, risk-free, and compatible with the DeFi ecosystem, as well as a secure and compliant framework for the circulation, custody, and issuance of digital assets.
The two key components launched by PolyFlow, Payment ID (PID) and Payment Liquidity Pool (PLP), decouple the information flow from the capital flow in the payment transaction process:
• PID is associated with information flows as a powerful tool that enables identity recognition and compliance access, privacy protection and data sovereignty, AI data processing, X to earn, etc.;
• PLP is associated with the flow of funds, and the funds used to pay for transactions are managed by smart contracts. It not only provides a safe and compliant framework for the circulation, custody and issuance of digital assets, but also introduces the composability and scalability of the DeFi ecosystem.
On this basis, AI can intervene to help analyze the rich daily payment information flow data and return the sovereignty of these data to the PID owners (these key payment transaction information were previously only controlled by financial technology giants). The income generated by the agreement can also be reflected in the PLP, which creates a risk-free real-world asset (RWA) income category based on real payment scenarios for the DeFi ecosystem.
Looking ahead, as the infrastructure of PayFi, PolyFlow has the ability to realize on-chain credit, helping PayFi applications realize consumer loans, buy now pay later and credit cards paid by individual users in their daily lives, as well as loan and interest functions, as well as corporate loans and supply financing for commercial entities, so as to realize the welfare of "Buy Now Pay Never" for users. It is important to understand that only by combining with real-life scenarios can the development of PayFi be truly promoted, which is the key to Crypto's move towards mass adoption.
The powerful functions of PolyFlow can not only support the construction and implementation of different PayFi application scenarios, bringing innovative financial paradigms and product experiences that traditional finance cannot achieve, but also support exchanges, payment service providers, banks, supply chain finance and settlement networks to further expand and enhance their operational capabilities in the digital asset era. At the same time, it can also enable all network participants to share the huge dividends brought by the PayFi encrypted payment network and realize the true value of Web3.0.
2. Current Dilemma of Crypto Payment
In the current crypto payment business model, both payment solution providers and asset management service providers mostly operate in a centralized manner. These centralized institutions lack transparency, risks between counterparties are very likely to lead to single point failures, and centralized decision-making will also lead to widespread trust risks. These problems have been plaguing the industry, bringing great complexity to transactions and causing concerns for regulators:
• Centralized custody. Institutions hold user-related private keys, exposing user assets to huge custody risks.
• Regulatory black hole. Opaque centralized institutions and an unrefined crypto legal framework pose great challenges to regulation.
• Fiat currency settlement. The current crypto payment business model is only a transitional solution and must be reconnected with the traditional fiat currency settlement system, which greatly increases costs and leads to inefficiency.
• Limited service capabilities. The types of crypto payment services supported by a single institution are limited, making it difficult to meet the diverse needs of users.
• DeFi incompatibility. Centralized institutions cannot be integrated with the DeFi ecosystem, hindering the large-scale application and popularization of PayFi.
As we all know, these centralized institutions, represented by banks, have collapsed before, and they will collapse again. Looking back at the global financial crisis in 2008, and the collapse of FTX and Silicon Valley Bank in 2023, these are the most vivid lessons in the market. This is also the problem that the Bitcoin white paper aims to solve.
Therefore, the crypto payment industry urgently needs an innovative financial infrastructure that can solve the risks of centralized custody, cope with complex compliance challenges, and is compatible with the digital asset DeFi ecosystem. Similarly, decentralized finance (DeFi) also needs a bridge that can be combined with the real world to capture a stable and risk-free source of income and ultimately move towards large-scale application popularization (Mass Adoption).
3. PolyFlow PayFi Solution
The fusion of crypto payments and DeFi gave birth to PayFi, which longed for a new infrastructure to support its implementation and solve complex compliance issues. Since Lily Liu, chairman of the Solana Foundation, proposed the concept of PayFi at the Hong Kong Web3 Carnival, PolyFlow has been regarded as one of the first protocols aimed at building PayFi's financial infrastructure.
The core concept of PolyFlow is to decouple the transaction information flow and capital flow previously controlled by centralized institutions through a modular design, so that each transaction process can better comply with regulatory compliance standards and reduce custody risks in a decentralized manner; at the same time, it uses the characteristics of blockchain to connect the DeFi ecosystem and promote the large-scale implementation of PayFi applications.
3.1 Payment ID（PID）
PID is a decentralized ID that is bound to the encrypted KYC/KYB proof information of the user and verifiable credentials of the user’s KYC/KYB on multiple platforms. It can achieve:
• Compliance access. PID can contain verification information between multiple and different platforms and can be easily shared in the form of a QR code. This structured identification and transaction management method helps partners simplify the verification process while being compatible with the DeFi ecosystem. More importantly, it can connect the information islands previously built by centralized institutions, and connect an open decentralized identity system through PID, empowering the entire traditional finance/DeFi ecosystem.
• Privacy protection. PID uses a variety of technical means such as zero-knowledge proof to help fulfill obligations such as anti-money laundering/counter-terrorist financing (AML/CTF) without leaking user privacy. This is a prerequisite for users to participate in the traditional finance/DeFi ecosystem.
• Data sovereignty. PID is a product of the split transaction information flow. On the one hand, it can feed back information about fund transactions to regulators to meet compliance requirements. On the other hand, it also returns the on-chain behavioral data to individual users. Users can contribute PID-marked data to AI analysis in exchange for revenue and token incentives, which is different from the centralized institutions that stole this data for their own profit. In addition, PID is also a key link in building an on-chain credit system.
PolyFlow's innovative introduction of PID provides transformative advantages for the crypto payment industry. It not only builds a bridge between traditional finance and the DeFi ecosystem, but also provides users with a flexible and reliable way to manage digital identities, participate in cross-platform transactions, and build on-chain credit.
3.2 Payment Liquidity Pool（PLP）
PLP is a product split from the transaction fund flow. The smart contract address provided by its liquidity pool is used to receive funds and realize on-chain custody of funds, rather than relying on the traditional method of using expensive corporate wallets of centralized institutions to support asset management, fund aggregation and income generation. PLP, a more decentralized model, can achieve:
• Self-custody of funds. While ensuring the security of funds, it minimizes the need for transaction intermediaries, makes the ledgers open, transparent, and tamper-proof, and also provides a convenient, secure, and compliant custody method for PayFi applications.
• Liquidity pool. The transaction funds are aggregated by the smart contract address, which can provide liquidity for the financing needs in payment transactions.
• DeFi ecosystem compatibility. Centralized applications are not compatible with the decentralized DeFi ecosystem. PLP built on the blockchain can seamlessly connect to the DeFi ecosystem and bring DeFi business logic to the PayFi application.
• Risk-free RWA income category. The income generated by the protocol can be directly reflected in PLP. This income based on real-world payment transaction scenarios provides a risk-free and stable source for DeFi.
This PLP architecture can eliminate the fund custody risks of transaction intermediaries and can be flexibly integrated with the DeFi ecosystem to ensure that the PayFi application can adapt to the ever-changing digital asset landscape.
4. Innovation paves the way
PolyFlow brings some very important innovations:
4.1 Modularization of encrypted payment, decoupling payment information flow and capital flow
In the past, centralized institutions usually managed both information flow and capital flow, which would be subject to strict regulatory scrutiny because fraud could occur without third-party supervision, and centralized custody risks were high. After decoupling, centralized institutions only handle information flow and KYC and other compliance access, and assets are managed by on-chain protocols, thus solving the centralized custody problem. This makes them face far fewer compliance challenges and is more conducive to the construction and implementation of PayFi scenarios.
In addition, previous AI analysis could only be processed by centralized institutions on their own data, which limited the overall performance of the data. The data generated by the decoupled information flow can be opened to different AI service providers for access, greatly improving the efficiency of data use.
4.2 Breaking down information silos and being compatible with the DeFi ecosystem
PID leverages the power of DID, verifiable credentials, and zero-knowledge proofs to provide privacy-preserving KYC information, aggregated wallet addresses, and AI tags. It follows W3C standards and the Linux Foundation's Trust-Over-IP stack.
PID can connect the information islands built by centralized institutions, connect an open decentralized identity system, and empower the entire traditional finance/DeFi ecosystem. Centralized institutions (such as centralized exchanges, payment service providers, KYC providers, etc.) can build PayFi application scenarios through PID to revitalize their existing infrastructure.
4.3 Bringing real returns from real assets to the chain
PLP can be seen as a risk-free DeFi income product, suitable for on-chain cash flow management. This is a major breakthrough. Previous DeFi income models have inherent risks. For example, financial products based on decentralized exchanges always face the risk of uncompensated losses, and collateral based on on-chain lending products may be affected by drastic fluctuations in the price of the underlying assets, which is quite common for the DeFi ecosystem.
PLP can generate risk-free income directly from transaction fees in real payment scenarios. For example, in the payment gateway scenario, consumers pay to the smart contract address in PLP. When the merchant requests early settlement of the payment, if the PLP liquidity pool based on the smart contract cannot aggregate funds, the liquidity provider can provide funds for settlement in exchange for payment income.
Most importantly, the above process is risk-free, and the rate of return will be determined by the ratio between the liquidity provider's funds and the total transaction volume. It can provide attractive fixed or flexible term financial products and support innovative applications of PayFi such as supply chain finance, wallet settlement network, stablecoins, insurance, etc.
5. A solid team brings rapid development
These innovations did not happen overnight. They were accompanied by more than 20 years of mature operating experience in traditional finance and cross-border payment industries, as well as a deep understanding of cryptocurrency and blockchain technology.
PolyFlow is the result of an excellent team, whose members come from large cross-border payment companies that provide payment services for Apple, Amazon, and Tiktok; from international standard organizations such as W3C, Linux Foundations, and IEEE; and from investment banks in New York, Hong Kong, Singapore, Dubai, and London, with rich industry accumulation and practical experience. In addition, PolyFlow also has a bank payment network from major developed countries as well as Latin America, Asia Pacific, and Africa, a wealth management company that handles more than $100 billion in liquid and illiquid assets, and a global cross-border commodity trading company.
The development of PolyFlow is inseparable from the promotion of early investors. In addition to the resources accumulated by the team over more than 20 years of cross-border financial payments, CE innovation Capitals, Hash Global, Stellar Foundation and Community Fund, ZC capitals, and Meters Network provided more than $5 million in early funding. PolyFlow also worked closely with and received sponsorship from mature Web3 infrastructures such as Solana, Stellar, and Ripple to jointly support and build new infrastructure to support the development of PayFi and the future Web3.0 economy.
