Proof of successful Web3 payments
The rapid growth of stablecoin payments is reshaping global finance, with transaction volumes rivaling major payment networks. However, this is just the beginning of a transformative financial era.
source: visaonchainanalytics
source: ycharts
Inefficiencies in traditional systems, such as cross-border payments, create immense opportunities for stablecoins:
"Cross-border payments often incur high transaction fees, exchange rate markups, and intermediary fees (and take a long time to settle)... The market size for B2B cross-border payments is enormous... FXC Intelligence estimates the total market size for B2B cross-border payments at $39 trillion in 2023, expected to grow by 43% to $53 trillion by 2030." - (The Future of Payments) by Andreessen Horowitz
Real-world adoption is already underway:
"There are now approximately 30 million active users transferring $320 billion in stablecoins monthly, as traditional payment channels are too difficult, slow, and expensive." - Sequoia Capital, (In partnership with Bridge: A better way to transfer funds)
The advantages of blockchain-based payment systems are evident:
"Unlike most traditional financial payment methods that take days to settle, blockchain rails can settle transactions almost instantly on a global scale... By eliminating various intermediaries and leveraging superior technological infrastructure, crypto-enabled payments can offer significantly lower costs than existing products." - (The Future of Payments) by Andreessen Horowitz
Traditional financial giants are taking notice:
"Industry giants like Stripe are launching new payment options for these assets, which are rapidly growing... Bridge is built on blockchain, operating 24/7 in almost every country—with costs only 10% of traditional FX rails." - Sequoia Capital, (In partnership with Bridge: A better way to transfer funds)
PayFi: Smart Dollar
Not every dollar is equal. Some can access premium opportunities, while others wait to devalue.
PayFi integrates DeFi into payments, turning every dollar into smart, autonomous capital. It transforms idle funds into productive assets that generate returns while maintaining liquidity.
Historically, only large capital holders could access premium financial opportunities.
Historically, access to quality financial opportunities has been limited to large capital holders due to high minimum investment requirements, exclusive access to private markets, and barriers to specialized financial tools like hedge funds or private equity. PayFi democratizes this advantage, enabling even small amounts of capital to achieve competitive yields without sacrificing accessibility. Smart stablecoins can address the triple challenges of time, risk, and liquidity, such as allowing users to receive discounts by paying bills early.
Advantages of Web3 payments
Web3 payments are like high-speed trains: efficient, fast, and reliable in moving value globally. PayFi goes a step further by adding an intelligent layer similar to automated logistics networks. It not only quickly moves value but also provides some key features:
Smart routing: Automatically directing assets based on user-defined logic (smart contracts).
Aggregation efficiency: Merging multiple transactions for better liquidity.
Dynamic optimization: Redirecting during congestion or high network fees.
Programmable finance: Automating payments based on complex conditions.
Asset conversion: Swapping assets as needed along the journey.
PayFi is not just about transferring funds—it makes funds smarter and more efficient. Almost all products leverage one or several of these functionalities.
Solving the 'cash problem'
While cash remains king due to its liquidity, autonomy, global offline acceptance, and privacy, it has a critical flaw: devaluation. Inflation continually erodes its value, forcing users to choose between liquidity and yield.
Traditional fintech applications like PayPal and Venmo provide yield products, but these solutions are fragmented, offering limited returns, and users must actively move funds to specific accounts.
PayFi revolutionizes this space with seamless solutions. Whether in the form of stablecoins, loyalty points, or pending refunds, funds within the PayFi system can generate yields seamlessly, whether stored in wallets, payment channels, or shopping platforms. Users enjoy returns equivalent to investments while keeping funds instantly available.
This means:
No idle capital: Every dollar is continuously working.
Global yields: Even non-cash assets can generate returns.
For instance, yield-bearing stablecoins demonstrate how PayFi integrates earning opportunities into the daily financial system.
Opportunities
By leveraging the composability of blockchain, PayFi unlocks top financial opportunities for everyone, every asset, and everywhere. Developers can build on existing protocols without starting from scratch and can provide a seamless user experience.
Financial products at the time of payment
User Profile/Demand: Targeting individuals or small businesses with stable income sources but tight cash flow. The goal is to offer flexible payment options, alleviate cash flow pressure, and reduce the risk of late payments.
Users benefit from tailored financial planning, reduced costs through exclusive discounts, and uninterrupted access to essentials and services even during cash flow tightness.
Merchants benefit from reduced payment delays, faster reinvestment of funds into operations, and enhanced customer loyalty through flexible supply.
These products provide users and merchants with greater financial transaction flexibility and fairness. For example:
Early payment discounts: Users can enjoy small discounts for promptly paying bills upon receiving funds, incentivizing timely payments.
Installments and 'buy now, pay later': These options empower consumers to manage cash flow, making large purchases more affordable without requiring full upfront payment.
Merchant accelerated payments: Merchants can receive payments faster, although they incur small fees, this can improve liquidity and smooth cash flow.
Some Web2 projects, such as Affirm, Afterpay, Klarna, and PayPal, offer installment payment solutions.
Embedded yield solutions
User Profile/Demand: Targeting individuals holding mainstream currencies with some idle funds, focusing on small-scale fund management. The product offers low-risk, high liquidity, convenience, and flexibility dollar yield solutions. Users want to easily grow small amounts of capital while maintaining strong liquidity for financial needs. Certain users have preferences for specific assets, such as US Treasuries or DeFi lending yields.
PayFi turns idle assets into yield-generating capital. Compared to traditional 'yield' products, PayFi's embedded yield solutions work seamlessly across various asset types and products, such as loyalty points in online stores, pending refunds, or gift cards.
Common yield solutions in the market include embedded farm modules in wallets, yield-bearing stablecoins, and flexible yield products on centralized exchanges (CEX). Yields primarily come from DeFi lending, protocol airdrops, delta-neutral strategies, and US bonds.
On-chain embedded yield solutions are superior to fintech and traditional banking solutions to some extent, primarily due to liquidity management constraints stemming from the custodial nature of traditional systems.
Embedded yield solutions enhance transparency and capital efficiency by enabling users to self-custody and manage liquidity autonomously. For example, Revolut held $13 billion in deposits last year but could only offer 3% interest due to liquidity constraints. Moving such systems on-chain would allow users direct control over their funds, allocating them to liquidity pools or other yield opportunities to maximize returns without the limitations of centralized management.
This enhances access to loan and credit products that differ from traditional finance for users and institutions.
Payments are a complex process, and there's much work we can do on financing at each step to enhance capital efficiency.
PayFi applications often rely on third-party integrations, making this field competitive. However, PayFi can stand out by focusing on three core advantages:
User appeal: Building a moat through high transaction volume and frequency.
Orchestration complexity: Simplifying fragmented payment processes for users.
Feature richness: Offering functionalities lacking in traditional Web2 systems.
Also to consider:
The efficiency improvements they bring
Their role in the payment process and potential market size
In terms of regulation and risk management
PayFi Pillars
Infrastructure: Huma
Huma builds everything from scratch, introducing the PayFi stack.
Transaction layer: Handling payment processing and settlement
Currency layer: Managing stablecoins and digital assets
Custody layer: Ensuring secure storage of assets
Financing layer: Providing loans and credit services
Compliance layer: Maintaining regulatory adherence
Application layer: Providing user-facing services
What sets Huma apart is its focus on short-term financing within the payments and supply chain space. The platform enables real-time credit assessments and automated underwriting through smart contracts, making immediate financing decisions for payment transactions possible.
Other Web3 RWA financing platforms include Centrifuge (the first RWA project) and Ondo.
Web2-like participants: SWIFT, Visa, Mastercard
Payments: Fun
Fun.xyz launches Checkout, a multifunctional tool designed to streamline any on-chain action by allowing users to complete transactions using any asset at the point of purchase. Checkout aggregates diverse payment options, enhancing user experience and maximizing dApp conversion rates.
Liquidity aggregator: Integrating funds from EVM wallets, Solana wallets, centralized exchanges, and credit cards for cross-chain payments.
Routing engine: Executing complex, batched on-chain actions while ensuring transaction certainty and price optimization.
Checkout SDK: A lightweight integration that improves application conversion rates by adapting to the user's preferred payment methods.
The advantage of Fun.xyz lies in removing common barriers in Web3 transactions, allowing users to more easily execute on-chain actions without asset conversion or deposit/withdrawal hassles.
Other participants include Aeon, which offers a one-stop checkout experience in the Telegram Mini App.
Embedded yield: Morpho
Morpho is a modular lending protocol. It provides potential investors with different isolated high-yield pools. Its magic lies in its modular approach. It embeds into many asset management protocols, such as Brahama and Infinex, to provide savings yields.
We are looking for more embedded yield products. Wallets or any products involving capital custody can be integrated with just a few lines of code. This way, interest can be earned regardless of where the funds are.
Web3 Card: Offramp
Offramp offers stablecoin holders USD-based products with yields up to 5%, a stablecoin-backed crypto card, and ACH and wire payment reception. It functions similarly to a new type of bank, providing banking accounts, payment, and savings functionalities.
This is a mature space, with numerous card issuers, KYC providers, and upstream/downstream products. Different card issuers vary in regulation, fees, and payment support (e.g., physical cards, Apple Pay). Some participants include Rain and Immersive, the latter being a major member of the Mastercard network.
However, these are typically prepaid debit cards that require users to deposit funds before use, unlike traditional credit cards. With credit cards, users can leverage the interest generated by DeFi protocols to repay credit debts, though credit costs may accrue over time due to interest payments.
For DeFi protocols, crypto credit cards are a valuable asset as they allow users seamless access to their funds for everyday spending without needing to withdraw funds from the protocol.
Deposits and withdrawals: Bridge
Bridge simplifies global payments through stablecoin-based solutions, enabling businesses to move, store, and manage funds at internet speed. Through its Orchestration APIs, Bridge eliminates the complexities of compliance and regulation, allowing seamless integration of stablecoin payments with just a few lines of code. Bridge supports USD, EUR, and major stablecoins like USDC and USDT, with reserves invested in US Treasuries, offering over 5% yield opportunities.
Through Bridge's issuance APIs, companies can issue their own stablecoins and expand into global markets by offering dollar and euro accounts, as well as international money transfer options.
Vision
PayFi, as a transformative solution, effectively addresses the 'impossible triangle' in traditional finance: yield, liquidity, and risk. In traditional finance, investors often face a trade-off: to achieve high yields usually requires sacrificing liquidity or accepting higher risk, while maintaining liquidity and security often means accepting lower returns. This triangle has long limited financial opportunities, especially for small capital investors.
PayFi breaks this mold by leveraging blockchain and DeFi. By integrating payment infrastructure with DeFi capabilities, PayFi transforms every dollar into smart, autonomous capital that can automatically seek yield-generating opportunities. With blockchain's rapid settlement, dollars can provide decent yields while maintaining liquidity.
