Written by: Kedar@Foresight Ventures, Alice@Foresight Ventures
Contributor: Max Hamilton @Foresight Ventures
PayFi: A revolutionary force in financial transactions
In today's world, cross-border payments often take several days, and businesses have to bear transaction fees as high as several billion dollars. PayFi emerges as an innovative solution, combining the advantages of decentralized finance (DeFi) with the immediacy of modern payment systems, with the potential to reshape the future landscape of transactions.
As the global financial landscape continues to evolve, PayFi emerges at the intersection of blockchain technology and payment systems, dedicated to combining the efficiency of DeFi with the immediacy and convenience of modern payment solutions, transforming transaction methods. This article will delve into the reasons behind the rise of PayFi, outline the current state of its industry, and list key cases to explore its potential application scenarios.
1. Background and advantages of PayFi's emergence
(1) Bridging the gap between DeFi and payments
The traditional financial system has long suffered from low settlement efficiency issues, such as lengthy settlement times, high transaction costs, and limited accessibility, which were laid bare during the 2008 financial crisis. Although DeFi has introduced innovative financial services through decentralized platforms, it still lacks real-time processing capabilities for everyday transactions.
PayFi achieves real-time settlement of transactions through blockchain technology. Based on the time value of money (TVM) theory, where currently available currency has greater potential earning capacity than an equivalent amount of currency in the future, PayFi maximizes financial efficiency through instant, secure, and low-cost transactions.
(2) Unique advantages of PayFi
Real-time settlement: Transactions are completed instantly, eliminating delays in traditional banking systems.
Safe and reliable: The immutable ledger characteristic of blockchain ensures transaction security and transparency, providing users with assurance.
Cost reduction: Eliminating intermediaries significantly reduces transaction costs, saving users expenses.
Globally accessible: Its decentralized platform reaches markets that traditional financial services have not adequately covered, including unbanked populations, achieving financial service inclusiveness.
Innovative products: Giving rise to novel financial service models such as 'Buy now, pay never', as well as providing advanced monetization avenues for creators and other innovative applications.
2. Overview of the PayFi industry and insights into its segments
The PayFi ecosystem is thriving, with various industries actively innovating to tackle financial challenges. Below is an analysis of its key segments and examples of innovative companies within each sector.
(1) Cross-chain and cross-border payments
Chronic issues in traditional cross-border payments
Slow speed and high latency: Traditional payment channels are inefficient, with settlements often taking several days, and the settlement processes across time zones and bank hours are complex, exacerbating payment delays.
Inefficient use of funds and pre-deposit fund constraints: Pre-deposit fund requirements make financial institutions maintain foreign currency funds in their correspondent accounts, resulting in a global liquidity gap of $4 trillion, with idle funds unable to generate returns, becoming a hidden cost for financial institutions that is passed on to end-users, leading users to pay higher fees.
High transaction costs: Involving multiple intermediaries leads to layered fees, including pre-deposit fund fees, currency exchange fees, etc., with the average transaction cost for global cross-border remittances reaching as high as 6.35% (World Bank statistics).
Industry innovation cases
Arf: Building a regulated global settlement banking platform, providing on-chain liquidity solutions for financial institutions. By leveraging stablecoins like USDC to achieve the immediacy and low-cost advantages of cross-border settlements, it provides real-time liquidity for cross-border transactions on demand, eliminating the reliance on large cash reserves in correspondent accounts; offering USDC-based instant credit lines that allow financial institutions to borrow funds temporarily during transactions and repay after payment settlement. Arf discards the pre-deposit account model, effectively reducing funding needs and settlement times through USDC's short-term liquidity solutions, significantly cutting operational costs for financial institutions engaged in global transactions. It emphasizes transparency, creating comprehensive and traceable lending records, easily tracking all loan, repayment, and receivable information through blockchain. Adhering to strict compliance principles, as a member of the VQF Financial Services Standards Association, it follows international standards for anti-money laundering and financial regulation, setting a benchmark for the industry. To date, it has successfully processed over $1.6 billion in on-chain transactions while maintaining a zero-default record.
suave.money: Creating a cross-chain payment solution that enables businesses to receive cryptocurrency payments from any blockchain network, allowing businesses to seamlessly integrate various token payments and flexibly choose the tokens they wish to receive based on their needs, enhancing payment flexibility within the blockchain ecosystem. The platform of suave.money simplifies cross-chain transactions, allowing businesses to attract user groups from different blockchain ecosystems without the need to manage multiple wallets or rewrite decentralized applications (DApps), broadening customer sources. By facilitating payment convenience from over ten blockchain networks, it enhances liquidity acquisition capabilities, providing strong support for DeFi and Web3 projects, expanding market coverage. Simplifying cross-chain transaction processes reduces operational complexity for businesses, allowing them to attract customers more broadly within the blockchain ecosystem without relying on specialized infrastructure, creating more opportunities for business development. Through its innovative capabilities, it helps businesses tap into the trillion-dollar cross-chain capital potential, occupying an important position in the rapidly developing DeFi and crypto payment fields, providing users with unparalleled flexibility and convenience.
(2) Income and receivables-based lending
Difficulties in traditional lending models: Traditional lending businesses rely on collateral, excluding potential borrowers who lack substantial assets or credit histories, thus limiting the inclusiveness and fairness of financial services.
Emergence of innovative solutions: Platforms like Huma Finance allow users to borrow against future income or receivables as collateral, utilizing blockchain technology to achieve transparency and efficiency in the lending process.
Positive benefits brought: This innovative model significantly enhances financial inclusion, providing new avenues for funding in markets neglected by traditional financial institutions, promoting balanced economic development and social justice.
Case study of Huma Finance: Building a decentralized lending protocol to provide businesses and individuals with lending services based on future income and receivables. Connecting borrowers with global investors through an on-chain platform, it pioneers an income-supported lending model different from traditional DeFi over-collateralization models. Collaborating with platforms like Circle, Request Network, and Superfluid, it launched the world's first on-chain factoring market on Ethereum and Polygon, allowing users to use tokenized invoices or payment streams as collateral, broadening the range and form of collateral. Leveraging blockchain efficiency, the factoring process on-chain processing time is reduced to under a minute, providing a convenient experience for users. Huma Finance's technical architecture includes several key components. The decentralized income portfolio layer transforms income sources such as invoices, payrolls, and staking rewards into tokenizable assets, providing a rich asset base for lending services. The assessment agency framework is responsible for precise risk assessment of various lending needs, ensuring reliable and stable on-chain credit quality. The smart contract suite implements diversified lending use cases from invoice factoring to general credit limits through configurable smart contracts, meeting different users' personalized needs. Huma Finance focuses on providing urgently needed liquidity support for SMEs and unbanked populations, helping these groups break through traditional financial limitations to access previously unattainable funding resources, promoting their economic development and social integration, and making positive contributions to building a fairer, more inclusive financial ecosystem.
(3) Tokenization of real-world assets
Challenges in traditional asset transactions: The transaction process of real-world assets such as real estate is cumbersome, with high intermediary costs and slow transaction speeds, causing inconvenience and financial burdens for both buyers and sellers.
Innovative breakthrough in tokenization: Tokenizing real estate and other real-world assets through smart contract technology, allowing asset ownership to be divided into multiple parts for fractional ownership trading, while significantly accelerating transaction speed and processes, injecting new vitality into the asset trading market.
Significant advantages brought: This tokenization model significantly lowers the barriers for investors to enter the market, allowing more investors to participate in real-world asset investments while greatly enhancing asset liquidity, accelerating the asset buying and selling process, making market resources more efficiently allocated and circulated.
Successful practice of Ondo Finance: Launched tokenized U.S. Treasury bonds and other yield-generating products on the blockchain platform, opening up new investment channels for investors, allowing them to conveniently obtain short-term U.S. Treasury bonds and other fixed-income assets through decentralized finance (DeFi), achieving an organic integration of traditional financial markets and DeFi. Ondo Finance's innovative products provide investors with stable, attractive returns, coupled with liquidity and security, breaking down the barriers between traditional financial markets and DeFi, allowing more investors to share the previously relatively closed capital market dividends, enriching investor asset allocation combinations and enhancing the overall efficiency and vitality of the financial market. As of September 2024, Ondo Finance has achieved remarkable results in the tokenized U.S. Treasury bond product field, with its total locked value (TVL) surpassing $600 million. Among them, the locked amount of USDY (yield-bearing stablecoin) reached $384 million, and the locked amount of OUSG (tokenized U.S. Treasury bonds) reached $221 million, fully proving the market's high recognition and wide acceptance of its innovative products, highlighting its leading position and strong influence in the real-world asset tokenization field.
Zoth's innovative contribution: Building a market platform specifically for tokenized trade finance assets, providing investors with convenient access to fixed-income products priced in U.S. dollars. By tokenizing traditional financial assets such as trade receivables and corporate bonds, it bridges the gap between traditional finance and decentralized finance (DeFi), creating high-yield, low-risk investment opportunities for investors while providing enterprises with new financing channels and capital management methods. Zoth's platform plays an important role in the market, not only providing investors with quality investment options to help them achieve asset appreciation and value preservation but also offering strong support for enterprise development. By tokenizing trade finance assets, companies can unlock operational funds more efficiently, optimize their capital structure, and enhance their competitiveness and risk resistance. Meanwhile, this helps promote the global market's capital optimization allocation, directing financial resources more reasonably to enterprises and projects in need, further improving the on-chain trade finance ecosystem and making positive contributions to the stability and development of the entire financial market.
(4) Corporate payment and credit solutions
New consumer demands and limitations of traditional credit: In today's consumer market, consumers demand greater flexibility in payment methods and expect to enjoy a more convenient and diverse payment experience without bearing heavy debt burdens; however, traditional credit models often fail to meet this demand, causing inconvenience and financial pressure for consumers.
PayFi's innovative model: In response to this market demand, PayFi innovatively introduces unique payment models such as 'Buy now, pay never', cleverly utilizing the interest income obtained from DeFi lending platforms to offset purchase costs, providing consumers with a new, more flexible, and debt-free payment solution, greatly enhancing consumer purchasing power and shopping experience.
Industry innovation cases
Rain: Launched a USDC-backed corporate card designed for the daily business payment needs of Web3 teams (such as decentralized autonomous organizations DAO and various protocol projects). With this corporate card, Web3 teams can conveniently use their on-chain assets (such as USDC) to pay for travel expenses, office supply purchases, and other daily business costs without the need for tedious conversions between cryptocurrency and fiat currency, greatly simplifying corporate payment processes and enhancing financial management efficiency. Rain's corporate card, as an important part of its expense management platform, fully leverages the advantages of blockchain technology to achieve seamless integration of digital assets with traditional payment systems. This innovative payment method allows businesses to manage finances more efficiently, reducing intermediary costs and time consumption while providing more convenient and secure payment solutions for enterprises in the blockchain and crypto sectors, significantly promoting the development and application of the Web3 industry.
Ether.fi: The launched 'Ether.fi Cash' product has attracted wide attention in the market. This is a credit card in collaboration with Visa, featuring unique innovative functions. Users holding this card can easily obtain borrowing limits using their crypto assets (including various Ethereum-based assets) as collateral, allowing them to consume fiat currency without selling their crypto assets, providing users with a more flexible funding management approach and consumption experience. Additionally, the 'Ether.fi Cash' credit card is deeply integrated with Ethereum's Layer 2 network Scroll, which significantly reduces transaction costs and further enhances user cost-effectiveness. At the same time, this card supports peer-to-peer USDC transfer functions, allowing users to transfer and manage funds more conveniently, meeting payment needs in different scenarios, while bypassing traditional banking intermediaries to save users from additional costs. Furthermore, to enhance user enthusiasm and satisfaction, the 'Ether.fi Cash' credit card also offers attractive cashback rewards, bringing real economic benefits to the user consumption process, further increasing the product's market competitiveness and user stickiness.
Bitget Card: The launched Visa card serves as an important bridge between cryptocurrency and traditional payment systems, providing users with convenient and efficient payment solutions. This card is closely linked to multi-currency wallets, allowing businesses or individual users to conveniently hold, convert, and use various mainstream cryptocurrencies such as USDT, BTC, ETH, USDC, BGB, etc. (Currently, the funding account is mainly topped up with USDT, with plans to gradually introduce more cryptocurrencies in the future). In the actual payment process, the Bitget Card can automatically convert cryptocurrencies into fiat currency based on real-time exchange rates, ensuring users can smoothly complete payments at any merchant accepting Visa cards worldwide without worrying about the cumbersome currency exchange procedures and exchange rate fluctuations, truly achieving seamless integration of cryptocurrency and fiat currency payments, providing users with great convenience. The emergence of the Bitget Card has an important impact on the corporate payment field, not only simplifying corporate payment processes, allowing businesses to use traditional currency for consumption in real time without manually performing complex cryptocurrency and fiat currency conversion operations, significantly improving payment efficiency and fund utilization efficiency. At the same time, its strong cross-border payment capabilities enable enterprises to operate more smoothly in international business expansion and operations without worrying about opening and managing foreign currency accounts, effectively reducing operational costs and financial risks. Currently, the Bitget Card has been widely accepted and recognized in over 180 countries and regions worldwide, providing strong support for the globalization of enterprise development. Additionally, the Bitget Card also has rich potential DeFi use cases, such as in supplier payments, where enterprises can directly use this card to pay suppliers in fiat currency, avoiding the cumbersome process of manually converting cryptocurrencies, thus improving payment efficiency and stability in the supply chain; in travel expense reimbursements, employees can easily make business-related consumption payments during cross-border travel with this card, such as booking flights and hotel accommodations, without worrying about payment restrictions and fee issues, providing more convenient payment solutions for enterprises' cross-border business activities; in corporate reward mechanisms, enterprises can also utilize the cryptocurrency payment function provided by the Bitget Card to issue rewards based on cryptocurrency to employees, who can then convert the cryptocurrency into fiat currency for consumption based on their needs or use it directly in scenarios supporting cryptocurrency payments, bringing more innovation and flexibility to corporate employee incentive and welfare systems, further enhancing corporate competitiveness and attractiveness.
(5) Supply chain and trade finance
Difficulties in traditional supply chain finance: In the traditional supply chain finance system, suppliers often face long and complex payment cycles, with large amounts of capital locked for extended periods, severely limiting their operational efficiency and cash turnover ability, making it difficult to maintain normal production and business expansion. According to statistics, global companies face a staggering $2.5 trillion in trade financing needs annually that cannot be effectively met due to the limitations of traditional financial institutions, which has become a bottleneck in global trade development, hindering the collaborative development of supply chains and stable economic growth.
PayFi's solution: PayFi introduces innovative solutions for invoice financing issues in supply chain finance by leveraging decentralized platforms. In this model, suppliers can use the advantages of blockchain technology to tokenize their held invoices and quickly achieve financing on decentralized platforms, obtaining immediate funding support, greatly improving liquidity conditions. Meanwhile, buyers can continue to settle according to their original payment plans without changing traditional payment habits and financial processes, balancing the interests of both parties and enabling collaborative development, providing strong guarantees for the efficient operation of supply chain finance.
Industry innovation cases
Isle Finance: An on-chain credit market deeply engaged in the supply chain finance sector, its platform can precisely connect high-credit buyers with liquidity providers, enabling businesses to secure financing more quickly. It cleverly employs blockchain technology, rigorously verifying real-world assets (RWAs), and implementing early payment strategies for buyers, especially those with low credit ratings, greatly enhancing liquidity and security throughout the supply chain, laying a solid foundation for the stable development of supply chain finance. Isle Finance vigorously promotes reverse factoring on its platform, significantly accelerating the payment speed for enterprises and optimizing cash flow conditions. This blockchain-based innovative solution allows businesses to flexibly offer early payment discounts, creating a very stable and substantial return in the supply chain finance sector while expanding channels for liquidity acquisition, injecting strong impetus for their continued development.
(6) Stablecoin payment platforms
Example: Agora
Business content: Carefully crafted the U.S. digital dollar (AUSD), backed by cash, U.S. Treasury bonds, and full support of overnight repurchase agreements. The platform is committed to using blockchain technology to enable broader and more convenient circulation of dollars worldwide, particularly focusing on areas inadequately covered by traditional financial systems, fully implementing the concept of financial inclusion, and opening a new path for the public to more easily obtain stable and globally recognized currency.
Impact: It powerfully promotes the democratization of dollar access, highly aligning with PayFi's grand vision of expanding financial inclusion. It fully leverages the technological advantages of blockchain to build a decentralized and easily accessible financial system, enabling individuals and enterprises to benefit from dollar-backed financial tools, with particularly significant results in regions such as Argentina and Southeast Asia, providing strong support for local economic development and financial stability.
Achievement: Successfully launched stablecoin AUSD to market, initially issued on Ethereum and later expanded to Avalanche network. Notably, within just a few weeks after issuance, its minting volume broke through $20 million. Today, the platform is steadily advancing its global digital dollar strategy, continuously expanding international markets, while firmly adhering to the development strategy of financial inclusion and regulatory compliance, gradually establishing a good reputation and influence in the stablecoin field.
Example: PayPal
Business content: Officially launched PayPal USD (PYUSD) in August 2024, initially on the Ethereum blockchain, and successfully expanded to Solana in May 2024. The stablecoin is designed to fully integrate the advantages of both blockchains, striving to achieve a fast, low-cost digital payment experience. Especially after its expansion to Solana, thanks to its excellent transaction speed and low fee advantages, the usability of PYUSD in various commercial and DeFi application scenarios has been greatly enhanced, providing users with a more efficient and convenient payment option.
Impact: With its speed and cost-effectiveness, it is expected to become a powerful alternative to traditional payment systems, significantly enhancing global payment efficiency. It successfully achieves seamless transfer functions across different platforms (including PayPal and Venmo), enabling users to easily hold and transfer stablecoins, and fully leverage the technological advantages of blockchain, bringing more convenience and innovative experiences to users’ digital asset management and payment transactions.
Achievement: Following its expansion to Solana, PYUSD's market adoption rate has shown rapid growth, with its market capitalization quickly climbing and successfully surpassing $500 million. This significant achievement fully demonstrates its deep integration and wide recognition in both centralized and decentralized platforms, marking a substantial victory for PayPal in the stablecoin field and laying a solid foundation for its future development in the digital payment sector.
Example: Bridge (acquired by Stripe)
Business content: Bridge, as a platform focused on stablecoin payments, consistently prioritizes simplifying cross-border digital payments as its core goal. Through a convenient API interface, it can easily achieve stablecoin-based payment integration, providing global users with low-cost, high-efficiency cross-border transaction solutions. Before its acquisition by Stripe, Bridge had already achieved remarkable results in e-commerce platform integration, successfully helping merchants seamlessly connect and efficiently handle stablecoin payment operations from anywhere in the world, significantly expanding the application scope of stablecoins in the business field.
Impact: Recently acquired by U.S. payment giant Stripe, this significant event undoubtedly represents a key milestone in the integration of stablecoins into mainstream financial services. With Stripe's powerful infrastructure and extensive market network, Bridge can further expand its business coverage and comprehensively enhance its capabilities, committed to providing global enterprises with more convenient and efficient stablecoin payment and settlement services. This initiative aligns closely with PayFi's grand vision of promoting financial inclusion and seamless cross-border transactions, aiming to accelerate the widespread application and deep integration of blockchain-supported payment methods within mainstream financial channels, injecting new vitality into the innovative development of global financial payments.
Achievement: In August 2024, Bridge's payment volume annualized run rate successfully surpassed $5 billion, achieving remarkable results. Throughout its development, Bridge has established close partnerships with many industry-leading companies, such as Coinbase and SpaceX, and continues to provide these enterprises with quality payment services, accumulating rich practical experience and a good market reputation in the stablecoin payment field, becoming one of the important forces driving industry development.
Conclusion
Overall, PayFi is not a completely new concept. The problems it aims to address have long existed in the traditional financial system, and there are already corresponding solutions. However, this does not mean PayFi is without value, as traditional solutions are still not sufficiently refined. By addressing the core inefficiencies of the global payment system and leveraging the transformative potential of blockchain, PayFi is expected to release unprecedented liquidity and promote financial inclusion. As more and more companies innovate in this field, the vision of creating a fully decentralized financial ecosystem for instant, secure, and borderless payments is becoming increasingly attainable. Now is the time to embrace the PayFi revolution and shape the future of global finance.
