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Cryptocurrencies have experienced rapid growth over the past decade, evolving from their initial niche technology experiments into mainstream financial instruments. The Web3 payment system is based on blockchain technology to ensure the transparency, security and non-tamperability of transactions. These systems are increasingly integrated into e-commerce platforms, point-of-sale systems, and peer-to-peer payment applications, making the use of cryptocurrencies in daily life more convenient.
As of 2023, the Web3 payments market has reached a valuation of $1.2 billion and is expected to continue to grow at a compound annual growth rate of more than 15% from 2024 to 2032. Web3 payment is expected to become an important pillar of the digital economy, bringing new opportunities and challenges to the global financial ecosystem just like traditional payment systems.
Current Web3 payment infrastructure
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Web3 payment infrastructure
Existing Web3 payments infrastructure greatly simplifies traditional payment processes. Typically, a payment transaction requires only three parties: the payer, the payee, and the blockchain (as the intermediary). Since the blockchain itself is not conscious, it can be said that only two parties are actually required, which makes transactions more advantageous in terms of speed and cost. All Web3 payment protocols are based on the same infrastructure, and the specific implementation may vary slightly depending on the protocol's up and down conversion needs.
Sphere Pay and Loopcrypto.xyz are two unique payment infrastructure protocols that allow businesses to integrate Web3 payment capabilities, and we will explore their features in detail later.
What is PayFi?
PayFi was born as payments and decentralized finance (DeFi) come together, a financial market built around the time value of money. PayFi offers a way to meet today’s needs with future money in a way that traditional finance can’t.
PayFi includes multiple payment forms:
Payment tokens, such as tokens representing the time value of tokenized U.S. Treasury securities or yield-generating stablecoins;
Provide financing for real-world assets (RWAs) through DeFi lending and realize on-chain returns in real-world payment scenarios;
A new Web3 payment system that integrates seamlessly with DeFi protocols;
Moving traditional payment logic to the blockchain aims to build a comprehensive Web3 payment architecture.
A good example of PayFi is Ondo Finance. This protocol aims to make institutional-grade financial products accessible to more people by tokenizing U.S. Treasury bonds. Ondo Finance brings low-risk, stable income, and scalable financial products, such as U.S. Treasury bonds and money market funds, to the blockchain, allowing stablecoin holders to earn income from their assets.
Ondo Finance offers two products: OUSG and USDY. OUSG is a tokenized U.S. Treasury bond fund, while USDY is an income-generating stablecoin backed by short-term U.S. Treasury bonds. As of August 23, 2024, the total locked value of these two products reached $556 million.
Through USDY, holders can not only denominated in US dollars, but also earn income. Therefore, Ondo adds practical application value to payment tokens and further promotes the development of PayFi in Web3.
Interesting payment innovations
This section will look at some interesting or little-known innovations in the payments industry, not involving crypto cards and up and down functions.
Karrier One (Pay x DePIN)
The combination of payments and DePIN has logical applications in telecommunications networks. Karrier One is a carrier-grade decentralized network that integrates payment and DePIN functionality. The Karrier One network consists of three modules: telecommunications, blockchain and Karrier Numbering System (KNS). They partner with global telecom providers to provide seamless communication coverage around the world. The network is managed by Karrier DAO, and token holders can participate in governance decisions.
With KNS, users get a Web3 wallet directly linked to their phone number. This integration effectively combines PayFi and DePIN by allowing users to participate in DeFi activities, send and receive cryptocurrencies, and enable smooth payment processes. There are 7.1 billion mobile phone users worldwide, which provides huge potential for the growth of Web3 telecommunications networks.
They are Finance
Huma Finance is an income-based lending protocol. It allows borrowers to borrow against future income by matching investors on the global chain. The protocol features common credit facilities and is equipped with decentralized signal processors and assessment agents, which are important infrastructure for integration with revenue sources, credit assessment and ongoing risk management.
As of August 23, 2024, Huma has raised nearly $900 million, of which $883 million has been successfully repaid, and currently has a credit default rate of 0%.
Sphere Pay
Sphere is a payment API designed specifically for digital currencies. By providing a one-stop payment experience, Sphere connects ordinary users with stablecoins and accelerates the development of Web3 payment systems.
Sphere provides merchants with a customizable or preset front-end and user experience, allowing them to flexibly apply Sphere Pay. In addition, Sphere offers a variety of pricing models to meet merchants’ different needs for products or services. Sphere does not charge a software usage fee, but charges a fixed fee of 0.3% from each transaction, making the software free and open to all users. This makes Sphere ideal for smaller businesses, especially those with low transaction volumes or low startup costs.
Loopcrypto.xyz
Loop is a Web3 payments infrastructure that helps companies schedule or automate collections and payments. Through automated payments, Loop improves operational efficiency and reduces customer churn. The platform supports all ERC-20 Tokens with the option to settle in cryptocurrency or fiat, which reduces the complexity for businesses in converting funds.
Loop provides plug-and-play software, minimizing friction for enterprises during the implementation process. It also integrates with top platforms like Stripe, Zapier, Xero, and more, making it easy for business owners to seamlessly integrate Loop into their existing financial management systems. As a result, businesses using traditional invoicing systems can easily add cryptocurrencies as an additional payment option for their customers without the need for a wholesale revamp of their systems.
Orbit
Orbita is a decentralized L1 payment protocol developed based on Cosmos. It is still under development and has not yet launched a testnet. Since the team may still be working on documentation and white papers, these materials are not yet public.
Orbita’s core features will include direct irreversible payments, reversible payments, decentralized subscriptions and e-commerce integration. As a payment-focused L1 protocol, this is a completely new direction in the payments industry and could lead to interesting changes.
Market data and updates
Source: DefiLlama stablecoin total market value
Image source: Glassnode stablecoin: transfer volume
As cryptocurrencies have boomed over the past decade, stablecoins have also grown rapidly. The total market capitalization of stablecoins surged from $20 million in 2017 to $170 billion in 2024. By 2024, the total stablecoin transfer volume reached 60 billion at its peak. As transfer volume continues to grow, the use of stablecoins for payments and other purposes is becoming more common. As stablecoins become more widely accepted, demand for payment systems will increase.
Major stablecoin providers are also actively expanding functional markets. Tether recently announced that it will launch a dirham stablecoin in the UAE that will be fully backed by local reserves, with the goal of becoming the digital payment token of choice in the UAE. Circle CEO Jeremy Allaire also said that they plan to develop a swipe-and-pay payment method using USDC on iPhone. The plan comes after Apple allowed third-party developers to use iPhone secure payment chips. This will make paying with USDC as easy and smooth as using traditional banks and credit cards.
Paypal has been actively promoting PYUSD since entering the stablecoin market in August 2023. About a year after its launch, PYUSD has risen to become the sixth-largest stablecoin, surpassing established currencies such as FRAX and BUSD. Paypal's expanded capabilities in Solana and its incentive program with Kamino also became strong draws. Additionally, Paypal recently partnered with Anchorage Digital to offer incentives to institutions holding PYUSD, further attracting inflows.
Thoughts: The Impact of Web3 Payments
One of the great advantages of Web3 is its ability to enable secure, low-cost, and nearly instantaneous global transactions. While the Web3 industry is still in its infancy, institutions, businesses, and individuals are already using blockchain for payments.
However, if Web3 payments become mainstream, how will banks react if intermediary fees are slashed? In order to gain market share, we see banks starting to build their own private blockchains, but even then their revenue will still be much lower than current fees. It is foreseeable that there will be resistance, and it may take some time for the retail side to become popular. It is obvious that the opacity and centralization of private blockchains will continue to be characteristics of traditional banks.
In addition, Web3 payment has more advantages in global transactions, especially import and export, but has little impact on the needs of ordinary locals. If paying with cryptocurrency is not that different from paying with a traditional card at my local grocery store, why should I choose cryptocurrency? The appeal of self-management? For most people, such small benefits are not attractive. Therefore, switching costs may hinder adoption by average users in the short term.
I believe that the stablecoin market will continue to grow over the next decade as Web3 and the payments market develop. Innovations in telecom networks like Karrier One and future revenue financing from Huma Finance will undoubtedly enable more innovations and drive adoption of the market. Therefore, given the right catalysts such as regulatory green light, a boom in Web3 payments will be inevitable. In fact, as we have seen over the past few years, the market is likely to continue to grow with or without regulatory clarity. I remain optimistic and expect Web3 payments to become a no-brainer and no longer met with skepticism.
What does the future of Web3 look like in your mind?
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[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "Deep Wave TechFlow"
Original author: dpycm.eth
