Source: IOSG Ventures
Thanks to John@Asylum, Jerome@immersive, Mortiz@Fluidkey, Eddie@AEON, Wyatt@VanEck, Momir@IOSG for their support of this article.
The rapid growth of stablecoin payments is reshaping global finance, with transaction volumes comparable to those of 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 huge opportunities for stablecoins:
“Cross-border payments typically incur high transaction fees, exchange rate markings, and intermediary fees (and also take a long time to complete settlement)… The market size of B2B cross-border payments is huge…FXC Intelligence estimates the total market size for B2B cross-border payments at $39 trillion in 2023, and is expected to grow 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 $3.2 trillion worth of stablecoins per month, where traditional payment rails are too difficult, slow, and expensive.” - Sequoia Capital, Working with Bridge: A Better Way to Move Money
The advantages of blockchain-based payment systems are clear:
“Unlike most traditional financial payment methods, which take days to settle, blockchain rails can settle transactions almost instantly across the globe…Due to the elimination of various intermediaries and superior technological infrastructure, crypto-enabled payments can offer significantly lower costs than existing offerings.” - The Future of Payments by Andreessen Horowitz
Traditional financial giants are taking notice:
“Industry giants including Stripe have launched new payment options for these assets, and these numbers are growing rapidly…Bridge is built on the blockchain, it operates 24 hours a day, in nearly every country - at just 10% of the cost of traditional FX rails. ” - Sequoia Capital, Partnering with Bridge: A Better Way to Move Money
Not every dollar is created equal. Some are able to access premium opportunities, while others wait to depreciate.
PayFi Brings DeFi to the Next Level Integrated into payments, it transforms every dollar into smart, autonomous money. It transforms idle funds into productive assets that generate yield while maintaining liquidity.
Historically, access to premium financial opportunities has been limited to large capital holders due to high minimum investment requirements, exclusive access to private markets, and barriers to entry to specialized financial vehicles like hedge funds or private equity. PayFi democratizes this advantage, making competitive yields available to even small amounts of money without sacrificing accessibility. Smart stablecoins can solve the time, risk, and liquidity trilemma, like allowing users to get discounts by paying bills early.
Web3 payments are like high-speed trains: moving value around the world efficiently, quickly, and reliably. PayFi goes a step further and adds a smart layer similar to an automated logistics network. It not only moves value swiftly, but also provides a few key features:
Smart Routing:Automatically direct assets based on user-defined logic (smart contracts).
Convergence Efficiency:Merge multiple transactions for better liquidity.
Dynamic Optimization:Redirect in times of congestion or high network fees.
Programmable Finance:Automate payments based on complex conditions.
Asset Conversion:Swap assets as needed during the journey.
PayFi does more than just move money - it makes money smarter and more efficient. Almost all products are using one or more of these features.
While cash remains king due to its liquidity, autonomy, global offline acceptance, and privacy, it has one key flaw: depreciation. Inflation constantly erodes its value, forcing users to choose between liquidity and yield.
Traditional fintech applications like PayPal and Venmo offer yield products, but these solutions are fragmented, offer limited returns, and require users to actively move funds to specific accounts.
PayFi revolutionizes this space with a seamless solution. Whether in the form of stablecoins, loyalty points, or pending refunds, funds within the PayFi system seamlessly generate yield, whether they are stored in a wallet, payment channel, or shopping platform. Users enjoy returns comparable to their investment while keeping their funds instantly accessible.
This means:
No idle capital: every dollar is constantly working.
Global yield: even non-cash assets can generate yield.
For example, interest-bearing stablecoins show how PayFi integrates earning opportunities into everyday financial systems.
By leveraging the composability of blockchain, PayFi unlocks top financial opportunities for everyone, every asset, everywhere. Developers can build on existing protocols without having to start from scratch and provide a seamless user experience.
User Profile/Needs:Targets individuals or SMEs with a stable source of income but tight cash flow. The goal is to provide flexible payment options, ease cash flow pressure, and reduce the risk of overdue payments.
Users benefit through tailored financial planning, cost reduction through exclusive discounts, and uninterrupted access to essential goods and services even when cash flow is tight.
The benefits to merchants are reduced payment delays, faster reinvestment of funds into operations, and enhanced customer loyalty through flexible supply.
These products provide greater flexibility and fairness in financial transactions for both users and merchants. For example:
Early Payment Discounts: Users can receive a small discount if they pay their bills immediately after receiving funds, incentivizing timely payment.
Installment and Buy Now Pay Later: These options give consumers the power to manage their cash flow, making large purchases more affordable without having to pay all at once.
Accelerated Payments for Merchants: Merchants can get paid faster, which, while incurring a small fee, can improve liquidity and smooth cash flow.
Some Web2 projects, such as Affirm, Afterpay, Klarna, and PayPal, offer installment payment solutions.
User Profile/Needs:Targeting individuals who hold mainstream currencies and have some idle funds, focusing on small-scale fund management. The product provides a USD yield solution with low risk, high liquidity, convenience, and flexibility. Users want to easily grow a small amount of capital while maintaining strong liquidity for financial needs. Some users have preferences for specific assets, such as US Treasuries or DeFi lending yields.
PayFi turns idle assets into yield-generating capital. Compared with traditional "yield" products, PayFi's embedded yield solution works seamlessly across a variety of asset types and products, such as points in online stores, pending refunds, or gift cards.
Common yield solutions on the market include farm modules embedded in wallets, stablecoins with yields, and flexible yield products on centralized exchanges (CEX). Yields mainly come from DeFi lending, protocol airdrops, delta neutral strategies, and US bonds.
On-chain embedded yield solutions offer advantages over fintech and traditional banking solutions in some ways, primarily due to liquidity management constraints caused by the custodial nature of funds in traditional systems.
Embedded yield solutions improve transparency and capital efficiency by enabling users to self-custody and manage their own liquidity. 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 will enable users to directly control their funds, allocate funds to liquidity pools or other yield opportunities, and maximize returns without the constraints of centralized management.
For users and institutions, this improves access to loan and credit products that are different from traditional finance.
Payments are a complex process, and there is a lot we can do to improve capital efficiency by financing each step.
PayFi applications often rely on third-party integrations, making this space competitive. However, PayFi can stand out by focusing on three core strengths:
User attraction:Build a moat through high transaction volume and frequency.
Orchestration complexity:Simplify the fragmented payment process for users.
Feature richness:Provide features that traditional Web2 systems lack.
Also to consider are:
The efficiency gains they bring
Their role in the payment process and potential market size
Regulatory and risk management aspects
PayFi Pillars
Huma introduced the PayFi stack by building everything from scratch.
Transaction Layer: Handles payment processing and settlement
Currency Layer: Manages stablecoins and digital assets
Custody Layer: Ensures secure storage of assets
Financing Layer: Provides lending and credit services
Compliance Layer: Maintains regulatory compliance
Application Layer: Provides user-facing services
Huma is different in that it focuses on short-term financing within the payment and supply chain space. The platform enables real-time credit assessment and automated underwriting through smart contracts, making it possible to provide instant financing decisions for payment transactions.
Some other Web3 RWA financing platforms include Centrifuge (the first RWA project) and Ondo.
Web2-like players: SWIFT, Visa, Mastercard
Fun.xyz launches Checkout, an all-in-one tool designed to simplify any on-chain activity by allowing users to complete transactions with any asset at the point of purchase. Checkout aggregates multiple payment options, improving user experience and maximizing dApp conversion.
Liquidity Aggregator: Aggregates funds from EVM wallets, Solana wallets, centralized exchanges, and credit cards to enable cross-chain payments.
Routing Engine: Executes complex, batched on-chain activities while ensuring transaction finality and price optimization.
Checkout SDK: A lightweight integration that increases app conversion by adapting to the user’s preferred payment method.
Fun.xyz’s advantage is that it removes common barriers to Web3 transactions, making it easier for users to perform on-chain actions without the hassle of asset conversion or deposits and withdrawals.
Other participants include Aeon, which provides a one-stop checkout experience in the Telegram Mini App.
Morpho is a modular lending protocol. It offers different segregated high-yield pools to potential investors. Its magic lies in its modular approach. It is embedded into many asset management protocols like Brahama and Infinex to provide savings yield.
We are looking for more embedded yield products. Wallets or any product involving capital custody can be integrated with a few lines of code. This way, interest can be earned no matter where the funds are.
Offramp offers a USD-based product for stablecoin holders, offering up to 5% USD yield, a stablecoin-backed crypto card, and ACH and wire payment receiving. It functions like a neo-bank, offering bank accounts, payments, and savings capabilities.
This is a mature space with numerous card issuers, KYC providers, and upstream/downstream products. Different card issuers vary in terms of regulation, fees, and payment support (e.g., physical cards, Apple Pay). Some of the players include Rain and Immersive, the latter of which is also a principal 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 use the interest generated by DeFi protocols to pay down credit debt, although credit also incurs costs due to interest payments over time.
Crypto credit cards are a valuable asset to DeFi protocols because it enables users to seamlessly access their funds for daily spending without having to withdraw funds from the protocol.
Bridge simplifies global payments with stablecoin-based solutions that enable businesses to move, store, and manage funds at internet speeds. Through its Orchestration APIs, Bridge removes the complexity of compliance and regulation, allowing for seamless integration of stablecoin payments with just a few lines of code. Bridge supports USD, EUR and major stablecoins such as USDC and USDT, with reserves invested in US Treasuries, providing yield opportunities of more than 5%.
Through the issuance APIs of the bridge, companies can issue their own stablecoins, expanding global markets by providing USD and EUR accounts and international currency transfer options.
PayFi, as a transformative solution, effectively solves the "impossible triangle" in traditional finance: yield, liquidity and risk. In traditional finance, investors often face a trade-off: achieving high returns usually requires sacrificing liquidity or accepting higher risks, while maintaining liquidity and security usually means having to accept lower returns. This triangle has long limited financial opportunities, especially for small capital investors.
PayFi breaks this pattern by leveraging blockchain and DeFi. By integrating payment infrastructure with DeFi capabilities, PayFi transforms every dollar into smart, autonomous capital that can automatically seek opportunities to generate income. With the fast settlement of blockchain, the dollar can maintain liquidity while providing good returns.
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