Will PayFi lead the financial revolution? Check out the top 5 Web3 payment projects

Author: dpycm.eth; Compiler: TechFlow

Over the past decade, cryptocurrencies have experienced rapid development, evolving from niche technology experiments to mainstream financial instruments. Web3 payment systems are based on blockchain technology, ensuring the transparency, security, and immutability 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 more convenient in daily life.

As of 2023, the Web3 payment market has been valued at $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 payments are 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

Web3 Payment Infrastructure

The existing Web3 payment infrastructure has greatly simplified the traditional payment process. Usually, payment transactions only require three parties: the payer, the payee, and the blockchain (as a medium). Since the blockchain itself does not have consciousness, it can be said that only two parties are actually required, which makes the transaction more advantageous in terms of speed and cost. All Web3 payment protocols are based on the same infrastructure, and the specific implementation may differ slightly due to the up and down conversion requirements of the protocol.

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?

With the combination of payments and decentralized finance (DeFi), PayFi came into being, a financial market centered around the time value of money. PayFi provides a way to meet current needs with future money, which is not possible with traditional finance.

PayFi includes multiple payment forms:

1. Payment tokens, such as tokens representing the time value of tokenized U.S. Treasury bonds or stablecoins that generate income;

2. Provide financing for real-world assets (RWAs) through DeFi lending, and realize on-chain income in real-world payment scenarios;

3. A new Web3 payment system that seamlessly integrates with DeFi protocols;

4. Moving traditional payment logic to the blockchain, aiming to build a comprehensive Web3 payment framework.

A typical example of PayFi is Ondo Finance. This protocol is committed to making institutional-level financial products accessible to more people by tokenizing U.S. Treasury bonds. Ondo Finance brings low-risk, stable-yield, and scalable financial products, such as U.S. Treasuries and money market funds, to the blockchain, allowing stablecoin holders to earn yield on their assets.

Ondo Finance offers two products: OUSG and USDY. OUSG is a tokenized U.S. Treasury bond fund, while USDY is a yield-earning stablecoin backed by short-term U.S. Treasuries. As of August 23, 2024, the total locked value of these two products reached $556 million.

With USDY, holders can not only denominate in US dollars, but also earn yield. Therefore, Ondo adds real-world application value to payment tokens and further promotes the development of PayFi in Web3.

Interesting Payment Innovations

This section will introduce some interesting or lesser-known innovations in the payment field that do not involve crypto cards and up-and-down conversion functions.

Karrier One (Payment x DePIN)

The combination of payment and DePIN has a reasonable application in telecommunications networks. Karrier One is a carrier-grade decentralized network that integrates payment and DePIN capabilities. The Karrier One network consists of three modules: telecommunications, blockchain, and Karrier Numbering System (KNS). They work with global telecommunications providers to provide seamless communication coverage around the world. The network is managed by the Karrier DAO, and token holders can participate in governance decisions.

Through KNS, users can get a Web3 wallet directly linked to their phone number. This integration allows users to participate in DeFi activities, send and receive cryptocurrencies, and achieve a smooth payment process, effectively combining PayFi and DePIN. There are 7.1 billion mobile phone users in the world, which provides huge potential for the growth of Web3 telecommunications networks.

Huma Finance

Huma Finance is an income-based lending protocol. It allows borrowers to borrow against future income by matching with global on-chain investors. The protocol has common credit facilities and is equipped with decentralized signal processors and assessment agents, which are important infrastructure for integration with income 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 the current credit default rate is 0%.

Sphere Pay

Sphere is a payment API designed 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 pre-set front-end and user experience, allowing them to flexibly apply Sphere Pay. In addition, Sphere offers multiple pricing models to meet the different needs of merchants for products or services. Instead of charging a software usage fee, Sphere charges a fixed fee of 0.3% from each transaction, making the software free and open to all users. This makes Sphere an ideal choice for small businesses, especially those with low transaction volumes or low startup costs.

Loopcrypto.xyz

Loop is a Web3 payment infrastructure that helps companies schedule or automate collection and payment. Through automated payment capabilities, Loop improves operational efficiency and reduces customer churn. The platform supports all ERC-20 tokens and can choose to settle in cryptocurrencies or fiat currencies, which reduces the complexity of companies in converting funds.

Loop provides plug-and-play software, minimizing the friction for businesses during implementation. It also integrates with top platforms such as Stripe, Zapier, Xero, and others, allowing business owners to easily integrate Loop seamlessly into existing financial management systems. Therefore, businesses using traditional invoicing systems can easily add cryptocurrency as an additional payment option for customers without having to make large-scale system changes.

Orbita

Orbita is a decentralized L1 payment protocol developed based on Cosmos. It is still under development and has not yet launched a testnet. As the team may still be writing documents and white papers, these materials have not yet been made public.

Orbita's core features will include direct irreversible payments, reversible payments, decentralized subscriptions, and e-commerce integration. As an L1 protocol focused on payments, this is a completely new direction in the payment industry and may bring interesting changes.

Market Data and Updates

Total market value of stablecoins

Stablecoins: Transfer Volume

With the boom of cryptocurrencies over the past decade, stablecoins have also developed rapidly. The total market value of stablecoins has surged from $20 million in 2017 to $170 billion in 2024. By 2024, the total transfer volume of stablecoins reached 60 billion at its peak. As the transfer volume continues to grow, the application of stablecoins for payments and other purposes is becoming more and more common. As stablecoins are widely accepted, the demand for payment systems will also increase.

Major stablecoin providers are also actively expanding the market. Tether recently announced that it will launch a dirham stablecoin fully backed by local reserves in the UAE, with the goal of becoming the preferred digital payment token in the UAE. Circle CEO Jeremy Allaire also said that they plan to develop a swipe-and-pay payment method using USDC on the iPhone. This plan was proposed after Apple allowed third-party developers to use the iPhone's secure payment chip. This will make using USDC for payments as simple and smooth as using traditional banks and credit cards.

Since entering the stablecoin market in August 2023, Paypal has been actively promoting PYUSD. About a year after its launch, PYUSD has jumped to become the sixth largest stablecoin, surpassing established currencies such as FRAX and BUSD. Paypal's expansion in Solana and its incentive program with Kamino have also become powerful attractions. In addition, Paypal recently partnered with Anchorage Digital to provide rewards to institutions that hold PYUSD, further attracting capital inflows.

Thinking: The impact of Web3 payments

One ​​of the great advantages of Web3 is the ability to enable secure, low-cost and almost instant global transactions. Although the Web3 industry is still in its infancy, institutions, businesses and individuals have begun using blockchain for payments.

However, if Web3 payments become mainstream, how will banks react when intermediary fees are cut? In order to gain market share, we see banks starting to build their own private blockchains, but even so, their revenue will still be much lower than the current fees. It is foreseeable that there will be resistance, and retail adoption may take time. It is obvious that the opacity and centralization of private blockchains will continue the characteristics of traditional banks.

In addition, Web3 payments are more advantageous in global transactions, especially imports and exports, but have little impact on the demand of ordinary local people. If paying with cryptocurrency is not much different from paying with a traditional bank card at my local grocery store, why should I choose cryptocurrency? The appeal of self-management? For most people, such a small benefit is not attractive. Therefore, switching costs may hinder the adoption of ordinary users in the short term.

I believe that the stablecoin market will continue to grow in the next decade as Web3 and the payment market develop. Innovations such as telecom network innovations such as Karrier One and future income financing by Huma Finance will undoubtedly promote the emergence of more innovations and promote market adoption. Therefore, with the right catalysts such as regulatory green lights, the boom of 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 look forward to a time when Web3 payments become a matter of course and no longer questioned.