PayFi: The Transformative Power of Financial Transactions

In today’s world, cross-border payments often take several days, and businesses may incur transaction fees amounting to billions of dollars. PayFi, as an innovative solution, has emerged by 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 is emerging at the intersection of blockchain technology and payment systems, aiming to merge the efficiency of DeFi with the immediacy and convenience of modern payment solutions, transforming transaction methods. This article will explore the reasons behind PayFi’s rise, provide an overview of the current state of its industry, highlight key cases, and explore its potential application scenarios.

1. The Birth and Advantages of PayFi

(1) Bridging the Gap Between DeFi and Payments

Traditional financial systems have long faced issues of low settlement efficiency, such as long settlement times, high transaction costs, and limited accessibility, which became especially evident during the 2008 financial crisis. Although DeFi introduced innovative financial services through decentralized platforms, it lacks the ability to process daily transactions in real time.

PayFi leverages blockchain technology to enable real-time transaction settlements. Based on the Time Value of Money (TVM) theory, which states that disposable money is more valuable than an equivalent amount of future money due to its potential earning power, 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 associated with traditional banking systems.

Security and Reliability: The immutable ledger feature of blockchain ensures transaction security and transparency, providing protection for users.

Cost Reduction: By removing intermediaries, transaction fees are significantly reduced, saving users money.

Global Reach: Its decentralized platform reaches markets that traditional financial services have not adequately covered, including the unbanked population, promoting financial inclusion.

Innovative Products: It fosters new financial service models, such as “Buy Now, Pay Never,” and offers creators advanced monetization options and other innovative applications.

2. PayFi Industry Landscape and Insights into Sub-sectors

The PayFi ecosystem is thriving, with various industries actively innovating to address financial challenges. Below is an analysis of its key sub-sectors, along with examples of innovative companies within each field.

(1) Cross-chain and Cross-border Payments

Challenges in Traditional Cross-border Payments

Slow Speed and High Delays: Traditional payment channels are inefficient, with settlements often taking several days. Cross-time-zone and banking-hour constraints complicate settlement processes, exacerbating payment delays.

Low Capital Efficiency and Pre-funding Restrictions: Pre-funding requirements force financial institutions to maintain foreign currency reserves in correspondent accounts, creating a global liquidity gap of $4 trillion. Idle funds cannot generate returns, becoming hidden costs for financial institutions, which are passed on to end users, resulting in higher fees.

High Transaction Costs: Multiple intermediaries add layers of fees, including pre-funding charges and currency exchange commissions. The global average cost of cross-border remittances is 6.35% (according to the World Bank).

Industry Innovation Cases

Arf: A regulated global settlement banking platform providing on-chain liquidity solutions for financial institutions. By leveraging stablecoins like USDC, Arf enables instant and low-cost cross-border settlements. It offers real-time liquidity for cross-border transactions on demand, eliminating the need for large cash reserves in correspondent accounts. Arf provides USDC-based instant credit lines, allowing financial institutions to borrow funds temporarily during transactions and repay after settlement. Arf discards the pre-funding account model and significantly reduces the liquidity and settlement time required, cutting operational costs for financial institutions engaged in global trade. The platform emphasizes transparency and maintains traceable loan records on the blockchain, making all loans, repayments, and receivables easily auditable. Adhering to strict compliance standards, Arf follows anti-money laundering and international financial regulations as a member of the VQF Financial Services Standards Association, setting an industry example. To date, Arf has processed over $1.6 billion in on-chain transactions, maintaining a zero-default record.

suave.money: A cross-chain payment solution that enables businesses to accept cryptocurrency payments from any blockchain network. Businesses can seamlessly integrate various token payments and flexibly choose which tokens to receive based on their needs, improving payment flexibility within the blockchain ecosystem. Suave.money simplifies cross-chain transactions, allowing businesses to attract users from different blockchain ecosystems without managing multiple wallets or rewriting decentralized applications (DApps). By facilitating payments from over ten blockchain networks, it enhances liquidity acquisition and supports the expansion of DeFi and Web3 projects, broadening market coverage. By streamlining cross-chain transaction processes, Suave.money reduces operational complexity for businesses, enabling them to attract customers within the blockchain ecosystem without relying on specialized infrastructure. Through its innovation, Suave.money helps businesses tap into the trillion-dollar potential of cross-chain capital, securing a significant position in the rapidly evolving DeFi and crypto payment sectors, offering unmatched flexibility and convenience for users.

(2) Lending Based on Income and Receivables

Challenges in Traditional Lending Models: Traditional lending businesses rely on collateral, excluding potential borrowers without substantial assets or credit histories, which limits the accessibility and fairness of financial services.

Emergence of Innovative Solutions: Platforms like Huma Finance allow users to use future income or receivables as collateral for loans, utilizing blockchain technology to ensure transparency and efficiency in the lending process.

Positive Impact: This innovative model significantly enhances financial inclusion, providing new ways for underserved markets, traditionally overlooked by financial institutions, to access funding, promoting balanced economic development and social fairness.

Huma Finance’s Practical Case:

Huma Finance has developed a decentralized lending protocol that offers lending services based on future income and receivables for businesses and individuals. The platform connects borrowers with global investors on-chain, creating an income-backed lending model distinct from traditional DeFi over-collateralized models. Collaborating with platforms like Circle, Request Network, and Superfluid, Huma launched the world’s first on-chain factoring market on Ethereum and Polygon, enabling users to tokenize invoices or payment streams as collateral, expanding the range and form of collateral. With blockchain efficiency, the factoring process is completed in under a minute, offering users a seamless experience.

Huma Finance’s technology architecture includes several key components. The decentralized income portfolio layer converts income sources such as invoices, paychecks, and staking rewards into tokenizable assets, providing a rich asset base for lending services. The evaluation framework ensures precise risk assessments for lending demands, ensuring stable and reliable on-chain credit quality. The smart contract suite, through configurable smart contracts, supports diverse lending use cases, from invoice factoring to general credit lines, meeting personalized user needs. Huma Finance focuses on providing liquidity support to SMEs and the unbanked, helping these groups overcome traditional financial barriers and access previously unreachable funding resources, driving economic development and social inclusion, contributing positively to a fairer and more inclusive financial ecosystem.

(3) Tokenization of Real-World Assets

Challenges in Traditional Asset Trading: The process of trading real-world assets, such as real estate, is cumbersome, costly, and slow, creating inconvenience and economic burden for both buyers and sellers.

Innovative Breakthrough in Tokenization: By tokenizing real estate and other real-world assets, ownership can be split into multiple parts through smart contracts, enabling partial ownership trading while significantly speeding up the transaction process and injecting new vitality into asset trading markets.

Significant Advantages: This tokenization model significantly lowers the market entry barriers for investors, enabling more participants in real-world asset investments, while greatly enhancing asset liquidity and accelerating the buying and selling process, allowing for more efficient market resource allocation.

Ondo Finance’s Success Case:

Ondo Finance launched tokenized U.S. Treasury bonds and other yield-generating products on the blockchain, opening up new investment channels for investors. By utilizing decentralized finance (DeFi), investors can easily access short-term U.S. Treasury bonds and other fixed-income assets, achieving a seamless integration of traditional financial markets and DeFi. Ondo Finance’s innovative products offer stable, profitable, and liquid investment options, breaking down barriers between traditional finance and DeFi, allowing more investors to benefit from previously closed capital markets. This enriches investors’ portfolios and enhances market efficiency. As of September 2024, Ondo Finance had seen remarkable success in tokenized U.S. Treasury bonds, with a total value locked (TVL) surpassing $600 million. Of this, USDY (yield-generating stablecoin) had $384 million locked, and OUSG (tokenized U.S. Treasury bonds) had $221 million locked, reflecting the market’s high recognition and broad acceptance of its innovative products, solidifying its leadership and influence in the tokenization of real-world assets.

Zoth’s Innovative Contribution:

Zoth has created a market platform dedicated to tokenized trade finance assets, offering investors a convenient route to access fixed-income products denominated in U.S. dollars. By tokenizing traditional financial assets like trade receivables and corporate bonds, Zoth bridges the gap between traditional finance and decentralized finance (DeFi), providing high-yield, low-risk investment opportunities for investors while offering businesses new funding avenues and financial management solutions. Zoth’s platform plays a significant role in the market by providing quality investment options for investors, helping them increase and preserve asset value while supporting businesses’ growth. Tokenizing trade finance assets allows companies to efficiently unlock working capital, optimize their capital structure, and enhance their competitiveness and risk resilience. This also promotes the optimal allocation of capital in global markets, directing financial resources more efficiently toward enterprises and projects in need, further improving the on-chain trade finance ecosystem, and contributing positively to the stability and development of the financial market.

(4) Corporate Payments and Credit Solutions

New Consumer Demands and Limitations of Traditional Credit: In today’s consumer market, consumers demand greater flexibility in payment methods, hoping to enjoy more convenient and diversified payment experiences without incurring heavy debt burdens. However, traditional credit models often fail to meet this demand, causing inconvenience and financial pressure for consumers.

PayFi’s Innovative Model: To meet this market demand, PayFi has innovatively introduced unique payment models like “Buy Now, Pay Never,” cleverly leveraging interest income from DeFi lending platforms to offset purchase costs, providing consumers with a new, more flexible, and debt-free payment solution, greatly enhancing purchasing power and shopping experiences.

Industry Innovation Cases

Rain: Rain has launched a USDC-backed corporate card designed for the daily business payment needs of Web3 teams (such as decentralized autonomous organizations (DAOs) and various protocol projects). With this corporate card, Web3 teams can easily use their on-chain assets (such as USDC) to pay for travel expenses, office supplies, and other daily business costs without the need for complex conversions between cryptocurrencies and fiat currencies, significantly simplifying the corporate payment process and improving financial management efficiency. As a key component of Rain’s expenditure management platform, the corporate card fully utilizes the advantages of blockchain technology to seamlessly integrate digital assets with traditional payment systems. Through this innovative payment method, businesses can manage their finances more efficiently, reduce intermediary costs and time consumption, and provide Web3 and crypto-related enterprises with more convenient and secure payment solutions, thereby driving the development and widespread adoption of Web3.

Ether.fi: Ether.fi’s “Ether.fi Cash” product has attracted widespread attention in the market. This credit card, developed in partnership with Visa, features unique innovative functions. By holding this card, users can easily obtain borrowing limits using their crypto assets (including various Ethereum-based assets) as collateral, enabling them to make fiat currency purchases without selling their crypto assets. This provides users with more flexible fund management and consumption experiences. Additionally, the “Ether.fi Cash” credit card is deeply integrated with Ethereum’s Layer 2 network, Scroll. This technical advantage significantly reduces transaction costs, further enhancing the cost-effectiveness for users. The card also supports peer-to-peer USDC transfers, allowing users to conveniently manage and transfer funds, meeting different payment needs while bypassing traditional banking intermediaries, saving additional fees. To further enhance user engagement and satisfaction, the “Ether.fi Cash” credit card also offers attractive cashback rewards, bringing real economic benefits to users’ consumption processes, further boosting the product’s market competitiveness and user retention.

Bitget Card: The Visa card launched by Bitget serves as an important bridge between cryptocurrency and traditional payment systems, offering users a convenient and efficient payment solution. This card is tightly connected to multi-currency wallets, allowing both businesses and individual users to easily hold, convert, and use a variety of mainstream cryptocurrencies such as USDT, BTC, ETH, USDC, and BGB (with USDT as the primary funding method, and plans to gradually include more cryptocurrencies in the future). During actual payments, the Bitget Card automatically converts cryptocurrencies into fiat currency according to real-time exchange rates, ensuring smooth transactions at any merchant worldwide that accepts Visa cards, without the hassle of currency exchange procedures and exchange rate fluctuations, achieving seamless integration between cryptocurrency and fiat currency payments, greatly benefiting users. The launch of the Bitget Card has had a significant impact on the corporate payments sector, not only simplifying payment processes by eliminating the need for manual cryptocurrency-to-fiat conversion but also improving payment and fund usage efficiency. Additionally, its strong cross-border payment capabilities make it easier for businesses to expand and operate internationally, without the need to set up and manage foreign currency accounts, effectively reducing operating costs and financial risks. Currently, the Bitget Card is widely accepted and recognized in over 180 countries and regions, providing strong support for businesses’ global expansion. Furthermore, the Bitget Card has rich potential DeFi use cases. For instance, in supplier payments, companies can directly use the card to make payments in fiat currency to suppliers, avoiding the tedious process of manually converting cryptocurrencies, thus improving supply chain payment efficiency and stability. In business travel reimbursements, employees can easily use the card for business-related expenses during cross-border travel, such as booking flights and hotels, without worrying about payment restrictions and transaction fees, providing a more convenient payment solution for international business activities. In corporate incentive systems, businesses can also use the Bitget Card to distribute cryptocurrency-based rewards to employees, who can then convert the cryptocurrency into fiat currency for consumption or use it directly in scenarios that support cryptocurrency payments, bringing more innovation and flexibility to corporate employee incentives and benefits, further enhancing business competitiveness and attractiveness.

(5) Supply Chain and Trade Finance

Challenges in Traditional Supply Chain Finance: In traditional supply chain finance systems, suppliers often face long and complex payment cycles, with large amounts of capital locked for extended periods, severely limiting their operational efficiency and cash flow capabilities. This makes it difficult for them to maintain normal production activities and business expansion. According to statistics, global businesses face a $2.5 trillion trade financing gap each year due to the limitations of traditional financial institutions, creating a bottleneck for global trade development and hindering the collaborative development of industry chains and stable economic growth.

PayFi’s Solution: PayFi introduces a decentralized platform to provide innovative solutions to invoice financing issues within supply chain finance. In this model, suppliers can tokenize their invoices using the advantages of blockchain technology and quickly obtain financing on the decentralized platform, receiving immediate funding support and greatly improving liquidity. Meanwhile, buyers can continue to settle payments according to the original payment schedule without altering traditional payment habits and financial processes, achieving a balance of interests and collaborative development between buyers and sellers, ensuring efficient operation of supply chain finance.

Industry Innovation Case

Isle Finance: Deeply involved in the on-chain credit market for supply chain finance, its platform precisely connects high-credit buyers with liquidity providers, helping businesses secure financing more quickly. It cleverly uses blockchain technology to rigorously verify real-world assets (RWAs) and implements early payment strategies for buyers (especially those with low credit ratings), greatly enhancing the liquidity and security of the entire supply chain, providing a solid foundation for the stable development of supply chain finance. Isle Finance vigorously promotes reverse factoring through its platform, significantly accelerating payment speeds and optimizing cash flow. This blockchain-based innovative solution allows businesses to flexibly offer early payment discounts, creating stable and attractive returns in the supply chain finance sector while also broadening liquidity access channels, injecting strong momentum into their continued development.

(6) Stablecoin Payment Platforms

Example: Agora
Business Content: Agora has carefully crafted the U.S. Digital Dollar (AUSD), which is fully backed by cash, U.S. Treasury bonds, and overnight repurchase agreements. The platform is committed to utilizing blockchain technology to enable the widespread and convenient circulation of the U.S. dollar globally, especially focusing on regions under-served by traditional financial systems. It strongly embraces the concept of financial inclusion, opening up a new pathway for the public to easily access a stable and globally recognized currency.

Impact: It has significantly advanced the democratization of U.S. dollar access, aligning closely with PayFi’s ambitious vision of expanding financial inclusion. By leveraging blockchain’s technological advantages, it has created a decentralized and easily accessible financial system, enabling both individuals and businesses to benefit from U.S. dollar-backed financial tools. Its effectiveness has been particularly notable in regions like Argentina and Southeast Asia, providing strong support for local economic development and financial stability.

Achievement: Successfully launched the stablecoin AUSD, initially issued on Ethereum and later expanded to the Avalanche network. Notably, within just a few weeks after issuance, the minting volume surpassed 20 million USD. The platform is steadily advancing its global expansion of the digital dollar, continuing to grow in international markets while adhering to its financial inclusion and regulatory compliance development strategy, establishing a strong reputation and influence in the stablecoin sector.

Example: PayPal
Business Content: PayPal officially launched PayPal USD (PYUSD) in August 2024, initially on the Ethereum blockchain and later expanding to Solana in May 2024. This stablecoin is designed to fully integrate the advantages of both blockchains, providing a fast, low-cost digital payment experience. After expanding to Solana, PYUSD’s speed and low fees significantly enhanced its usability across commercial and DeFi applications, offering users a more efficient and convenient payment option.

Impact: With its speed and cost-effectiveness, PYUSD is expected to become a powerful alternative to traditional payment systems, significantly improving global payment efficiency. It successfully enables seamless transfers across different platforms (including PayPal and Venmo), allowing users to easily hold and transfer stablecoins while fully leveraging blockchain’s technological advantages to enhance digital asset management and payment experiences.

Achievement: After expanding to Solana, PYUSD’s market adoption surged rapidly, with its market cap exceeding 500 million USD. This significant achievement highlights its deep integration and wide recognition across both centralized and decentralized platforms and marks a major milestone in PayPal’s exploration of the stablecoin sector, laying a solid foundation for further developments in the digital payment field.

Example: Bridge (Acquired by Stripe)
Business Content: Bridge, a platform focused on stablecoin payments, has always aimed to simplify cross-border digital payments. Through a convenient API interface, it enables easy integration of stablecoin-based payments, providing a low-cost, efficient cross-border transaction solution for global users. Before being acquired by Stripe, Bridge had already achieved notable results in e-commerce platform integration, helping merchants seamlessly connect and efficiently handle stablecoin payments anywhere in the world, significantly expanding stablecoin’s application in the commercial sector.

Impact: Recently acquired by U.S. payment giant Stripe, this significant event marks a key milestone in the integration of stablecoins into mainstream financial services. With Stripe’s powerful infrastructure and extensive market network, Bridge has expanded its business coverage and enhanced its capabilities, aiming to provide global businesses with more convenient and efficient stablecoin payment and settlement services. This move aligns with PayFi’s vision of promoting financial inclusion and seamless cross-border transactions, advancing the global adoption of digital currencies. Leveraging Stripe’s existing strengths and Bridge’s expertise in stablecoin technology, the integration of blockchain-supported payment methods into mainstream financial channels is expected to accelerate, injecting new vitality into the innovative development of the global financial payment sector.

Achievement: In August 2024, Bridge’s annualized payment volume successfully surpassed 5 billion USD. Throughout its development, Bridge has built close partnerships with industry-leading companies like Coinbase and SpaceX, continuing to provide these businesses with high-quality payment services, accumulating rich practical experience and a solid reputation in the stablecoin payment sector, making it a significant force in driving industry development.

Conclusion

Overall, PayFi is not a completely new concept. The issues it aims to address have already existed in traditional financial systems, and there are corresponding solutions in place. However, this does not mean PayFi lacks value, as traditional solutions are still not fully optimized. By addressing the core inefficiencies of the global payment system and leveraging the transformative potential of blockchain, PayFi has the potential to unlock unprecedented liquidity and promote financial inclusion. As more companies innovate in this field, the vision of creating an instant, secure, and borderless fully decentralized financial ecosystem is increasingly becoming a reality. Now is the time to embrace the PayFi revolution and shape the future of global finance.

Disclaimer:

1. This article is reprinted from [Foresight Ventures)]. All copyrights belong to the original author [Kedar and Alice]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. The Gate Learn team does translations of the article into other languages. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.