PayFi Revolution: 5 Major Web3 Payment Projects That Will Disrupt Traditional Finance
One of the major advantages of Web3 is the ability to achieve secure, low-cost, and almost instantaneous global transactions.Original Title: “PayFi and the Future of Payments”
Author: dpycm.eth
Compiled by: Deep Tide TechFlow
Disclaimer: This article is for reference only and does not constitute financial advice. The views expressed in this article are solely those of the author and should not be used as the basis for investment decisions, nor should they be considered investment advice or recommendations.
Over the past decade, cryptocurrency has experienced rapid development, evolving from a niche technological experiment into a mainstream financial tool. Web3 payment systems, based on blockchain technology, ensure 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 cryptocurrency in daily life more convenient.
As of 2023, the Web3 payment market is valued at $1.2 billion and is expected to continue growing at a compound annual growth rate of over 15% from 2024 to 2032. Web3 payments are poised to become an important pillar of the digital economy, bringing new opportunities and challenges to the global financial ecosystem, much like traditional payment systems.
Current Web3 Payment Infrastructure
Web3 Payment Infrastructure
The existing Web3 payment infrastructure significantly simplifies traditional payment processes. Typically, a payment transaction involves three parties: the payer, the payee, and the blockchain (as a medium). Since the blockchain itself does not possess consciousness, it can be said that only two parties are actually needed, which gives transactions advantages in speed and cost. All Web3 payment protocols are based on the same infrastructure, although specific implementations may vary slightly due to the needs of protocol transitions.
Sphere Pay and Loopcrypto.xyz are two unique payment infrastructure protocols that allow businesses to integrate Web3 payment functionalities, which we will explore in detail later.
What is PayFi?
With the combination of payments and decentralized finance (DeFi), PayFi has emerged as a financial market centered around the time value of money. PayFi provides a way to meet current needs with future money, something traditional finance cannot achieve.
PayFi includes various forms of payment:
Payment tokens, such as tokens representing the time value of tokenized U.S. Treasury bonds or yield-generating stablecoins;
Financing real-world assets (RWAs) through DeFi lending, achieving on-chain yields in real-world payment scenarios;
New Web3 payment systems that seamlessly integrate with DeFi protocols;
Moving traditional payment logic onto the blockchain, aiming to build a comprehensive Web3 payment framework.
A typical case of PayFi is Ondo Finance. This protocol aims to make 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. Treasury bonds and money market funds, onto the blockchain, allowing stablecoin holders to earn returns 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-bearing stablecoin backed by short-term U.S. Treasury bonds. As of August 23, 2024, the total locked value of these two products reached $555.6 million.
Through USDY, holders can not only denominate in dollars but also earn yields. Thus, Ondo adds practical application value to payment tokens, further promoting the development of PayFi in Web3.
Interesting Payment Innovations
This section will introduce some interesting or lesser-known innovations in the payment field, excluding crypto cards and transition functionalities.
Karrier One (Payments x DePIN)
The combination of payments and DePIN has reasonable applications in telecom networks. Karrier One is a carrier-grade decentralized network that integrates payment and DePIN functionalities. The Karrier One network consists of three modules: telecommunications, blockchain, and the Karrier Numbering System (KNS). They collaborate with global telecom providers to offer seamless communication coverage worldwide. The network is governed by Karrier DAO, where token holders can participate in governance decisions.
Through KNS, users can obtain a Web3 wallet directly associated with their phone numbers. This integration allows users to participate in DeFi activities, send and receive cryptocurrencies, and achieve smooth payment processes, effectively combining PayFi and DePIN. With 7.1 billion mobile phone users globally, this presents enormous potential for the growth of Web3 telecom networks.
Huma Finance
Huma Finance is an income-based lending protocol. It allows borrowers to collateralize future income for loans by matching them with global on-chain investors. The protocol features common credit facilities and is equipped with decentralized signal processors and assessment agents, which are essential infrastructures for integrating income sources, conducting credit assessments, and ongoing risk management.
As of August 23, 2024, Huma has raised nearly $900 million, of which $883 million has been successfully repaid, with a current 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, accelerating the development of Web3 payment systems.
Sphere offers merchants customizable or preset front-end and user experiences, allowing them to flexibly apply Sphere Pay. Additionally, Sphere provides various pricing models to meet different merchant needs for products or services. Sphere does not charge software usage fees but instead takes a fixed fee of 0.3% from each transaction, making the software free for all users. This makes Sphere an ideal choice for small businesses, especially those with low transaction volumes or startup costs.
Loopcrypto.xyz
Loop is a Web3 payment infrastructure that helps companies arrange or automate collections and payments. By providing automatic payment features, Loop enhances operational efficiency and reduces customer churn rates. The platform supports all ERC-20 tokens and offers settlement options in either cryptocurrency or fiat, reducing the complexity for businesses in currency conversion.
Loop provides plug-and-play software that minimizes resistance for businesses during implementation. It also integrates with top platforms like Stripe, Zapier, and Xero, allowing business owners to seamlessly incorporate Loop into their existing financial management systems. Thus, businesses using traditional invoicing systems can easily add cryptocurrency as an additional payment option for customers without extensive system overhauls.
Orbita
Orbita is a decentralized L1 payment protocol developed on Cosmos, currently still in development and yet to launch a testnet. As the team may still be writing documentation and white papers, these materials have not yet been made public.
Orbita's core functionalities will include direct irreversible payments, reversible payments, decentralized subscriptions, and e-commerce integration. As an L1 protocol focused on payments, this represents a new direction in the payment industry that could bring about interesting changes.
Market Data and Updates
Total Market Capitalization of Stablecoins
Stablecoins: Transfer Volume
With the boom of cryptocurrency over the past decade, stablecoins have also rapidly developed. The total market capitalization of stablecoins surged from $20 million in 2017 to $170 billion in 2024. By 2024, the total transfer volume of stablecoins peaked at $60 billion. As transfer volumes continue to grow, the applications of stablecoins in payments and other uses are becoming increasingly common. As stablecoins gain widespread acceptance, the demand for payment systems will also increase.
Major stablecoin providers are also actively expanding their markets. Tether recently announced the launch of a dirham stablecoin fully backed by local reserves in the UAE, aiming to become the preferred digital payment token in the UAE. Circle's CEO Jeremy Allaire also stated that they plan to develop an instant 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 payments using USDC 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 risen to become the sixth-largest stablecoin, surpassing established coins like FRAX and BUSD. Paypal's expansion on Solana and its incentive program with Kamino have also become strong attractions. Additionally, Paypal recently partnered with Anchorage Digital to offer rewards for institutions holding PYUSD, further attracting capital inflows.
Reflection: The Impact of Web3 Payments
One of the major advantages of Web3 is the ability to facilitate secure, low-cost, and nearly instantaneous global transactions. Although the Web3 industry is still in its infancy, institutions, businesses, and individuals have begun using blockchain for payments.
However, how will banks respond if Web3 payments become mainstream and intermediary fees are reduced? To capture market share, we see banks starting to build their own private blockchains, but even so, their revenues will still be much lower than current fees. Resistance is to be expected, and widespread adoption at the retail level may take time. It is evident that the opacity and centralization of private blockchains will continue to reflect the characteristics of traditional banks.
Moreover, Web3 payments have advantages in global transactions, especially in imports and exports, but they have little impact on the needs of ordinary locals. If paying with cryptocurrency at my local grocery store is not much different from paying with a traditional bank card, why would I choose cryptocurrency? The allure of self-management? For most people, such a minor benefit is not compelling. Therefore, the cost of switching may hinder ordinary users' adoption in the short term.
I believe that as the Web3 and payment markets develop, the stablecoin market will continue to grow over the next decade. Innovations like Karrier One's telecom network and Huma Finance's future income financing will undoubtedly foster more innovations, driving market adoption. Therefore, with appropriate catalysts such as regulatory green lights, the prosperity of Web3 payments will be inevitable. In fact, as we have seen in the past few years, the market may continue to grow regardless of regulatory clarity. I remain optimistic and look forward to Web3 payments becoming a taken-for-granted choice, no longer facing skepticism.
