PayFi Track Research Report: Opening up a new blue ocean for Web3 payments

1. Introduction

With the development of blockchain technology and the popularization of Web3 concepts, payment methods are undergoing a profound change. The traditional payment system relies on centralized institutions such as banks and payment processors, while Web3 payments make payments more transparent, convenient and efficient through decentralized technology. At the same time, the PayFi track (Payment Finance) is becoming an emerging field in the Web3 world, gradually integrating payment with DeFi (decentralized finance) to bring users a new payment experience. The rise of this track is not accidental. It relies on the rapid maturity of blockchain technology, the large-scale application of stablecoins and the continuous expansion of the crypto market. PayFi is not just an alternative to traditional payments. It also includes a series of new financial products and services, such as real-time settlement, streaming payments, on-chain foreign exchange, cross-border payments and DeFi revenue integration. With the growing demand for crypto payments from global users, the prospects for Web3 payments and PayFi tracks are very broad.

2. Comparison between the concept of Web3 payment and traditional payment

1. Structure and challenges of traditional payment system

The traditional payment system is a complex network built by various centralized financial institutions (such as banks, credit card companies, and payment processors). In this system, each transaction needs to go through multiple intermediate links, including payment verification, clearing, and settlement. Although this payment method has been very mature since the 20th century, it still faces many challenges in practical application.

High transaction costs: Traditional payment methods usually involve multiple intermediaries such as banks, payment gateways, and clearing centers, each of which charges a certain service fee. Therefore, especially in cross-border payments, transaction fees are often very high.

Transaction delays: Especially in cross-border payments, it often takes several days to complete the settlement of a transaction. This increases the pressure and uncertainty of capital turnover for businesses and consumers.

Financial exclusion: Traditional payment systems have high barriers to entry, and many people who do not have bank accounts or lack identity verification cannot enjoy the convenience provided by the global financial system.

2. The concept and advantages of Web3 payment

Web3 payment uses blockchain technology to achieve direct point-to-point payment, bypassing the middleman in the traditional payment system. Transactions on the blockchain network are automatically completed through smart contracts and decentralized networks, greatly improving the efficiency and transparency of transactions.

Lower costs: Through decentralized technology, Web3 payments can significantly reduce transaction costs, especially in cross-border payment scenarios, where users do not need to pay high intermediary fees.

High transaction efficiency: Transactions on the blockchain usually take only a few minutes or even seconds to complete, greatly improving the speed of payment.

Global accessibility: Users can participate in Web3 payments anytime and anywhere as long as there is an Internet connection, overcoming the geographical and financial barriers of the traditional payment system.

3. Technical architecture of Web3 payment

The core architecture of Web3 payment includes the following key components:

Blockchain network: Payment transactions are recorded and verified through public or private chains to ensure data transparency and immutability. Public chains such as Ethereum, TRON, and Solana are commonly used payment networks.

Smart Contract: Smart contract is the automated execution engine in Web3 payment, which ensures that payment transactions can be completed automatically without human intervention when certain conditions are met. This enables Web3 payment to handle complex business logic, such as regular payments, installments, etc.

Stablecoins: Due to the high volatility of cryptocurrency prices, stablecoins have become the main medium of payment in Web3. Stablecoins such as USDT, USDC, DAI, etc. are pegged to fiat currencies, which can provide relatively stable payment value and reduce exchange rate risks for both parties to the transaction.

Wallets and payment gateways: Users make payments through cryptocurrency wallets (such as MetaMask, TokenPocket, etc.), while payment gateways act as a bridge between merchants and blockchain networks, helping merchants receive cryptocurrencies and convert them into fiat currencies.

3. Application scenarios of Web3 payment

Web3 payment is currently widely used in many fields. The following are some of the most representative application scenarios:

1. Native payment on the chain

Payments in DeFi: On decentralized finance (DeFi) platforms, users can use cryptocurrencies for investment, lending, staking, and other operations. Payments are usually automatically completed through smart contracts, which is both efficient and secure.

Payments in NFT markets: NFT (non-fungible token) markets, such as OpenSea and Magic Eden, allow users to purchase and trade digital artworks or virtual assets through cryptocurrencies. Web3 payments simplify the cross-border purchase process and improve the liquidity of the NFT market.

2. Cross-border payments and remittances

Traditional cross-border payments usually take days to complete and are costly, while Web3 payments enable almost instant cross-border fund transfers. By using stablecoins and cryptocurrencies, users can bypass banks and other intermediaries and directly complete payments and remittances around the world. This application scenario is of great significance to developing countries and regions with weak financial infrastructure.

3. Real-world consumer payments

With the entry of traditional payment giants such as Visa and Mastercard, Web3 payment is gradually being integrated into real life. Users are increasingly demanding to pay for daily consumption through cryptocurrencies. Many payment service providers (such as MoonPay and BitPay) have provided users with cryptocurrency to fiat currency conversion services, making cryptocurrency payments more convenient and feasible in real-world scenarios.

4. Games and Virtual Worlds

Web3 payments have become an integral part of blockchain games and virtual worlds. Players use cryptocurrencies to purchase virtual items or pay for games. For example, in virtual worlds such as The Sandbox or Decentraland, users can use Ethereum (ETH) or other tokens to purchase land, props, or experience paid services. With Web3 payments, players are no longer restricted by geographic location, nor do they have to worry about the high fees of traditional payment methods.

5. Business payments and B2B transactions

Web3 payment has not only been widely used at the consumer level, but has also gradually penetrated into the field of corporate payments. Cross-border transactions between enterprises are often constrained by the traditional banking system, and Web3 payment can greatly simplify the B2B payment process, increase the speed of capital turnover, and reduce the time cost of clearing and settlement.

6. Streaming payment and real-time payment

Streaming Payments is an innovative application scenario of Web3 payments, especially suitable for scenarios that require continuous or real-time payments, such as hourly paid work, long-term service subscriptions, etc. Streaming payment-based solutions, such as Sablier and Superfluid, allow users to pay wages or service fees by time period, changing the traditional monthly payment model.

4. Business Model of Web3 Payment

Web3 payment is not only a change in payment technology, it also provides more innovative opportunities for new business models. The following are several common profit models:

1. Fee Model

Web3 payment platforms make money by charging transaction fees. Although Web3 payment fees are lower than traditional payment fees, platforms can still make considerable profits from high transaction volumes. For example, cryptocurrency payment gateways usually charge 0.1% to 1% of each transaction amount as a service fee.

2. Fund Management and Currency Exchange

Since cross-border payments involve the exchange of different fiat currencies and cryptocurrencies, Web3 payment platforms can profit from foreign exchange spreads and exchange rate fluctuations. For example, some platforms allow users to choose a favorable exchange rate during the exchange process, and the platform earns income from the difference.

3. Merchant Solutions and White Label Services

Web3 payment providers provide merchants with integrated payment solutions and charge fees through customized services. For example, platforms such as Alchemy Pay provide merchants with API interfaces to help them access encrypted payment functions while providing risk control and compliance support. White label services are also a popular model. The platform provides payment infrastructure for corporate customers, and customers can operate payment businesses with their own brands.

4. Staking and liquidity provision

Some Web3 payment platforms allow users to pledge crypto assets when making payments, thereby providing liquidity to the network. In this model, users can both complete payments and earn income from staking. For example, DeFi payment platforms usually encourage users to pledge crypto assets into liquidity pools and distribute corresponding rewards based on transaction volume.

5. PayFi: The integration of payment and DeFi

1. The concept of PayFi

PayFi (Payment Finance) refers to the combination of payment and decentralized finance (DeFi). This concept is not limited to payment itself, it further expands the boundaries of payment behavior and financial services. Through PayFi, users can not only complete payments on the chain, but also automatically obtain services such as investment, lending, and yield farming during the payment process.

2. PayFi鈥檚 core elements

Cross-chain payment and exchange: Many PayFi projects use cross-chain technology to enable users to make payments and exchanges between multiple blockchains, thus breaking the limitations of a single chain.

Automated financial management services: The PayFi platform allows users to automatically invest idle funds into DeFi protocols during the payment process to maximize returns. For example, when a user makes a payment, the system will automatically invest part of the payment amount into a yield farm, earning revenue and then paying it to the merchant.

Decentralized financial infrastructure: PayFi projects are usually built on decentralized financial infrastructure, such as automated market makers (AMMs), lending platforms, etc.

3. The difference between PayFi and traditional finance

Compared with traditional payment and financial services, PayFi has greatly improved efficiency and reduced costs through decentralized technology. Its core advantages include:

Seamless integration: In the PayFi ecosystem, payments and financial services are seamlessly combined. Users can enjoy investment or lending services while paying without having to visit a bank or financial platform separately. For example, when shopping, users can automatically invest part of the payment amount into a high-yield DeFi protocol without any additional operations.

Global interoperability: PayFis cross-chain payment and multi-asset support features allow users to use different crypto assets for payments and investments around the world. The traditional financial system has many limitations in cross-border payments and multi-currency transactions, which usually need to be completed through the banking system or payment processors, which is expensive and time-consuming.

Intelligent financial management: Traditional financial management requires users to actively participate, select financial products and conduct risk assessments, while PayFi uses smart contracts and automation tools to provide users with intelligent financial management services. Payment behavior and financial products can be carried out simultaneously, reducing users time costs.

Disintermediation and transparency: The traditional financial system relies on intermediaries such as banks and clearing houses, which may intervene in transactions and charge fees. In the PayFi system, all transactions and financial services are conducted openly and transparently on the blockchain, reducing the risk of human intervention.

4. Typical PayFi Projects

Request Finance: Request Finance is a decentralized payment platform that allows users to create, receive, and pay invoices on-chain, while supporting multiple cryptocurrencies and stablecoins. The platform also provides automatic exchange rate conversion and on-chain accounting functions to facilitate enterprises to manage cryptocurrency payments and capital flows.

Superfluid: Superfluid is a PayFi platform that provides streaming payment services, allowing users to achieve real-time fund flow through on-chain smart contracts. It supports users to pay wages or service fees in seconds, greatly improving the liquidity and efficiency of funds.

Sablier: Sablier is another PayFi tool focused on streaming payments, which enables users to release funds by time period, making it particularly suitable for scenarios such as salary payments, subscription services, etc.

6. Market size and prospects of Web3 payment and PayFi

1. Market size and user growth

According to market research reports, the global payment market will grow at a compound annual growth rate (CAGR) of more than 15% in the next five years, and the growth rate of crypto payments will far exceed that of the traditional payment market. By 2025, the size of the global crypto payment market is expected to exceed hundreds of billions of dollars, especially in cross-border payments and financially excluded areas, where Web3 payments have the broadest application prospects. In addition, the popularity of stablecoins has also promoted the development of Web3 payments. According to Chainalysis data, the global stablecoin transaction volume has reached 3 trillion US dollars in 2023, accounting for more than 80% of the global blockchain transaction volume. This shows that more and more users and companies are beginning to make payments and transfer funds through cryptocurrencies.

2. Expansion of application areas

As Web3 payment technology matures, its application areas will expand further. At present, Web3 payment is mainly used in areas such as cryptocurrency transactions, NFT purchases, and cross-border payments. In the future, with the deep integration of traditional payment giants such as Visa and Mastercard with blockchain technology, encrypted payments will be widely used in retail, e-commerce, supply chain payments and other scenarios.

E-commerce and retail: In the future, Web3 payments will be deeply integrated with global e-commerce platforms, and users can directly use cryptocurrencies to pay for daily goods and services, and even realize instant cross-border shopping.

Supply chain payment: Web3 payment is expected to simplify the payment process in the supply chain, especially in the international trade and logistics industries, by realizing multi-party automated settlement and smart contract-driven payment processes through decentralized technology.

Cross-border financial services: As global cross-border payment demand grows, PayFi will play an increasingly important role in providing real-time settlement and low-cost remittances, especially in areas where traditional banking services are relatively underdeveloped.

3. Investment opportunities and development potential

Web3 payment and PayFi will become the key areas for venture capital and corporate layout in the next few years. At present, blockchain payment infrastructure and DeFi services have attracted a lot of capital, and PayFi projects have gradually become the focus of investors due to their innovation and efficiency.

From the perspective of the industry chain, there are three core development directions that will become the main growth points of Web3 payments in the future:

Infrastructure construction: Providing low-latency, high-scalability on-chain payment solutions, such as Layer 2 expansion technology and cross-chain payment protocols, will be an important support for the development of Web3 payments. Infrastructure projects that can optimize the on-chain payment experience will receive more investment and attention.

Expansion of payment scenarios: As encrypted payments are gradually applied to daily consumption and cross-border trade, Web3 payment service providers will launch more payment products that adapt to different scenarios and deeply integrate with traditional financial systems.

Compliance and Popularization: In the next few years, governments around the world will introduce more regulatory policies on cryptocurrency payments and DeFi. How to promote the compliance and popularization of Web3 payments under the regulatory framework has become an important challenge and opportunity for the PayFi track. Projects that can find a balance between compliance and innovation will gain a head start in the market.

7. Challenges faced by Web3 payments and PayFi

Although Web3 payments and PayFi have huge market potential, they still face many challenges in their actual promotion and popularization.

1. Regulatory and compliance issues

There is no unified regulation of cryptocurrencies worldwide, and some countries have relatively strict policies on crypto payments. This has brought uncertainty to the international promotion of Web3 payments and PayFi. In addition, how to maintain the efficiency of decentralized payments while complying with regulatory requirements such as anti-money laundering (AML) and customer due diligence (KYC) is also a problem that the platform needs to solve.

2. Stablecoins and the volatility of crypto assets

Although stablecoins are widely used in Web3 payments, they are still subject to some regulatory restrictions, especially in terms of fiat currency redemption and reserve audits. Some countries are cautious about the issuance and circulation of stablecoins. If relevant regulatory policies become stricter in the future, it may affect the development of crypto payments. In addition, although stablecoins have lower volatility than fiat currencies, the price fluctuations of other crypto assets are still large, increasing the risks of user payments and merchant collections.

3. User education and technical threshold

The user experience of Web3 payment is more complicated than traditional payment methods. Users need to master relevant knowledge such as encrypted wallets and private key management. This technical threshold hinders the use and popularization of some potential users, especially non-encrypted community users. Therefore, how to lower the entry threshold of users through simple and intuitive user interfaces and educational means is the key to promoting the popularization of Web3 payment and PayFi in the future.

8. Summary and Outlook

Web3 payment and PayFi track represent the future development direction of payment and financial services. Through the combination of blockchain technology and decentralized finance, this field is gradually changing the landscape of the global payment industry. Although it still faces challenges in regulatory compliance and technical barriers, its advantages in cost efficiency, global interoperability and financial innovation will drive its rapid growth in the next few years.

With the further improvement of infrastructure, the expansion of scenario applications, and the participation of more companies and users, the potential market size of Web3 payment and PayFi will continue to expand. In the future, it will not only become an important part of the crypto community, but will also gradually integrate into the traditional financial system and become an important part of the global payment network.

This article is sourced from the internet: PayFi Track Research Report: Opening up a new blue ocean for Web3 payments

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