The New Chapter of the Encryption Financial Market: The Rise of PayFi

The cryptocurrency market is seeking breakthroughs and venturing into the broader traditional financial sector. Although some attempts at asset tokenization have already begun, merely migrating assets to the blockchain is not enough to achieve a true breakthrough. Even if Internet of Things projects can bring new developments, they struggle to address the core issues.

In this context, the importance of Web3 payments is becoming increasingly prominent. It is expected to drive the large-scale adoption of stablecoins, particularly in non-trading scenarios. According to data platform statistics, the total supply of stablecoins has reached approximately $170 billion, processing asset transactions worth trillions of dollars annually. Approximately 20 million addresses engage in stablecoin transactions each month, with over 120 million addresses holding a non-zero stablecoin balance.

Web3 payments bring advantages such as instant settlement, 24/7 availability, and low-cost transactions to the traditional financial system. However, these advantages alone are not enough to bring about fundamental change. What is truly exciting is the emerging concept of PayFi, which integrates Web3 payments, tokenization of physical assets (RWA), and decentralized finance (DeFi), and is expected to create a brand new financial market.

PayFi: The Innovative Integration of Payment and Finance

PayFi(Payment Finance) is an innovative application model that combines payment functions with financial services, based on blockchain and smart contract technology. It uses blockchain as the settlement layer, integrating the advantages of Web3 payments and DeFi, aimed at facilitating the efficient and free flow of value.

The goal of PayFi is to realize the vision depicted in the Bitcoin white paper: to build a peer-to-peer electronic cash payment network that does not require a trusted third party. At the same time, it fully leverages the advantages of DeFi to create a brand new financial market, including providing innovative financial experiences, building more complex financial products and application scenarios, and ultimately integrating into a completely new value chain.

In this emerging PayFi financial market, not only can Web3 payments achieve efficiency improvements over traditional finance, such as instant settlement, reduced costs, transparency, and global reach, but it can also realize characteristics such as decentralization of the global network, permissionless access, asset ownership, and personal sovereignty based on decentralized finance.

The Relationship Between PayFi and Related Concepts

PayFi is not entirely equivalent to Web3 payments. While Web3 payments have achieved numerous efficiency improvements over traditional finance based on blockchain technology, PayFi is a further construction, expansion, and deepening on this basis, introducing DeFi to build a brand new financial market.

PayFi is not equivalent to DeFi either. The essence of payment is based on the transfer of value in the real world, so PayFi revolves more around the receipt and settlement processes of digital assets, rather than the mainstream trading activities of DeFi. PayFi seamlessly connects Web3 payments with DeFi through blockchain and smart contract technology, creating financial derivative services based on payment-related activities.

PayFi and RWA also have differences. RWA has two layers of meaning: first, asset tokenization, and second, liquidity support for the financing needs in the PayFi scenario. PayFi creates new financial markets around the time value of money, achieving new financial paradigms and product experiences that are difficult to achieve in traditional finance.

Overall, PayFi is an innovative application that integrates Web3 payments, DeFi, and RWA, covering financial activities such as payment, trading, lending, wealth management, and investment of digital assets. By leveraging blockchain and smart contract technology, PayFi not only makes global financial payment activities faster and cheaper but also reduces friction and costs associated with traditional financial payment services.

The Significance and Value of PayFi

The true significance of PayFi lies in promoting the application of digital assets in real-world scenarios. On a positive note, PayFi can facilitate the migration of the Web2 community to Web3, helping traditional financial payment companies leverage blockchain technology to gain a larger market share. On the flip side, the Web3 community can use Payment as a vehicle to address the pain points of the traditional financial system through blockchain technology, achieving new financial paradigms and product experiences.

Currently, Web3 payments are still in the early stages, primarily using digital currencies as a medium for payment transactions, such as cross-border remittances, over-the-counter trading, and payment card scenarios. This semi-centralized approach makes it difficult to fully connect the on-chain DeFi ecosystem, and the scenarios are relatively limited. However, with the development of PayFi, value transfer methods based on blockchain and smart contract technology will accelerate the integration of Web3 payments and DeFi financial services, enhancing the practicality and efficiency of digital assets in everyday transactions and complex financial environments.

The emergence of PayFi is expected to break the long-standing divide between traditional finance and encryption finance, becoming a key force in promoting the large-scale application of cryptocurrencies. It not only addresses surface issues of Web3 payments, such as the challenges of cross-border fund transfers and insufficient financial inclusion, but more importantly, it solves a fundamental problem: effectively separating the information flow and the fund flow of transactions, forming a consensus on the fund flow on the blockchain's unified ledger, thereby enhancing the efficiency of the entire Web3 industry and promoting true large-scale adoption.

Solana: A Fertile Ground for PayFi Development

Solana has unique advantages in the development of PayFi, mainly reflected in three aspects: high-performance public chain, capital liquidity, and talent mobility. These advantages create barriers that are currently difficult for other competitors to overcome.

From the perspective of the PayFi technology stack, Solana has advantages at multiple levels:

1. Blockchain Settlement Layer: Solana's high throughput, low cost, and fast settlement characteristics, along with the performance improvements brought by the Firedancer upgrade, provide strong support for the rapid implementation of PayFi projects.

2. Currency Layer: Solana has partnered with multiple institutions to introduce various stablecoins, such as PYUSD, providing ample liquidity support for on-chain transactions.

3. Asset Custody Layer: The security of smart contracts in the Solana ecosystem, private key management, and compatibility with traditional finance and DeFi have been emphasized and developed.

4. Compliance Layer: The Solana ecosystem focuses on ensuring that transactions and the flow of funds comply with KYC/AML/CTF requirements and adapt to the laws and regulations of different jurisdictions.

5. Application Layer: Solana has built various application scenarios for the C-end, forming a trend of collective operations.

At the recent BreakPoint event in Singapore, Solana showcased its comprehensive layout in payment scenarios, payment media, payment gateways, supply side of goods, and payment hardware. At the same time, Solana is also actively expanding the B-end market, providing liquidity support for payment scenarios in cross-border trade and supply chain finance through RWA fundraising.

Compared to Ethereum's "asset chain" positioning, Solana is establishing its own "payment chain" status, becoming the optimal blockchain solution for consumer retail and payment-related products and services. The Solana ecosystem is supported by two main pillars: DeFi and PayFi. On one hand, it builds an on-chain economy through DeFi, while on the other hand, it promotes mass adoption through PayFi, showcasing a clear strategic layout.

Looking to the Future

In the long term, the Web3 industry has become a trend towards off-chain and real consumption scenarios. The emergence of PayFi provides the possibility for the industry slogans of "making DeFi great again" and "promoting the mass adoption of encryption."

PayFi is not only helping traditional markets reduce costs and increase efficiency, but it is also creating a whole new financial market. It truly bridges the gap between traditional financial markets and encryption financial markets, accelerating the integration of payment and financial services through the development of stablecoins. In this emerging market, users will have more financial autonomy and innovative opportunities.

With the development of PayFi, we expect to see the birth of a more open, efficient, and inclusive global financial ecosystem. This system will integrate the stability of traditional finance and the innovation of encryption finance, providing global users with higher quality and more convenient financial services. The rise of PayFi marks that the encryption financial market is moving towards a new stage of development, and its influence is expected to extend beyond the cryptocurrency sphere into a broader financial field.