PayFi: The Integration and Innovative Fusion of Blockchain Payments and Finance

Today, as the cryptocurrency market reaches a scale of 2 trillion USD, the traditional financial market's volume of 400-600 trillion USD remains a blue ocean. Although directions like asset tokenization have already emerged, the early RWA 1.0 model lacks sufficient liquidity and is difficult to sustain. Even though DePIN projects in the Internet of Things sector bring new opportunities, they struggle to address the core issues.

The rise of Web3 payments has paved the way for the widespread use of stablecoins, which is particularly important for non-trading scenarios. Data shows that the total supply of stablecoins is approximately $170 billion, with trillions of dollars in assets settled each year. About 20 million addresses engage in stablecoin transactions every month, and over 120 million addresses hold a non-zero stablecoin balance.

Web3 payments bring advantages such as instant settlement, 24/7 availability, and low-cost transactions to traditional finance, but this is just the beginning. PayFi, as an innovative model that integrates Web3 payments, RWA, and DeFi, is expected to create a new financial market landscape. This article will delve into the concept of PayFi, its relationship with related fields, and how Solana is building its PayFi ecosystem.

PayFi Concept Analysis

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 decentralized finance (DeFi) to promote the efficient and free flow of value.

PayFi aims to create a peer-to-peer electronic cash payment network without the need for a trusted third party, as depicted in the Bitcoin white paper, while fully leveraging the advantages of DeFi to build a new financial market. This includes providing innovative financial experiences, developing complex financial products and application scenarios, and ultimately forming a complete value chain.

Lily Liu, the chair of the Solana Foundation, introduced the concept of PayFi for the first time at the 2024 Hong Kong Web3 Summit. She believes that PayFi has built a brand new financial market around the Time Value of Money (TVM), achieving functions that traditional finance finds difficult to reach.

In this innovative PayFi financial market, not only can the efficiency of Web3 payments be improved compared to traditional finance—instant settlement, reduced costs, transparency, global coverage—but it also realizes the characteristics of decentralization, permissionless access, asset autonomy, and personal sovereignty based on decentralized finance.

The Relationship Between PayFi and Web3 Payments, DeFi, and RWA

PayFi is not simply equivalent to Web3 payments. Although Web3 payments enhance the efficiency of traditional finance based on Blockchain technology, PayFi further integrates DeFi on this foundation to build a new financial market.

PayFi is not completely synonymous with DeFi. The essence of payment is based on the transfer of value in the real world, while PayFi focuses more on the receipt and settlement processes of digital assets, rather than the mainstream trading activities of DeFi. By seamlessly connecting Web3 payments with DeFi through blockchain and smart contract technology, it is possible to create payment-based financial derivative services, such as lending and wealth management.

The relationship between PayFi and RWA is not completely overlapping. RWA has two layers of meaning: first, asset tokenization, which means putting assets on-chain to realize value circulation on the Blockchain; second, RWA financing, which provides liquidity support for financing needs in the PayFi scenario.

Therefore, PayFi is an innovative application that integrates Web3 payments, DeFi, and RWA, covering financial activities such as digital asset payments, trading, lending, wealth management, and investment. Through Blockchain and smart contract technology, PayFi not only makes global financial payments faster and more cost-effective but also reduces friction and costs in traditional financial payment services.

The Significance and Value of PayFi

The core value of PayFi lies in promoting the application of digital assets in real-world scenarios. On the positive side, PayFi can help traditional financial payment companies expand their market share and seize opportunities of the times using Blockchain technology. On the negative side, the Web3 community can use Payment as a vehicle to leverage Blockchain technology to address the pain points of the traditional financial system, achieving innovative financial models and product experiences.

Currently, Web3 payments are still in the early stages, primarily using digital currencies as a payment medium in scenarios such as cross-border remittances, OTC, and payment cards. This semi-centralized approach makes it difficult to fully leverage the advantages of the on-chain DeFi ecosystem, and the application scenarios are relatively limited.

With the development of PayFi, the value transfer methods based on Blockchain and smart contracts will accelerate the integration of Web3 payments and DeFi financial services, enhancing the practicality and efficiency of digital assets in daily transactions and complex financial environments. PayFi is expected to break the long-standing divide between traditional finance and crypto finance, becoming a key force in driving the mass adoption of cryptocurrencies.

Advantages of PayFi on Solana

Solana has significant advantages in the PayFi field, mainly reflected in the following aspects:

1. Blockchain Settlement Layer: Solana is known for its high throughput, low cost, and fast settlement, and the Firedancer upgrade further enhances its performance, providing a solid foundation for the implementation of PayFi projects.

2. Currency Layer: Solana has partnered with several well-known institutions such as Ondo Finance, Visa, Circle, Stripe, etc., and launched the PYUSD stablecoin. Currently, the total amount of stablecoins on the Solana blockchain has reached 3.6 billion USD, including USDC, USDT, PYUSD, USDY, and others.

3. Asset Custody Layer: The Solana ecosystem emphasizes the security of smart contracts, private key management, and compatibility with traditional finance and DeFi, providing assurance for the realization of personal asset sovereignty.

4. Compliance Layer: The Solana ecosystem emphasizes compliance requirements such as KYC/AML/CTF, while adapting to local laws and regulations, laying the foundation for the healthy development of the financial payment ecosystem.

5. Application Layer: Solana has built a rich array of application scenarios on the C-end, covering areas such as online shopping, social e-commerce, offline events, and gaming. Payment mediums include PayPal PYUSD, MakerDAO StableCoin, SOL debit cards, etc. Payment gateways such as Shopify Blinks, Helio Pay/Solana Pay, etc. The supply side of goods involves consumer-grade hardware, exhibition tickets, peripherals, e-commerce products, gaming props, etc. Payment hardware includes the official Solana mobile phone and sports watch, among others.

Solana is also actively laying out its B-end market, providing liquidity support for payment scenarios in cross-border trade and supply chain finance through RWA financing. Compared to Ethereum's "asset chain" positioning, Solana is establishing itself as a "payment chain," becoming the preferred blockchain solution for consumer retail and payment products.

Conclusion

In the long run, the Web3 industry’s transformation towards off-chain and real consumption scenarios has become an inevitable trend. PayFi provides a practical path for "making DeFi great again" and "promoting the mass adoption of cryptocurrency."

PayFi not only enhances the efficiency of traditional payments, but more importantly, it can truly connect the traditional financial market with the cryptocurrency financial market, accelerating the integration of payment and financial services through the development of stablecoins. This is not just a simple efficiency improvement, but rather creates a completely new financial market ecosystem.

In the future financial landscape, PayFi will play a key role in driving the entire industry forward.