PayFi: The Bridge between Encryption Finance and Traditional Markets

The cryptocurrency market has reached a scale of 2 trillion dollars, but there is still a huge gap compared to the traditional financial market, which is between 400 to 600 trillion dollars. To achieve mass adoption, the encryption industry needs to find effective ways to connect these two markets.

Currently, there has been progress in areas such as asset tokenization, but there is still a lack of sufficient liquidity. The development of the Internet of Things also struggles to address core issues. In contrast, Web3 payments are receiving increasing attention due to their potential to promote the widespread adoption of stablecoins.

According to data, the total supply of stablecoins is approximately $170 billion, with trillions of dollars in assets settled annually. Around 20 million addresses engage in stablecoin transactions each month, and over 120 million addresses hold a non-zero stablecoin balance. Web3 payments offer advantages over traditional payment networks, such as instant settlement, 24/7 availability, and low costs.

However, these advantages are far from the full value of Web3 payments. More importantly, it lays the foundation for building a brand new financial market. Against this backdrop, the integration of Web3 payments, RWA, and DeFi has given rise to PayFi, which is expected to become the key to connecting traditional and encryption finance.

Definition and Connotation of PayFi

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 circulation of value.

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

This concept was first proposed by Lily Liu, the president of the Solana Foundation, at the 2024 Hong Kong Web3 event. She believes that PayFi has built a new market around the time value of money (TVM) that is difficult for traditional finance to achieve.

In the PayFi financial market, not only can the efficiency of Web3 payments be improved compared to traditional finance (such as instant settlement, low costs, transparency, and global reach), but it can also achieve 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 simply equivalent to Web3 payments. It further introduces DeFi on the basis of Web3 payments, constructing a new financial market.

PayFi is not completely equivalent to DeFi. Payment is essentially a value exchange based on the real world, and PayFi focuses more on the process of receiving and settling digital assets rather than the mainstream trading behaviors of DeFi. By seamlessly connecting Web3 payments with DeFi through blockchain and smart contract technology, financial derivative services based on payments can be created.

PayFi is also different from RWA. RWA involves asset tokenization and liquidity support for financing needs, and is an important component of the PayFi scenario, but it is not equivalent to PayFi itself.

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 enhances the efficiency of global financial payments 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, it can help traditional financial payment companies expand their markets by utilizing blockchain technology. On the negative side, the Web3 community can leverage payment vehicles to use blockchain technology to address traditional financial pain points, achieving innovative financial paradigms and product experiences.

Current Web3 payments are still in the early stages, mainly using digital currencies as a payment medium for 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, resulting in limited application scenarios.

With the development of PayFi, the value transfer method 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 encryption finance, becoming a key force in promoting the widespread application of cryptocurrencies. It not only addresses superficial Web3 payment issues, such as cross-border fund transfers and financial inclusivity, but also aims to effectively separate transaction information flow from fund flow, forming a consensus on the flow of funds on the unified ledger of the blockchain, thereby enhancing the efficiency of the entire Web3 industry.

The Advantages of PayFi on Solana

Solana has unique advantages in the development of PayFi:

1. Blockchain Settlement Layer: Solana's high throughput, low cost, and fast settlement characteristics, combined with the performance improvements brought by the Firedancer upgrade, provide an ideal underlying infrastructure for PayFi projects.

2. Currency Layer: Solana collaborates with multiple institutions to promote the application of stablecoins within its ecosystem. Currently, the total amount of stablecoins on Solana has reached 3.6 billion USD, including USDC, USDT, PYUSD, and USDY.

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

4. Compliance Layer: Solana ecosystem projects focus on KYC/AML/CTF requirements and strive to adapt to the laws and regulations of various jurisdictions.

5. Application Layer: Solana has built a diverse range of C-end application scenarios, covering areas such as online shopping, social e-commerce, offline events, and gaming. At the same time, it is also actively laying out the B-end market to support cross-border trade and supply chain finance.

Solana is gradually establishing its position as a "payment chain," becoming the preferred blockchain solution for consumer retail and payment-related products and services. Its strategy is clear: to build an on-chain economy through DeFi and achieve large-scale applications with PayFi.

Conclusion

In the long run, the Web3 industry has begun to transition towards off-chain and real consumption scenarios. PayFi provides a practical path for the slogans of "making DeFi great again" and "promoting the mass application of encryption."

PayFi not only enhances the efficiency of traditional payment methods, but more importantly, it creates a whole new financial market that truly connects traditional finance with encryption finance. Through the development of stablecoins, PayFi accelerates the integration of payment and financial services, providing a key driving force for the future financial ecosystem.

In this emerging market, participants will jointly shape a more open and efficient financial system. PayFi is expected to become an important force driving financial innovation and inclusive finance, bringing profound impacts to the global financial landscape.