PayFi: Opening a new chapter in encryption payments

The stablecoin market continues to grow, but encryption payments will not completely replace traditional fiat currency systems. The true significance of PayFi lies in promoting the application and innovation of encryption assets in real-world scenarios. Solana is not necessarily the only option in the PayFi or encryption payment track; TON Network and Sui, with their respective advantages, are very likely to catch up. The future potential of the PayFi track is enormous, and as a multi-track composite innovation application, its potential market value may exceed ten billion dollars.

In recent years, the encryption payment track has been continuously iterating and developing, evolving from being seen as a tool for gray market transactions to now traditional financial technology platform Stripe acquiring the stablecoin platform Bridge, as well as industry giants like Paypal and Visa entering the field. The emergence of the new PayFi concept has further attracted widespread attention.

Encryption Payment Track

Since Bitcoin was born in 2008, it has gone through a process from small-scale trading among technology enthusiasts to widespread acceptance by global merchants for commercial applications, and then to regulatory intervention and compliant development. Currently, it has formed a diversified and platform-based payment ecosystem. Today, with the maturation of technology and the expansion of application scenarios, encryption payments are gradually integrating into the traditional financial system, providing users with more efficient, low-cost, high-transparency, and decentralized payment solutions, signaling a new round of transformation in the financial technology field.

Stablecoins serve as a bridge between encryption and fiat currencies, providing a foundation for the widespread application of encrypted payments through stable value storage and efficient on-chain circulation. By studying the market conditions of stablecoins, one can gain a good understanding of the entire market.

Stablecoin Market Overview

Undoubtedly, the popularity of encryption payments is directly linked to the stablecoin market. The supply of stablecoins has experienced long-term growth globally. USDT and USDC, as the two giants of stablecoins, account for 90% of the total market, with USDT being the undisputed leader with a 70% market share and showing a stable and slow upward trend.

At the same time, we investigated the distribution of USDT and USDC on the blockchain. USDT has been issued on a total of 13 chains, with the largest issuance on Tron, accounting for over 50%, followed by Ethereum and Solana, with the top four chains accounting for nearly 99% of the total issuance. In contrast, the distribution of USDC is more concentrated, with nearly 92% of the total issuance on Ethereum, followed by Solana, Tron, and Polygon.

It is not difficult to conclude that ETH and Solana are still the mainstream stablecoin application scenarios at present. The continuous growth of the stablecoin track, combined with the entry of several traditional payment industry leaders, sufficiently proves that the encryption payment track has initially established a "payment scale" operating system, and directly demonstrates that the market recognizes the application scenarios of stablecoin payments.

In order to better understand the operation mechanism of encryption payments, we will analyze the four-layer architecture of encryption payment solutions, which ensures the security, scalability, and user experience of encryption payments.

( encryption payment solution

In the cryptocurrency payment solution, the flowchart shows that there are a total of four layers in the architecture:

• Settlement Layer: The underlying infrastructure public blockchain of the blockchain, numerous Layer 1 and general Layer 2 such as Optimism and Arbitrum, they differ slightly in various dimensions such as speed, scalability, privacy, and security, and essentially, they are selling block space.

• Asset issuance layer: Responsible for creating, maintaining, and redeeming stablecoins, aimed at maintaining a stable value against fiat currencies or a basket of anchored assets. Issuers profit by investing in stable income assets such as government bonds, unlike intermediaries in traditional payments, asset issuers do not charge fees on each transaction made using their stablecoins. Once stablecoins are issued on the chain, they can be self-custodied and transferred without any additional fees paid to the asset issuer.

• Deposit and Withdrawal Layer: Deposit and withdrawal providers act as a connection between blockchain and fiat currency, serving as a technical bridge between stablecoins on the blockchain and fiat systems and bank accounts. Such platforms are mainly divided into B2C and C2C categories.

• Interface/Application: The platform provides a software interface for customers, supports cryptocurrency payments, and leverages the traffic generated by front-end trading volume to drive fees as a business model.

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( encryption payment track status

)# Traditional payment giants enter encryption

With the annual expansion of the encryption market and the approval of ETFs, traditional payment giants and crypto-native payment projects are actively developing and expanding related businesses. As early as 2023, Visa had expanded the settlement function of USDC to Solana, providing a more efficient solution for cross-border payments and real-time settlements.

Combining the four-layer architecture of encryption payment we introduced earlier, Visa builds its encryption payment ecosystem through multi-level cooperation:

1. At the asset issuance level, Visa collaborates with Circle to use USDC as a stablecoin for settlement, ensuring stable and compliant payments.

2. Deposit and Withdrawal Layer, Visa supports users in the flow of funds between fiat currency and encryption through its partnership with Crypto.com.

3. At the application layer, Visa provides USDC settlement options for acquirers such as Worldpay and Nuvei, ensuring that merchants can flexibly handle encryption payments.

4. At the settlement layer, Visa chose Solana as the blockchain infrastructure, leveraging its high parallel processing capabilities, stable and predictable transaction fees, and fast block confirmation times to achieve more efficient on-chain settlement.

Through this integration, Visa no longer relies solely on traditional banking settlement systems. This integration means that users can settle directly using USDC via the blockchain network, eliminating intermediaries, shortening settlement times, and reducing costs. This move not only showcases how encryption payments can innovate traditional payment systems but also provides new ideas for the future global payment network.

Paypal has also chosen Solana as the new public chain for its PYUSD payments this year and is actively promoting blockchain-based payment methods. Paypal's vice president has repeatedly emphasized Solana's performance in high throughput and low latency, making it an ideal infrastructure for encryption payments. Although these traditional payment giants do not have the same understanding of blockchain technology and the Crypto industry as Web3 native payment players, they are quickly entering the encryption payment market and competing for market share, thanks to their large user base and traditional industry resources.

Native encryption project

Compared to these traditional giants, native encryption payment projects drive business development through more innovative approaches. Here we have compiled statistics on the projects related to encryption payment within a certain trading platform:

![A hundred billion dollar track waiting to be unlocked, how will PayFi open a new chapter in encryption payments?]###https://img-cdn.gateio.im/webp-social/moments-37fc4b0b41cb24ebb07bd083936cf34e.webp###

(## Ripple for B2B cross-border transactions

Ripple has raised nearly $300 million to date, with backing from well-known venture capital firms including a16z, Pantera, Polychain, and IDE. Currently, there are nearly 6 million active accounts, and its partner institutions exceed 300, distributed across 50 different countries.

XRP is the native token of the Ripple Network. Ripple, as a Layer 1 public blockchain, focuses on the B2B market and is committed to building a CBDC ecosystem in collaboration with banks around the world through a decentralized payment settlement and asset exchange platform.

Ripple adopts the RPCA consensus algorithm, and its RippleNet is built on the XRP Ledger, offering a variety of solutions including xCurrent, xVia, and xRapid, aimed at improving the efficiency and liquidity of cross-border fund transfers. Through these technologies, Ripple collaborates with traditional financial institutions such as Bank of America and Credit Suisse. Compared to the traditional SWIFT system, Ripple has significant advantages in transaction speed and cost, completing transactions in seconds at less than 1% of the cost of traditional cross-border payments.

According to statistics, the number of XRP payment users' transactions is approximately 150,000 per day, with an average daily active user count of over 10,000. Its development has not been smooth, having experienced a years-long SEC lawsuit, which accused it of issuing securities in an unregistered manner. It was only recently that the SEC withdrew its lawsuit against Ripple.

)## Alchemy Pay for encryption payments

Alchemy Pay has raised a total of $10 million in funding from investment institutions such as DWF and CGV, and has recently attracted public attention again due to its collaboration with Samsung Pay on virtual cards.

Alchemy Pay has built a hybrid payment architecture that combines on-chain and off-chain elements by integrating underlying payment protocols such as the Lightning Network, state channels, and the Raiden Network. The on-chain component is responsible for ledger management and data storage, while off-chain handles computation-intensive tasks such as verification and reconciliation. This architecture supports Alchemy Pay in providing customized solutions including deposit and withdrawal payment services, rapid NFT purchases, encryption credit cards, and encryption payments.

According to the ACH ecosystem diagram compiled by a third party, Alchemy Pay's ecosystem connects four major sectors: payments, merchant networks, DeFi, and trusted assets. Its partners include industry leaders such as a certain trading platform, Shopify, Visa, QFPay, highlighting its extensive layout in the entire payment chain.

The biggest difference from XRP is that Alchemy Pay's token ACH is not used as a medium for encryption transactions, but instead provides cashback rewards to users with each payment, offering a consumption reward mechanism similar to traditional credit cards, empowering real payment scenarios and enhancing user loyalty.

Whether traditional industry giants leverage their deep industry resources and global business networks to enter the encryption market with high ambitions, or native encryption payment projects utilize their decentralized architecture and token economic models, both types of players are driving industry development in different ways. Traditional giants possess strong market influence and compliance advantages, while native encryption projects excel in technological innovation and rapid iteration. Recently, we also witnessed Stripe completing the largest acquisition in encryption history by acquiring Bridge, and we look forward to the two sides joining forces to fully leverage the traditional industry's capabilities in resource integration and scaled operations, combined with the innovative mechanisms of encryption, to push the entire payment industry towards digitization and cost reduction with efficiency enhancement.

encryption payment track pain points

1. Unstable transaction costs: The original intention of encryption payments is to reduce intermediaries and transaction costs in traditional payment processes, but in practice, the fees are not cheaper than traditional payments. Networks often experience surges in fees during peak transaction times, especially the congestion issues of major public chains are more significant. In contrast, traditional payment tools such as credit cards or third-party payment platforms have more stable rates, and many daily transaction fees are borne by merchants ### similar to the theory of free shipping ###, making it easier for users to accept due to lower perceived costs.

2. Limited processing capacity: The decentralization and consensus mechanism of blockchain ensure the transparency and security of the system, but also greatly limit the processing capacity of the network. Since blockchain requires consensus among global nodes, the transaction speed is limited by block capacity and block time. Although Layer 2 scaling solutions (, such as the Lightning Network ), and more efficient cross-chain communication and sharding technologies may bring new breakthroughs, even the currently proven best-performing Solana still struggles to compete with traditional payment giants like Visa in terms of maximum TPS. For high-frequency small payment scenarios, the current encryption payment networks still face significant bottlenecks.

3. Absence of Application Scenarios: Although encryption payments have been able to realize basic daily consumption, transfers, cross-border payments, etc. in reality, common business scenarios in mature financial market environments, such as lending, insurance, leasing, crowdfunding, asset management, and a series of derivative application scenarios, still rely on traditional financial systems, and the market share of encryption payments is completely blank.

The fundamental reason lies in the fact that the iteration of existing encryption technologies and the application of products often prioritize the interests of existing users within the encryption field, neglecting broader market demands. Whether it is Alchemy or Visa, the focus on blockchain remains on deposits and withdrawals, encryption debit cards, encryption peer-to-peer payments, etc. To further achieve Mass Adoption, project parties need to pay attention to user demands outside the encryption ecosystem, especially the need to unlock more application scenarios, creating a comprehensive payment ecosystem belonging to encryption. Lily Liu, the chair of the Solana Foundation, has noticed this.