Musk’s journey is towards the stars and the sea. Similarly, for the $2 trillion cryptocurrency market aiming for mass adoption, the traditional financial market, valued at $400 trillion to $600 trillion, represents a vast ocean of opportunities.

We can identify some paths, such as the rise of tokenization; however, the current early-stage asset migration to the chain within the RWA (Real-World Asset) 1.0 framework lacks liquidity, making it a temporary solution. Even though DePIN (Decentralized Physical Infrastructure Networks) can revitalize the Internet of Things, it still does not address the core issues directly.

This brings us to Web3 payments, which can drive the widespread adoption of stablecoins—this is key, especially in non-trading scenarios. VISA’s stablecoin report indicates that the total supply of stablecoins is approximately $170 billion, with annual settlement values in the trillions of dollars. Each month, about 20 million addresses engage in stablecoin transactions on-chain, and over 120 million addresses hold a non-zero stablecoin balance.

Web3 payments offer traditional financial payment networks advantages like instant settlement, 24/7 availability, and low transaction costs, but that is far from sufficient. What we should focus on is the entirely new financial market created by innovative PayFi applications. PayFi, which merges Web3 payments, RWA, and DeFi, can help us navigate toward this vast ocean of opportunities.

Therefore, this article will first define what PayFi is and its relationship with Web3 payments, DeFi, and RWA, before examining how Solana, the proponent of PayFi, is gradually building its PayFi ecosystem.

1. What is PayFi?

PayFi, short for Payment Finance, refers to an innovative application model that combines payment functions with financial services based on blockchain and smart contract technology. The core of PayFi lies in utilizing blockchain as a settlement layer, leveraging the advantages of Web3 payments and decentralized finance (DeFi) to facilitate the efficient and free value movement.

The goal of PayFi is to realize the vision outlined in the Bitcoin whitepaper: to construct a peer-to-peer electronic cash payment network that operates without a trusted third party. It also aims to fully utilize the benefits of DeFi to create an entirely new financial market, offering fresh financial experiences, developing more complex financial products and application scenarios, and ultimately integrating a new value chain.

The concept of PayFi was first proposed by Lily Liu, chair of the Solana Foundation, during the 2024 Hong Kong Web3 Carnival. She envisions PayFi as a new financial market built around the Time Value of Money (TVM). These concepts are often difficult or impossible to achieve within traditional finance.

In this new PayFi financial market, not only can we enhance the efficiency of Web3 payments compared to traditional finance—with instant settlement, reduced costs, transparency, and global reach—but we can also achieve decentralization on a global network through DeFi, allowing for permissionless access to assets, self-ownership, and individual sovereignty.

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

PayFi is not entirely synonymous with Web3 payments. Although Web3 payments utilize blockchain technology to significantly enhance the efficiency of traditional finance, PayFi represents a further development, expansion, and deepening of Web3 payments, incorporating DeFi to establish an entirely new financial market.

PayFi is also not completely equivalent to DeFi. The essence of payment lies in the exchange of value in the real world—money is exchanged for goods or services. Consequently, PayFi focuses more on the processes of sending, receiving, and settling digital assets rather than the mainstream trading activities associated with DeFi. Moreover, by seamlessly integrating Web3 payments with DeFi through blockchain and smart contract technology, it becomes possible to create financial derivative services related to payments, such as lending and wealth management.

Furthermore, PayFi is not solely synonymous with RWA (Real-World Assets). RWA encompasses two layers of meaning. The first layer refers to asset tokenization; only by tokenizing assets and bringing them on-chain can seamless value transfer occur, enabling the use of smart contracts to establish trading and settlement processes, such as the tokenization of USD—stablecoins.

The second layer involves RWA financing, which provides liquidity support for the financing needs within PayFi scenarios. As Lily Liu articulated, “PayFi is a new financial market created around the Time Value of Money (TVM). This on-chain financial market can realize new financial paradigms and product experiences that traditional finance cannot.”

Therefore, PayFi is not an innovative standalone concept but rather an integrated application that combines Web3 payments, DeFi, and RWA. This model encompasses not only the payment and trading of digital assets but also includes financial activities such as lending, wealth management, and investment. By leveraging blockchain and smart contract technology, PayFi not only makes global financial payment activities faster and cheaper but also reduces the friction and costs inherent in traditional financial payment services.

3. The Significance and Value of PayFi

On the surface, PayFi is not fundamentally different from GameFi or SocialFi; however, the true significance of PayFi lies in its ability to promote the application of digital assets in real-world scenarios.

From a positive perspective, PayFi can facilitate the migration of Web2 communities to Web3. For instance, traditional financial payment companies can leverage blockchain technology to capture a larger market share and avoid missing out on this transformative era.

Conversely, the Web3 community can use payment systems as a vehicle to address the key issue of the traditional financial system through blockchain technology, thereby achieving new financial paradigms and product experiences that traditional finance cannot deliver.

Currently, Web3 payments are still in the early stages of basic services and primitive forms. They primarily involve using digital currencies as mediums for transactions, such as cross-border remittances, OTC transactions, and payment cards. This semi-centralized approach struggles to connect with the on-chain DeFi ecosystem and remains limited in scope.

However, with the development and promotion of PayFi, this value transfer method based on blockchain and smart contract technology can accelerate the integration of Web3 payments with DeFi financial services, making digital assets more practical and efficient for daily transactions and more complex financial environments.

The emergence of PayFi can help resolve the disconnect between traditional finance and crypto finance, which has persisted for decades, risking the collapse of established systems. In the future global financial ecosystem, PayFi will undoubtedly play a key role in facilitating the mass adoption of crypto.

Raymond, co-founder of PolyFlow, offers a deeper understanding of PayFi: “The challenges PayFi addresses are not merely the apparent issues that Web3 payments need to solve, such as the difficulties of cross-border fund transfers and the lack of financial inclusion. Instead, it tackles the most fundamental problem: effectively separating the flow of transaction information from the flow of funds. This allows everyone to reach a consensus on the flow of funds within a unified blockchain ledger, which is essential for improving the overall efficiency of the Web3 industry and driving true mass adoption.”

(Exclusive Interview with Raymond Qu, Co-Founder of PolyFlow: Building PayFi Infrastructure)

4. Why Solana for PayFi?

When asked this question, Lily Liu provided the answer: “Solana possesses three major advantages: high-performance public chain, capital liquidity, and talent mobility.” These advantages create barriers that are currently difficult for competitors to overcome.

Additionally, we can examine this from the perspective of the PayFi Stack: what kind of infrastructure does PayFi require?

(PayFi - The New Frontier of RWA)

4.1 Blockchain Settlement Layer

As the foundational infrastructure for settlement, there are many blockchain networks to choose from; however, Solana stands out distinctly. Its high throughput, low cost, and rapid settlement, along with the further performance enhancements brought by the Firedancer upgrade, will facilitate the swift implementation of PayFi projects.

4.2 Currency Layer

In addition to an efficient and seamless underlying settlement network, sufficient liquidity support is essential, especially in the form of stablecoins used as on-chain trading mediums. We can see Solana’s collaborations with Ondo Finance, Visa, Circle, and Stripe, as well as the launch of PYUSD this past June.

According to DeFilama data, as of August this year, PYUSD on Solana accounted for 64% of the market share, while Ethereum only held 36%. Since 2023, the on-chain stablecoin volume has gradually increased from $1.8 billion to the current $3.6 billion, primarily comprising USDC, USDT, PYUSD, and USDY.

4.3 Custody Layer

Asset custody is crucial in both on-chain and off-chain finance. For blockchain-based PayFi, it is vital to consider how to ensure the security of smart contracts, manage private keys, and achieve compatibility with traditional finance and DeFi.

On-chain asset custody is key to realizing personal sovereignty. Not your key, not your coin.

4.4 Compliance Layer

It is well known that compliance and user onboarding are essential for the healthy development of the financial payment ecosystem and services. At this level, it is fundamental to ensure that all transactions and fund flows comply with KYC/AML/CTF requirements while adhering to the laws and regulations of the local jurisdiction.

4.5 PayFi Application Layer

Based on the foundational layers mentioned above, the actual PayFi applications can be supported and implemented.

At the recent BreakPoint event in Singapore, we observed that Solana has built numerous consumer-facing applications through its infrastructure. Its Consumer segment is showing a trend of coordinated efforts, with development resources far exceeding those of other public chains.

According to @ZKwifgut, payment scenarios at the BreakPoint event included:

• Payment Scenarios: Online shopping, social e-commerce, offline events, gaming
• Payment Mediums: PayPal PYUSD, with on-site merchandise available for purchase; MakerDAO bridging stablecoins to Solana via Wormhole; SOL debit card by Sanctum; Fusewallet virtual Visa card; Kast bank card.
• Payment Gateways: Shopping with stablecoins via Shopify Blinks; accepting stablecoin payments for booking flights and hotels through Helio Pay/Solana Pay.
• Goods Supply: Consumer hardware like phones, SIM cards, watches, event tickets, merchandise, e-commerce products (integrated with Shopify), gaming items, etc.
• Payment Hardware: Solana’s second-generation official phone, Seeker; the Showtime sports watch.

Solana is also actively targeting the B2B market, providing liquidity support for payment scenarios in cross-border trade and supply chain finance through RWA fundraising.

Compared to Ethereum’s positioning as an “asset chain,” Solana is solidifying its role as a “payment chain,” currently seen as the optimal solution for blockchain services related to consumer retail and payment products. In the words of @ZKwifgut:

“PayFi and DeFi are the two legs of Solana’s vast crypto ecosystem, and so far, no other ecosystem has such a clear strategy: building an on-chain economy through DeFi and moving towards mass adoption through PayFi.”

(Solana Breakpoint 2024 in Progress)

5. Final Thoughts

In the long run, the entire Web3 industry is transitioning towards off-chain and real-world consumption scenarios. Whether it’s about ‘Making DeFi Great Again’ or ‘Bringing Crypto to Mass Adoption,’ these frequently cited slogans in the market can finally be realized through PayFi.

“The wolves have truly arrived.”

Blockchain and smart contract technology have the potential to make traditional payments faster and more affordable than ever. However, the use cases that help traditional markets cut costs and boost efficiency primarily capture value from the B2B side of payments. While this is a positive development, it may not align with our true desires.

PayFi can genuinely bridge the gap between traditional financial markets and the crypto ecosystem. The rise of stablecoins will further accelerate the integration of payments and financial services. This is not just about reducing costs and improving efficiency; it has the potential to forge an entirely new financial landscape where “you have what I have, and I have what you have.”

In the future financial ecosystem, PayFi will emerge as a key driving force.

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