It all started with Satoshi's revolutionary white paper, which laid the foundation for a new era of decentralized payments. Bitcoin's inception was not merely about a new form of money, but a vision to overhaul the payment systems entrenched in traditional finance. Bitcoin ended up being many things, but not as much of a medium for payments. It’s simply not the type of money that people can use on a daily basis.

Then came stablecoins, which have emerged as a bridge between fiat currencies and blockchain, enabling the first wave of real payment use cases. Since 2014, stablecoins have grown exponentially and proved that the demand for blockchain innovation in payment is stronger than ever. Today, stablecoins are already powering ~$2T in organic payments annually, which is close to Visa’s yearly payment processing volume. Crypto ecosystems are actively working to realize the endless potential of stablecoins and overcome constraints such as poor payment experience (UX), significant time delays, high transaction costs and compliance hurdles. 

While the progress thus far has been impressive, to make blockchain the best medium for any payment, and enable magical experiences that weren’t possible before, we have to go further.

If we look back a few decades, the growth of payment ecosystems has been significantly driven by financing mechanisms. For instance :

• Credit Cards: Powering $16 trillion in merchant payments annually, credit cards exemplify how financing can drive widespread adoption and utility.
• Trade Finance: Facilitating $10 trillion in B2B payments annually, trade finance underscores the critical role of financing in global commerce.
• Cross border payments: $4 trillion in pre-funding, supporting remittances and global settlements. Today, 1 in every 6 families depend on remittance payments.
  

Without payment financing, the whole world suffers from a lack of liquidity. Similarly, without financing, the Internet-native money stays limited in its utility and adoption. PayFi is there precisely to address such limitations.

Lily Liu, President of Solana Foundation, who coined the term PayFi, articulated it beautifully: “PayFi is the creation of new financial markets around the time value of money. On-chain finance can enable new financial primitives, and product experiences that are impossible in traditional or even Web2 finance.”

PayFi is a Catalyst for Real World Impact

Cross-border payments financing: Arf is transforming the way cross-border payments are made by providing on-chain liquidity solutions for financial institutions. This initiative facilitates instant, transparent, and low-cost USDC-based settlements 24/7, eliminating the need for pre-funding accounts globally. Cross border payment financing is extremely capital efficient and highly scalable. Arf recently surpassed $1.6B in on-chain volume, without experiencing any defaults, becoming one of the fastest growing stablecoin use cases. 

Digital asset backed corporate cards: Rain is reshaping spend management for Web3 teams by providing settlement liquidity for their USDC-backed corporate cards. Corporate treasuries pledge their assets into a vault, which sets their credit limit and at the end of each billing period assets are liquidated on-chain to automatically pay off the balance. More and more companies are emerging with innovations leveraging digital assets in the card payment industry.

Trade finance: BSOS is creating supply chain real world assets by integrating enterprise resource planning platforms with on-chain liquidity, providing a shorter period financing option, even when the required financing amount is small. Zeebu is enabling telecom companies around the globe to exchange roaming invoices and settle on-chain. 

New use cases with a lot of potential:

• Instant RWA settlements: Even the most liquid RWA assets, like T-Bills or tokenized funds, can take 2 to 4 days to settle, as underlying assets need to be liquidated for redemptions. On-chain liquidity pools can enable instant settlements 24/7 for both subscriptions and redemptions for many such assets, ensuring swift and transparent transactions.
• DePIN Financing: The DePIN ecosystems are expanding rapidly. Many DePIN projects are built around the thesis that we can distribute the cost of building large scale infrastructure in exchange for future value redistributions. Platforms like TLay are taking this to the next level by providing a critical trust infrastructure on which financing solutions can be built to accelerate the adoption of DePIN. For its part, peaq has built an L1 tailor-made for DePIN, complete with a suite of functionalities empowering machines and devices to transact with one another and with people efficiently. As such, peaq is creating the necessary backbone for a machine economy that can benefit substantially from such financing.
  

The New Frontier of RWA

Real World Assets (RWA) naturally emerged as crypto ecosystems were searching for assets with sustainable value. 

In the last two years, tokenized T-bills, yielding 4-5%, became the favored destination for on-chain capital, growing quickly to $2B in TVL. Unfortunately, this growth is likely to be temporary. While inflation persists, central banks are signaling rate cuts. As T-bill yields decline, capital will search for other high yield and low risk assets to protect itself against inflation. This is exactly where PayFi can take the torch to be the new frontier for RWA.

As an RWA category, PayFi natively leverages blockchain and stablecoin technologies to finance on-chain and off-chain payment applications.

PayFi can: 

• Bring trillions of payment volume on-chain, as it can better optimize the time value of money.
• Provide sustainable risk-adjusted yields: from single-digit risk-free yields all the way to attractive double-digit yields for private credit.
• Scale rapidly with very low systemic risk.
• Offer high liquidity, when structured right, due to the short duration nature of the underlying assets in payment financing transactions.
• Have substantial impact on businesses and individuals across the world.

Why the PayFi Stack? 

To enable these innovations at scale, we propose the PayFi Stack, an open stack designed to build compliant payment financing solutions, and advocate industry leaders to optimize solutions to meet the unique needs of PayFi. The initial stack has the following layers: Transaction, Currency, Custody, Financing, Compliance, and Application. As the industry progresses, we expect the stack to evolve.

Transaction Layer: Because of the nature of payments, high throughput, low cost, and quick settlement are key requirements for the Transaction layer. Both Solana and Stellar have focused on payments from day one, building their names for high throughput and low cost. They introduced payment specific enhancements, such as Solana Pay, and the Stellar Disbursement Platform that help utilize blockchains for any type of payment, bringing everyday finance to the masses. zkRollup platforms such as Scroll’s instant finality brings fresh air to PayFi in EVM. Continued innovation on throughput, cost, speed, reliability, and security is going to accelerate the growth of PayFi. 

Currency Layer: Payments focused stablecoins that prioritizes compliance and large scale distribution such as USDC and PYUSD will continue to play a major role. On the other hand, yield-sharing stablecoins such as USDM will not only help eliminate the cost of transacting, but also offer a modular solution for payments, savings, and more. Additionally, the introduction of stablecoin regimes in EU (EURC), Hong Kong (HKDR), Singapore (XSGD), and Japan (GYEN) is going to create wider accessibility of on / off ramps. Their regional ties with TradFi liquidity will enable innovations in instant crypto to fiat and FX settlements, making transacting on blockchain superior to all other rails. 

Custody Layer: Payments financing has more sophisticated institutional needs in custody. For example, for a security agent to handle liquidation in an event of default, multi-party control of assets in a wallet, and finer account controls are essential. One would look for institutional-grade products such as Fireblocks, Cobo and Copper. Some of these advanced features are already making their way into account-abstraction based self-custody wallets available to retail and small businesses. TON and Celo are utilizing wallets built into widely distributed applications, Telegram and MiniPay to bring everyday financing apps to the masses.

Financing Layer: This layer houses financing protocols for payment use cases and the critical infrastructures for risk management, from credit rating, underwriting, to oracles for RWAs. Financing protocols such as Huma focuses more on short duration financing, which is common in the payments domain. Credit rating solutions like Credora brings institutional interest to deepen the available liquidity, and oracles such as Pyth and Chainlink connects the dots between off-chain and on-chain data. 

Compliance Layer:  One of the biggest hurdles in utilizing stablecoins for real world payments has been weak regulatory compliance practices, especially in the domain of AML. This becomes extra challenging when any asset can move from one wallet to another, and across chains in a permissionless manner, making it hard to track illicit activity. Thankfully, solutions from companies like Chainalysis, Elliptic, and TRMLabs, as well as new privacy-first attestation platforms, are providing a major improvement over traditional AML solutions. Plume is an example of a chain optimized for RWAs which integrates with many of these compliance providers at the network level. 

Application Layer: These are the applications that leverage on-chain financing to enable payments. Arf in cross border payments, Zeebu in telecom roaming payments, Raincard and Reap in credit cards, BSOS in supply chain financing, Zoth in trade finance, are just a few examples. As the underlying layers continue to innovate, many more applications will be unlocked.  

It's go time for PayFi

The rapid adoption of stablecoins is shifting the global payments landscape, and it has reached a pivotal moment that's giving rise to PayFi, the new frontier of RWA. More so than trading, every existing and new stablecoin issuer is chasing real world use cases to showcase their value and expand their reach.

We have outlined how we can achieve such exponential growth and widespread adoption with the PayFi Stack. We are very excited to innovate together with Solana, Stellar, Circle and many others, kicking-off a new-era where every stablecoin based payment solution is superior to its traditional alternative. 

To help foster the PayFi movement, we plan to organize two ongoing events and welcome you all to join us:

• PayFi X: A regular X Spaces to talk about what’s happening in PayFi
• PayFi Summit: an industry event alongside major crypto conferences, starting with Token2049 in Singapore in September 2024

The stage is open for anyone to jump on and build with this growing community.

The time to join forces and shape this transformative journey is now. LFG!