CGV Research | 新金融集群革命：为什么 PayFi 市场规模或将 20 倍于 DeFi ？

PayFi, short for Payment Finance, refers to an innovative technology and application model that combines payment functions with Financial Service in the field of blockchain and cryptocurrency. The core of PayFi lies in the processes of sending, receiving, and Settlement of cryptocurrency, rather than the transaction itself. This model not only covers the payment and transaction of cryptocurrency but also includes various financial activities such as lending, wealth management, and cross-border payments. Through decentralization technology, PayFi makes financial activities faster, more secure, and reduces the friction and costs in the traditional financial system, thus promoting seamless value transfer and financial inclusion on a global scale. PayFi was first proposed as a new concept by Lily Liu, the Chair of Solana Foundation, at the EthCC conference in July 2024. In her view, PayFi represents a new way of constructing financial markets, creating financial primitives and product experiences around the time value of money (TVM), which are difficult or impossible to achieve in traditional or even Web2 finance. The vision of PayFi is to leverage blockchain technology to innovate payment systems, achieve more efficient and low-cost transactions, provide new financial experiences, create more complex financial products and application scenarios, and form an integrated value chain, thereby forming a new financial cluster. The CGV Research team believes that with the development of high-performance blockchain technology, the true value of PayFi will rapidly expand and scale in this environment. This expansion can accelerate the integration of payment and Financial Service, making cryptocurrency more practical and efficient in daily transactions and more complex financial operations. In the future financial ecosystem, PayFi will be a key driving force.

PayFi: Inheriting and Extending the Payment Vision of BTC

The birth of BTC originated from the concept of ‘Decentralization payment’ proposed by Satoshi Nakamoto in his revolutionary white paper ‘Bitcoin: A Peer-to-Peer Electronic Cash System.’ This concept not only introduced a new form of digital currency - BTC, but more importantly, it envisioned a global payment system without intermediaries, bypassing the restrictions of traditional financial institutions and enabling more efficient and transparent value transfer. Satoshi Nakamoto’s vision aimed to completely reform the existing payment system, eliminating high fees, lengthy settlement times, and financial exclusivity. However, although BTC successfully led the cryptocurrency revolution, its original intention as a daily payment medium has not been fully realized. BTC is more commonly viewed as a store of value rather than a currency for everyday transactions. Over time, the emergence of stablecoins has filled this gap. Stablecoins bridge the gap between cryptocurrency and the real-world financial system by mapping the value of fiat currencies to blockchain, enabling the first practical application of blockchain-based payments. Since 2014, stablecoins have experienced exponential growth, demonstrating a strong market demand for blockchain-based payments. Stablecoins allow users to enjoy the transparency and decentralization advantages of blockchain technology while avoiding the risks associated with cryptocurrency price fluctuations. To date, stablecoins have supported approximately $2 trillion in annual payments, approaching the annual payment processing volume of Visa. However, despite the development driven by stablecoins, blockchain-based payments still face many challenges, such as poor user experience, transaction latency, high costs, and compliance issues. These challenges limit the widespread adoption of blockchain-based payments as a mainstream payment medium. The further expansion of the payment ecosystem, especially relies on the promotion of financial instruments and financing mechanisms. In the traditional financial system (TradFi), tools such as credit cards, trade financing, and cross-border payments greatly facilitate payment applications worldwide by providing liquidity and financing options. As an emerging industry, the blockchain industry does not necessarily need to completely rebuild a market but can provide more valuable products and solutions through blockchain technology based on the existing market foundation. It is in this context that PayFi has emerged. By leveraging the high performance and low-cost transaction characteristics of advanced public chains, PayFi not only enables blockchain payment systems to surpass TradFi mechanisms but also creates a more liquid and adaptive global financial market. This evolution is both a return to the original intention of BTC and a significant innovation based on BTC. Through PayFi, the blockchain payment system will truly unleash its potential and drive the global financial system towards a more efficient and inclusive future.

PayFi Core Concept: Time Value of Money (TVM)

“Time is more valuable than money. You can get more money, but you cannot get more time.” The Time Value of Money (TVM) is a core concept in finance, emphasizing the difference in value of funds at different points in time. The basic principle of TVM is that a sum of money is usually worth more in the present than the same amount of money in the future. This is because money held at present can be immediately invested to generate returns or used for consumption to provide immediate utility. In simple terms, the important concept behind TVM is “opportunity cost.” If someone holding funds does not use them immediately, they miss out on potential investment opportunities and cannot gain potential returns. Therefore, the present value of money must reflect the opportunities that are foregone. For example: - Loans and mortgages: In bank loans, the interest rate is calculated based on TVM, and the interest paid by the borrower is actually compensation for the right to use the funds provided by the bank. - Investment evaluation: When evaluating investments such as stocks, bonds, or real estate, investors consider the present value of future returns to determine the attractiveness of the investment. - Capital budgeting: When companies engage in capital budgeting, they evaluate the future cash flows of different projects and calculate their present value through discounting, helping management make the most favorable investment decisions, and so on. PayFi, through blockchain technology, allows users to realize the time value of funds on-chain at a very low cost and in an efficient manner. By leveraging smart contracts and a decentralized platform, PayFi enables users to manage and invest funds without intermediaries, thus maximizing the efficiency of fund utilization. This new model not only significantly reduces transaction costs but also shortens transaction time, allowing funds to enter the market quickly for reinvestment or other purposes. In addition, PayFi’s infrastructure provides the possibility for developing more complex on-chain financial products, such as on-chain credit markets, installment payment systems, and Smart Contract-based automated investment strategies, which will expand to more complex financial products and application scenarios, creating an integrated value chain and forming a new “financial cluster.”

RWA + DeFi Adhesion: Building a new financial cluster with PayFi at its core

In the financial system, Real World Assets (RWA) and Decentralized Finance (DeFi) each have their unique advantages but also face their respective challenges: RWA has a large market size and stable value, but relatively lower liquidity, transparency, and transaction efficiency; DeFi has efficient trading mechanisms and global liquidity but relies mainly on encryption assets, lacking direct connection with the real economy. Contrary to some industry views such as ‘PayFi is a subdivision of the RWA track,’ CGV research believes that RWA is part of the PayFi ecosystem. In addition to RWA, PayFi also involves a broader range of encryption assets, Smart Contract-driven Financial Services, and decentralized payment and settlement systems. Leveraging Decentralized Finance to promote the introduction and application of RWA is an important component for PayFi to achieve its core functions. RWA needs Decentralized Finance to improve liquidity and transaction efficiency, enabling fast and low-cost global financing through blockchain digitization and Smart Contracts, while enhancing transaction transparency and security. At the same time, Decentralized Finance enriches asset categories by introducing RWA, mitigates fluctuation risks, provides stable sources of income, connects with the real economy, and promotes its practical application and development globally.

Through PayFi, RWA and Decentralized Finance are no longer independent financial systems, but interdependent and complementary organic wholes, realizing the integration and innovation of real assets and on-chain financial services. - Digitization and on-chain: Introduce RWA to the Block chain. The PayFi platform first digitized RWA through Smart Contract, enabling it to be represented and transacted on the Blockon-chain. This process ensures the transparency and security of RWA’s value and ownership on the on-chain. In this way, traditional RWA assets can be split into small units, making it easy to trade and invest on a global scale. - Smart Contract & Payment System: Efficient Transactions and Settlements. Once the RWA is digitized, the PayFi platform leverages Smart Contract to automate the transaction and settlement process. This not only speeds up the transaction and reduces the cost, but also ensures the transparency and security of the transaction. In addition, PayFi’s on-chain payment system makes the transfer and payment of these assets easier and more efficient, solving the common problems of settlementlatency and high fees in TradFi. - Liquidity Pools & Funding Channels: Funding RWA. PayFi’s Liquidity pool provides RWA with ample funding, enabling these assets to be financed by global investors. By using RWA as a Collateral, PayFi allows investors to participate in financing activities on the Decentralized Finance platform while providing a stable source of funding for RWAs. This model not only increases RWA’s Liquidity, but also diversifies investment opportunities for Decentralized Finance investors. - Risk Management and Transparency: Enhancing Market Trust. Through the Block chain technology, PayFi ensures the transparency and verifiability of all RWA transactions, reducing information asymmetry and operational risks. The automatic execution of Smart Contracts reduces the risk of human intervention, while the immutability of the Block chain ensures the security of transaction records. All of this strengthens the trust in the market, driving further convergence of RWA and Decentralized Finance. In the future, PayFi will play an increasingly important role in driving global asset liquidity, dropTransaction Cost, and enhancing market transparency. In Lily Liu’s view, PayFi introduces RWA and institutional finance to the on-chain Liquidity pool, creating an integrated value chain that constitutes a “new financial cluster”, which may be the biggest theme in this cycle of the encryption market.

Why does PayFi happen on Solana?

Why does PayFi happen on Solana instead of other L1 public chains or L2 solutions? Lily Liu’s answer is: “Solana has three major advantages: high-performance public chain, capital Liquidity, and talent Liquidity.” These advantages constitute the barriers that other competitors find difficult to overcome at this stage. Firstly, the high-performance public chain. Solana’s core technical advantage lies in its unique Proof of History (PoH) Consensus Mechanism, which enables it to process over 65,000 transactions per second (TPS), with a transaction confirmation time usually around 400 milliseconds. This performance far exceeds ETH’s 10-15 TPS and longer confirmation time, even L2 solutions on ETH, such as Optimistic Rollups, are difficult to match Solana in terms of latency and throughput. Although Visa claims that its servers can handle up to 56,000 TPS, in actual use, Visa only processes an average of 1,700 transactions per second. In comparison, Solana can fully meet actual payment demands. Secondly, capital Liquidity. As of August 30, 2024, the total Lock-up Position value (TVL) of the Solana ecosystem has exceeded $10 billion, attracting major investments from top venture capital funds such as Andreessen Horowitz (a16z), Polychain Capital, and Alameda Research. This capital Liquidity provides strong financial support for PayFi’s expansion. Finally, talent Liquidity. The Solana Foundation actively promotes the development of the developer community, organizing over 500 hackathons and developer education projects globally. As of 2024, there are over 5,000 active developers in the Solana ecosystem, making it one of the fastest-growing blockchain developer communities globally. The strong talent pool supports the development of various innovative projects and continues to attract new technical and financial talents to join the ecosystem, laying a solid foundation for PayFi’s development. PayFi leverages Programmability to bridge the traditional world with the blockchain world, making it possible to scale credit finance on-chain through Smart Contracts. Solana’s advantages not only support the development of PayFi but also make it highly competitive in the future global payment and financial markets. Taking PYUSD as an example, PayPal chose Solana as the new public chain for PYUSD payments, mainly due to Solana’s fast Settlement capability, low Money Laundering, and powerful developer ecosystem. Solana’s Token expansion features, including confidential transfers, transfer hooks, and memo fields, provide the necessary flexibility and commercial utility for PYUSD. As PayPal stated: “These features are not optional. If we want PYUSD to be effective in a wider range of commercial areas, they must be provided to merchants.” Today, Solana has become the primary platform for PYUSD, capturing 64% of the market share, while ETH only holds 36%. In addition, as early as September 2023, Visa had already extended the Settlement function of USDC from ETH to Solana.

Application Scenarios and Typical Projects of PayFi

The essence of PayFi is to reshape and upgrade the TradFi system using advanced encryption technology. Therefore, all financial scenarios can and should be redone with PayFi. 1. The main problem with traditional cross-border payments and trade is the isolation in the centralized sovereign currency system. Due to the impact of forex controls, capital flows, and national monetary policy, cross-border payments have always been plagued by complex processes, long processing times, and high costs. Initially, people thought that using Cryptocurrency payments to replace traditional cross-border payments was an excellent solution, but there are still many shortcomings in enterprise-oriented solutions. Today, the cross-border payment industry still heavily relies on prepayment of funds to achieve same-day Settlement. Currently, over $4 trillion of funds in prepayment accounts are Tied Up, which is a huge and implicit cost for Financial Institutions and the global payment industry. PayFi is able to optimize this by leveraging traditional credit finance to drive encryption services.

Comparison of the current cross-border payment model with the Arf improvement model (from: Arf)

Arf（@arf_one）: The world’s first regulated and transparent short-term Liquidity solution aimed at supporting cross-border payments. Headquartered in Switzerland. By providing licensed currency service businesses and Financial Institutions with operational funds and Settlement services based on digital assets, as well as local entry and exit capabilities, Arf eliminates the capital-intensive business model of the cross-border payments industry. Arf provides a unified Liquidity network for cross-border payments and trade, eliminating prefunding requirements and providing 24x7 transparent Compliance services. As of now, Arf’s on-chain volume has recently exceeded $1.6 billion, without any defaults, making it one of the fastest rising stablecoin use cases. 2. Supply Chain Financial Service Supply Chain Financial Service combines Financial Service with Supply Chain management, based on the trade relationships and transactions in the Supply Chain, providing systematic financial products and services to upstream and downstream enterprises in the Supply Chain through control and management of information flow, logistics, and fund flow in the Supply Chain. Traditional Supply Chain finance is constrained by cumbersome contracts and legal work, and is difficult to automate evaluation, with slow financing processes, severely impacting the financing turnover of small and medium-sized enterprises. PayFi significantly simplifies the process of accounts receivable financing and alleviates the problem of corporate financing difficulties.

Global enterprises face a $2.5 trillion trade finance gap annually due to the limitations of TradFi, according to Isle Finance.

Isle Finance(@isle_finance): The first project to provide RWA PayFi network for Supply Chain payments, introducing instant Web3 Liquidity into Supply Chain finance and providing competitive returns with A-grade quality to Liquidity Providers. Through Isle, the real-time Settlement and Liquidity management of Supply Chain payments are combined with Blockchain technology, enabling Supply Chain participants to process payments and Settlement more quickly and improve capital utilization efficiency; at the same time, on-chain Liquidity Providers can anchor the payment stability of high-credit buyers and share the advance payment discounts provided by suppliers with buyers. Isle’s main clients include: High Net Worth Individuals (HNWIs), encryption native users, DAO inventory, asset managers, and family offices, and also allow ordinary users to mortgage ISLE tokens for Liquidity Mining rewards. 3. Consumer finance-oriented PayFi for end users may be the point of interest for users, mainly occurring in the field of consumer finance, which is also the part emphasized by Lily Liu in the PayFi sharing, “Buy Now, Pay Never”. Users can cover current expenses by committing future income, and the enforced part will be implemented by on-chain Smart Contract. In consumer finance, the key to PayFi is to connect the service providers in the merchant network to act as the acceptor in the middle, which can enable consumers to have a wide variety of consumption scenarios.

The open stack of PayFi Stack’s Compliance payment and financing solution (from: Huma Finance)

Huma Finance (@humafinance): Takes the lead in proposing the PayFi Stack, an open stack aimed at building Compliance payment financing solutions, and advocates for industry leaders to optimize solutions to meet PayFi’s unique needs. The initial stack includes the following layers: transaction, currency, custody, financing, Compliance, and applications. Taking the financing layer as an example, it includes Oracle Machine for credit rating, underwriting, and RWA. As a representative project of the financing layer, Huma focuses on short-term financing commonly seen in the payment field. As of August 26, 2024, Huma (single caliber statistics) has a total financing payment amount exceeding 280 million and a default rate of 0. CrediPay (@Credix_finance): Helps businesses increase sales and improve cash flow efficiency through seamless and risk-free credit services. Sellers offer flexible payment terms to buyers at attractive prices and collect prepayments. We manage and protect customers from any credit and fraud risks, allowing them to focus on what matters most: increasing sales and profitability. Currently, Credix’s services are mainly focused on Latin America, such as accounts receivable factoring.

Opportunities and Challenges of PayFi

1. The core goal of the PayFi market rise space is to introduce the time value of the currency coin on-chain, and to reconstruct the financial system in a more programmable, sub-custodial, and decentralized manner. With the rapid increase in the global stable coin quantity and the continuous improvement of cryptocurrency infrastructure, PayFi is expected to become an important force in transforming TradFi. According to Statista’s data, the total global digital payment transaction volume is expected to reach about $9.46 trillion in 2023, and this number is expected to continue to rise, reaching $14 trillion by 2027. At the same time, mordorintelligence’s data shows that the decentralized finance market is estimated to be $46.61 billion in 2024, and is expected to reach $78.47 billion by 2029, with a forecasted compound annual growth rate of 10.98%. CGV Research team’s calculations show that if PayFi can account for 10% of the total global digital payment transaction volume (conservative estimate), by 2030, the PayFi market size (estimated at $1.8 trillion) will be 20 times that of the decentralized finance market ($87 billion). This means that PayFi has enormous market potential and is expected to occupy an important position in the global digital payment field. 2. Regulatory and compliance challenges With the continuous increase in the global stable coin issuance, the attitudes of central banks in various countries towards stable coins are gradually easing. Broadly speaking, stable coins anchored to fiat currency can be seen as a digital extension of fiat currency. The payment business mainly involved by PayFi is mediated by stable coins, and is actually still subject to the regulation of the sovereign currency coin system. On the one hand, current PayFi projects focus on compliance, usually only allowing licensed institutions to participate, while individual users need to undergo strict KYC processes and reviews. On the other hand, a large number of PayFi projects tend to expand their business in third world countries, where local regulations are usually not sound enough and regulatory obstacles are relatively low, hence the compliance risk is relatively small. 3. Technical and security risks After years of development in decentralized finance, although security issues have not been completely eradicated, a large number of security vulnerabilities have been identified, and after rigorous auditing, the security of on-chain PayFi is basically equivalent to that of traditional decentralized finance. However, the technical challenges mainly exist in the off-chain part. Since PayFi needs to access a large number of real-world assets, ensuring the enforcement of off-chain logic is still an unresolved issue. The current solution is usually to align on-chain and off-chain through an intermediary entity, but this solution still needs further improvement.

Conclusion

PayFi, as the new wave of financial payment, is reshaping the global financial ecosystem with its unique charm. It not only inherits the payment vision of Bitcoin, but also innovates the efficiency and inclusiveness of Financial Service through the blockchain technology to a new level. With the support of high-performance public chains such as Solana, the market size of PayFi is expected to achieve an exponential rise, becoming a major driving force in the future financial market. As envisioned by Lily Liu, PayFi tightly integrates RWA and Decentralized Finance, forming an integrated value chain and a new financial cluster. This revolutionary innovation will drive the global financial system towards a more efficient and inclusive direction.

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