Author: dpycm.eth; Translated by: TechFlow
Over the past decade, cryptocurrencies have experienced rapid development, evolving from niche technology experiments to mainstream financial instruments. Web3 payment systems are based on blockchain technology, ensuring the transparency, security, and immutability of transactions. These systems are increasingly integrated into e-commerce platforms, point-of-sale systems, and peer-to-peer payment applications, making the use of cryptocurrencies more convenient in daily life.
As of 2023, the Web3 payment market is valued at $1.2 billion and is expected to continue growing at a compound annual growth rate of more than 15% from 2024 to 2032. Web3 payments are expected to become an important pillar of the digital economy, bringing new opportunities and challenges to the global financial ecosystem just like traditional payment systems.
Current Web3 Payment Infrastructure
Web3 Payment InfrastructureThe existing Web3 payment infrastructure has greatly simplified the traditional payment process. Typically, payment transactions require only three parties: the payer, the payee, and the blockchain (as a medium). Since the blockchain itself is not conscious, it can be said that only two parties are actually required, which makes transactions more advantageous in terms of speed and cost. All Web3 payment protocols are based on the same infrastructure, and the specific implementation may differ slightly due to the up and down conversion requirements of the protocol.
Sphere Pay and Loopcrypto.xyz are two unique payment infrastructure protocols that allow businesses to integrate Web3 payment capabilities, and we will explore their features in detail later.
What is PayFi?
With the combination of payments and decentralized finance (DeFi), PayFi came into being, a financial market centered around the time value of money. PayFi provides a way to use future money to meet current needs, which is not possible with traditional finance.
PayFi includes multiple payment methods:
Payment tokens, such as tokens representing the time value of tokenized U.S. Treasury bonds or stablecoins that generate yield;
Financing real-world assets (RWAs) through DeFi lending, achieving on-chain benefits in real-world payment scenarios;
A new Web3 payment system that seamlessly integrates with DeFi protocols;
Moving traditional payment logic to the blockchain aims to build a comprehensive Web3 payment framework.
A typical example of PayFi is Ondo Finance. This protocol is committed to making institutional-grade financial products accessible to more people by tokenizing U.S. Treasuries. Ondo Finance brings low-risk, stable-yield, and scalable financial products such as U.S. Treasuries and money market funds to the blockchain, allowing stablecoin holders to earn returns on their assets.
Ondo Finance offers two products: OUSG and USDY. OUSG is a tokenized US Treasury bond fund, while USDY is a yield-earning stablecoin backed by short-term US Treasury bonds. As of August 23, 2024, the total locked value of these two products reached $556 million.
Through USDY, holders can not only denominate in US dollars, but also earn returns. Therefore, Ondo adds practical application value to payment tokens and further promotes the development of PayFi in Web3.
Interesting payment innovation
This section will cover some interesting or lesser-known innovations in the payments space that do not involve crypto cards and up/down conversion capabilities.
Karrier One (Pay x DePIN)
The combination of payment and DePIN has a reasonable application in telecommunications networks. Karrier One is a carrier-grade decentralized network that integrates payment and DePIN functions. The Karrier One network consists of three modules: telecommunications, blockchain, and Karrier Numbering System (KNS). They work with global telecommunications providers to provide seamless communication coverage around the world. The network is managed by Karrier DAO, and token holders can participate in governance decisions.
With KNS, users get a Web3 wallet directly linked to their phone number. This integration allows users to participate in DeFi activities, send and receive cryptocurrencies, and achieve a smooth payment process, effectively combining PayFi and DePIN. There are 7.1 billion mobile phone users worldwide, which provides huge potential for the growth of Web3 telecommunications networks.
Huma Finance
Huma Finance is an income-based lending protocol. It allows borrowers to borrow against future income by matching them with global on-chain investors. The protocol has common credit facilities and is equipped with decentralized signal processors and assessment agents, which are important infrastructure for integrating with income sources, conducting credit assessments, and ongoing risk management.
As of August 23, 2024, Huma has raised nearly $900 million, of which $883 million has been successfully repaid, and its current credit default rate is 0%.
Sphere Pay
Sphere is a payment API designed specifically for digital currencies. By providing a one-stop payment experience, Sphere connects ordinary users with stablecoins and accelerates the development of the Web3 payment system.
Sphere provides merchants with a customizable or pre-set front-end and user experience, allowing them to flexibly apply Sphere Pay. In addition, Sphere offers a variety of pricing models to meet merchants' different needs for products or services. Sphere does not charge a software usage fee, but instead charges a fixed fee of 0.3% from each transaction, making the software free and open to all users. This makes Sphere an ideal choice for small businesses, especially those with low transaction volumes or low startup costs.
Loopcrypto.xyz
Loop is a Web3 payment infrastructure that helps companies schedule or automate collection and payment. Through automatic payment functions, Loop improves operational efficiency and reduces customer churn. The platform supports all ERC-20 Tokens and can choose to settle in cryptocurrency or fiat currency, which reduces the complexity of enterprises in fund conversion.
Loop provides plug-and-play software, minimizing the friction for businesses during implementation. It also integrates with top platforms such as Stripe, Zapier, and Xero, allowing business owners to easily integrate Loop seamlessly into existing financial management systems. Therefore, businesses using traditional invoicing systems can easily add cryptocurrency as an additional payment option for customers without having to make large-scale system changes.
Orbita
Orbita is a decentralized L1 payment protocol developed based on Cosmos. It is still under development and has not yet launched a testnet. Since the team may still be writing documents and white papers, these materials have not yet been made public.
Orbita's core features will include direct irreversible payments, reversible payments, decentralized subscriptions, and e-commerce integration. As a L1 protocol focused on payments, this is a completely new direction in the payment industry and may bring interesting changes.
Market Data & Updates
Stablecoin total market value 
Stablecoins: Transfer VolumeAs cryptocurrencies have prospered over the past decade, stablecoins have also grown rapidly. The total market value of stablecoins has surged from $20 million in 2017 to $170 billion in 2024. By 2024, the total transfer volume of stablecoins reached 60 billion at its peak. As the transfer volume continues to grow, the application of stablecoins for payments and other purposes is becoming more and more common. As stablecoins become widely accepted, the demand for payment systems will also increase.
Major stablecoin providers are also actively expanding the market. Tether recently announced that it will launch a dirham stablecoin fully backed by local reserves in the UAE, with the goal of becoming the preferred digital payment token in the UAE. Circle CEO Jeremy Allaire also said that they plan to develop a swipe-and-pay payment method using USDC on the iPhone. This plan was proposed after Apple allowed third-party developers to use the iPhone's secure payment chip. This will make payments with USDC as simple and smooth as using traditional banks and credit cards.
Since entering the stablecoin market in August 2023, Paypal has been actively promoting PYUSD. About a year after its launch, PYUSD has jumped to become the sixth largest stablecoin, surpassing established currencies such as FRAX and BUSD. Paypal's expansion in Solana and its incentive program with Kamino have also become a strong attraction. In addition, Paypal recently partnered with Anchorage Digital to provide rewards to institutions holding PYUSD, further attracting capital inflows.
Thinking: The impact of Web3 payments
One of the great advantages of Web3 is that it enables secure, low-cost, and almost instant global transactions. Although the Web3 industry is still in its infancy, institutions, businesses, and individuals have begun using blockchain for payments.
However, if Web3 payments become mainstream, how will banks react when their intermediary fees are cut? In order to gain market share, we see banks starting to build their own private blockchains, but even so, their revenue will still be much lower than the current handling fees. It is foreseeable that there will be resistance, and it may take some time for the retail end to be popularized. It is obvious that the opacity and centralization of private blockchains will continue the characteristics of traditional banks.
Furthermore, Web3 payments are more advantageous in global transactions, especially imports and exports, but have little impact on the demand of ordinary local people. If paying with cryptocurrency is not much different from paying with a traditional bank card at my local grocery store, why should I choose cryptocurrency? The appeal of self-management? For most people, such a small benefit is not attractive. Therefore, switching costs may hinder the adoption of ordinary users in the short term.
I believe that the stablecoin market will continue to grow over the next decade as Web3 and the payments market develop. Innovations such as telecom networks like Karrier One, and future income financing from Huma Finance will undoubtedly spur more innovation and market adoption. Therefore, with the right catalysts such as regulatory green lights, a boom in Web3 payments is inevitable. In fact, as we have seen over the past few years, the market may continue to grow with or without regulatory clarity. I remain optimistic and look forward to a time when Web3 payments become a matter of course and no longer questioned.
