If I were to envision the future of finance, digital currencies and blockchain technology would be at its core, bringing benefits like 24/7 availability, instant settlements, open and fair access, global liquidity, composable assets, and transparency.
This vision, which began with Satoshi Nakamoto’s Bitcoin whitepaper in 2008, is now being realized through tokenization, with mass adoption on the horizon through PayFi.
Since Bitcoin’s launch in 2009, digital currencies have taken the world by storm. However, over the past decade, our focus has often shifted to price speculation and market volatility, causing us to miss the transformative innovations that digital currencies and blockchain can offer.
As a16z partner Chris Dixon highlights in his book Read Write Own, “Cryptocurrency is just one application of blockchain technology, but the true power of Web3 lies in digital currencies (Tokens) built on blockchain networks.”
Digital currencies now enable value to move fluidly, almost instantly, and at minimal cost through the Web3 value internet, accessible to anyone with an internet connection. At its core, payment is simply the transfer of value.
With the continuous advancement of blockchain infrastructure and the growing momentum of tokenization, it’s clear that digital currency’s greatest potential isn’t just as money, but as a revolutionary payment method integrated with blockchain.
This paradigm shift signals a break from traditional financial systems, bypassing today’s cumbersome and outdated settlement mechanisms in favor of the endless possibilities that digital currencies and blockchain can unlock. It’s like how Starlink fulfills the communication needs of remote areas directly from space, bypassing the long wait for telecom networks.
In this article, I draw on my knowledge of Web3 payments, RWA tokenization, and financial systems to outline the development from Bitcoin’s grand vision to the current tokenization wave, using 13 case studies to examine how PayFi could pave the way for the next chapter of Web3 payments.
If I had any doubts last year while writing the 10,000-Word Web3 Payment Report: Industry Giants’ Full-Scale Entry Could Reshape the Crypto Market, those doubts have now disappeared. I am convinced that the killer app of Web3 has arrived, and it’s payments!
1. Overview of Web3 Payments1.1 Payments and Payment Systems
Let’s start by defining traditional payment: It’s the process by which a payer transfers money or credit to a payee, matching the flow of information with funds to complete the transaction. Essentially, payment is about transferring value.
According to the 2020 annual report by the Bank for International Settlements (BIS), a payment system is a framework of tools, processes, and rules designed for the clearing and settlement of payments among multiple parties, including payment service providers. This financial infrastructure is generally divided into the “front-end” and the “back-end”:
The “front-end” involves interaction with end consumers, merchants, and key players like payment service providers. It manages the flow of information related to payment transactions, covering:
Sources of funds;Channels that initiate payments;Payment methods or instruments;
The “back-end” focuses on processing the flow of funds in payment transactions, with payment settlement networks and other financial infrastructure as the main participants. It includes:
Clearing: The transmission of payment instructions and reconciliation, sometimes including transaction confirmation before settlement;Settlement: The transfer of funds to fulfill payment obligations between parties.
（Central banks and payments in the digital era）
From the above diagram, we can see the complexity of traditional payments. Not to mention, cross-border payments in a globalized context involve various domestic clearing systems in different countries (such as the Fedwire system led by the U.S. Federal Reserve and the CNAPS system led by the People’s Bank of China), cross-border payment clearing systems for settlement currencies (such as the Clearing House Interbank Payments System [CHIPS] in the U.S. and the Cross-Border Interbank Payment System [CIPS] in China), and international payment and settlement systems (such as the Society for Worldwide Interbank Financial Telecommunication [SWIFT]). Additionally, we must consider the numerous banks participating in this system.
With the rise of cryptocurrencies, such as Bitcoin, which are touted as “supra-sovereign digital currencies” (though currently denominated in U.S. dollars), the continuous exploration of stablecoins issued by the private sector, and central bank digital currencies (CBDCs) issued by various central banks, new forms of currency and new ways of circulating currency are emerging.
Web3 payments, built on blockchain, are the medium for these new forms of currency and new circulation mechanisms. Blockchain directly integrates digital currency into the Web3 value internet as an underlying architecture for monetary settlement, allowing value to be transmitted just like data was in the early internet era.
More importantly, digital currency and blockchain technology can represent real-world assets in the Web3 value internet in a unique (or non-fungible) digital form through tokenization. Digital currencies and tokens representing real-world assets can leverage the atomic swap attributes of blockchain to quickly create a free market where anyone, anywhere, can participate in asset buying, selling, financing, and trading at any time.
Blockchain’s inherent nature is that of financial infrastructure, originally designed to address the problem of ultimate consistency in payment clearing. Digital currencies built on blockchain can harness the enormous advantages brought by digital currencies and blockchain technology. These advantages are reflected in near-instant settlement, 24/7 availability, low transaction costs, and the limitless possibilities enabled by the programmability, interoperability, and composability with DeFi inherent in digital currencies.
These are all qualities that the traditional financial payment system desires but finds difficult to achieve.
1.2 Outdated Infrastructure and Complex Payment Systems
To further understand the fundamental drivers of Web3 payments, let’s first understand some historical background on payments.
Our payment channels and messaging protocols (such as ACH, SEPA and SWIFT) today form the global payment network - the international payment and settlement system. They enable us to conduct large-scale transactions across geographies and time zones, and ensure relatively smooth payments.
However, these global payment infrastructures, built more than 50 years ago, are largely outdated and fragmented today. It is an expensive and inefficient system that operates within limited banking hours and relies on many intermediaries.
A significant problem with the current financial infrastructure is the lack of global standards, and the fragmented financial payment systems of various countries hinder seamless international transactions and bring complexity to the establishment of a consistent payment system. This complexity is best illustrated by the structure of cross-border payment transactions (such as the following example of a U.S. dollar transfer from the United States to Europe in euros), which contains many practical pain points:
（Galaxy Ventures: The Future of Payments）
Multiple intermediaries: Cross-border payments often involve multiple intermediaries, such as local and correspondent banks, clearing agencies, foreign exchange brokers and payment networks. Each intermediary adds complexity to the transaction process, resulting in delays and increased costs.Lack of standardized processes and formats: Different countries and financial institutions may have different regulatory requirements, payment systems and messaging standards, making it inefficient and inefficient to streamline payment processes.Challenging.Manual closureProcessing: Traditional systems lack automation, real-time processing capabilities, and interoperability with other systems, resulting in delays and manual intervention.Lack of transparency: Opacity in cross-border payment processes can lead to inefficiencies. Limited visibility into transaction status, processing times and associated fees can make it difficult for businesses to track and reconcile payments, resulting in delays and administrative overhead.High costs: Cross-border payments often incur high transaction fees, exchange rate markups and intermediary fees. Cross-border payments often take up to 5 business days to settle, with an average fee of 6.25%。
Despite these challenges, B2B cross-border paymentsIt is a rigid need in the context of globalization.The market remains huge and continues to grow. According to FXC Intelligence, the total market size of B2B cross-border payments is US$39 trillion in 2023 and is expected to grow 43% to US$53 trillion by 2030.
1.3 The Urgent Need for Web3 Payments
As PayPal remarked following the launch of its PYUSD stablecoin: “People want the freedom to pay as they wish, but current payment networks struggle to keep up. Digital currency and blockchain technology provide a payment network that meets these needs and is practical. Therefore, as a company dedicated to payment innovation, we are introducing a stablecoin payment solution to fulfill people’s desire for seamless payments.”
Today, digital currencies and blockchain technology have opened up a new Web3 payment pathway that simplifies payment and settlement processes, enabling fast, low-cost, and easily accessible payments to meet the demands of an increasingly globalized world.
Stablecoins, built on blockchain as a key form of tokenized money, have now emerged as an ideal solution to the challenges posed by cross-border payments. By revisiting the previously complex example of cross-border payments, we can see how Web3 payments provide a more streamlined and efficient solution (highlighted in the red box):
Instant Settlement: Compared to most traditional payment methods that take days to settle, blockchain-pathed paymentsTransactions can be settled instantly and globally.Reduced costs: Due to the elimination of various intermediaries and superior technical infrastructure, blockchain’sPayments can provide lower costs.Open and transparent: Blockchain provides a higher level of visibility in tracking the movement of funds and easing the administrative overhead of reconciliation.Globally accessible: Blockchain provides a “high-speed rail” that is easily accessible to anyone with an internet connection.
Payment built using blockchainTrack can greatly simplify the payment process and reduce the number of intermediaries. Compared with traditional payment methods, fund flows can be seen in real time, settlement times are faster and costs are lower.
we urgently needWeb3Payment solutions that help people transfer value instantly and cheaply around the world,Solve the legacy problems of traditional payments: 1) slow settlement time; 2) high transaction costs; and 3) incompatibility with areas around the world that the current financial system cannot cover (Under-banked and Unbanked).
（Galaxy Ventures: The Future of Payments）
1.4 Web3 Payment Stack
（Galaxy Ventures: The Future of Payments）
When we look closelyWeb3 When paying, you will find that there are mainlyFour-layer technology stack:
1.4.1 Blockchain Settlement Layer
The endowment of blockchain is financial infrastructure, and its initial structure is used to solve the final consistency problem of payment and settlement.Blockchain will act as payment transaction underlying infrastructure. Layer1 blockchains like Bitcoin, Ethereum, and Solana, as well as general-purpose Layer2 environments like Optimism and Arbitrum, are all selling block space to the market. They compete on speed, cost, scalability, security, distribution channels, and more. Over time, payment use cases will become significant consumers of block space.
1.4.2 Asset Issuer
An asset issuer is the entity responsible for creating, maintaining and redeeming financial transactions and payment media. Stablecoins, for example, aim to maintain a stable value relative to an underlying reference asset or basket of assets, most typically the U.S. dollar. Stablecoin issuers such as Tehter-USDT, Circle-USDC, Paypal-PYUSD often adopt a balance sheet-driven business model similar to banks. They take customer deposits and invest them in higher-yielding assets such as U.S. Treasury bonds, and then issue stablecoin The currency is used as a liability and profits are made from the interest rate difference or net interest spread.
1.4.3 Currency Acceptance (Deposits and Withdrawals)
Currency acceptance providers play a key role in increasing the availability and adoption of stablecoins and other primary instruments as financial transactions and payment media, promotingWeb3 Popularization of large-scale payment applications. Basically, they act as a technology layer that connects digital currencies on the blockchain with fiat currencies within traditional bank accounts. Their business models tend to be traffic-driven and take a small commission from the number of dollars flowing through their platform.
For example GatePay, which can provide users with smooth trading based on the liquidity of the exchange.Web3 Payment solutions, while promoting the opening up of on-chain and off-chain payment paths. At the same time, Switzerland’sWeb3 bank Fiat24, directly structures the bank’s business logic on the blockchain, providing users with a seamless connection from wallet (digital currency) to bank account (legal currency).
1.4.4 Front-end application
The front-end application ends up beingWeb3 Customer-facing software in the payments stack that supportsWeb3 Payments provides the user interface and leverages other parts of the stack to enable such transactions. Their business models vary, but tend to be some combination of platform fees plus traffic-driven fees generated through front-end transaction volume.
1.5 Web3 Multiple Attributes of Payment
In essence, Web3 payment refers to a payment method based on digital currency and blockchain technology. However, because of the token attributes of digital currencies and the unique characteristics of the underlying blockchain infrastructure, Web3 payment should not be viewed as just a new type of payment method.
For instance, Bitcoin, which operates on its blockchain network, possesses multiple attributes. It functions not only as a form of payment and a medium of exchange but also as a store of value and a financial infrastructure (a distributed ledger). Additionally, it can be used as a unit of account to measure value in transactions.
Therefore, understanding Web3 payment requires more than just examining the properties of payment tokens like cryptocurrencies or tokenized currencies. It also involves considering the blockchain networks that support these transactions as financial infrastructure. The key is to explore how these networks leverage blockchain technology to reduce costs, enhance efficiency, and enable the development of innovative business models.
Just as discussing U.S. dollar payments requires understanding the entire network of U.S. dollar clearing and settlement systems, grasping this broader context is vital. Let’s look at PayPal’s launch of PYUSD as a case study.
Case Study A: PayPal’s Web3 Payment Strategy
On August 7, 2023, PayPal, the U.S. payment giant, announced the launch of its stablecoin, PayPal USD (PYUSD), on the Ethereum blockchain. PYUSD is fully backed by U.S. dollar deposits, short-term U.S. Treasury bonds, and similar cash equivalents, allowing eligible U.S. users to exchange it for dollars on a 1:1 basis through PayPal. With this, PayPal became the first tech giant to issue a stablecoin.
PayPal’s move toward Web3 payments is driven by a simple reason: it meets a need and is practical.
Previously, online payment settlements took too long (2-3 days on average in the U.S.), with business hours further delaying the process. Employers found it challenging to pay a dispersed workforce, and a growing global population struggled with expensive and inefficient cross-border remittances. In other words, people couldn’t pay the way they wanted.
Now, Web3 payments, powered by digital currencies and blockchain technology, bring people closer to fulfilling their payment needs: fast, low-cost, global payments. This next-generation financial/payment infrastructure allows PayPal to better serve its 40 million users, empowering everyone to pay the way they want.
More than a decade after digital currency and blockchain technology emerged, PayPal is at another critical juncture in payment history—a moment rich with potential, much like the early days of the internet in the 2000s. Just as PayPal brought payments online before, it is now bringing them on-chain.
Since its launch on Ethereum, PYUSD has had a modest reception, appearing more as an experimental product, primarily running within PayPal’s Super App. At this stage, PYUSD has reached early adopters, namely cryptocurrency holders, who account for about 15% of the global population, ensuring early awareness and understanding among this group.
(PayPal Launches USD Stablecoin on Solana: A New Era in Blockchain Payments)
On May 31, 2024, PayPal announced the launch of PYUSD on the high-performance Solana blockchain, reaching the most active and engaged users in the crypto space, signaling that “PYUSD has truly arrived.” At this stage, PayPal is focused on turning initial interest into real-world payment utility, making it part of everyday life.
Solana offers PYUSD significantly faster settlement speeds, lower transaction costs, enhanced scalability, interoperability, programmability, and support from a global network—advantages that set it apart from other blockchains. These benefits enable users to experience true payment utility with PYUSD in various scenarios, including cross-border peer-to-peer transfers (C2C), business-to-business transactions (B2B), and global payments (B2C).
In this PayPal Web3 payment case, we observe how PayPal, together with Paxos as the issuer of the stablecoin assets, has launched PYUSD—the only stablecoin supported within the PayPal ecosystem. PYUSD leverages the efficiency, low costs, and programmability of the Solana blockchain (serving as the settlement layer) to connect all front-end applications in the PayPal ecosystem, reaching 431 million users. This creates a seamless bridge between fiat and digital currencies for Web2 consumers, merchants, and developers.
Traditional and Web3 payments are not isolated from each other; instead, they are converging. Fiat currencies and digital currencies are increasingly interacting and gradually merging into real-world applications such as stablecoins, tokenized deposits, and central bank digital currencies. Web3 payments are redefining how we make payments and how the financial system operates.
2. From Bitcoin’s Beginnings as Electronic CashBefore delving into the details of Web3 payments, it’s crucial to revisit the “bible” of digital currency and blockchain technology—the Bitcoin whitepaper. This will help us trace the origins of Web3 payments, understand the significance of blockchain networks, and recognize that PayPal’s approach to Web3 payments differs from the ideal outlined in the Bitcoin whitepaper (due to issues like centralized trust and the potential for infinite inflation of the payment currency).
Bitcoin and its blockchain network, created by Satoshi Nakamoto, represent a revolutionary solution to monetary challenges in the digital age. This solution not only addresses the long-standing issue of enabling economic value to flow across time and space but also tackles the problem of relying on third-party trust in payment transactions.
2.1 The Birth of Bitcoin
The traditional financial system heavily depends on intermediaries as trusted third parties. While this intermediary model provides certain conveniences, it also has significant flaws, such as unnecessary transaction costs, reversible transactions, and the risks of centralized power. The global financial crisis of 2008 serves as a stark and painful reminder of these shortcomings.
But is there a way for two parties to transact directly without needing a trusted third party, like using cash?
This was the goal of Satoshi Nakamoto. In 2008, Nakamoto released the Bitcoin whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System, which introduced the concept of a peer-to-peer electronic cash payment system. This system proposed using blockchain technology, a distributed ledger, asymmetric encryption, and a consensus mechanism to enable decentralized peer-to-peer transactions without the need for any neutral, trusted third-party intermediary.
Through a combination of innovative technologies and a redesign of societal financial relationships, the Bitcoin whitepaper sought to challenge the traditional, bank-centric centralized financial system. It aimed to address the issues of centralized trust in the current financial system and offer users a more secure, convenient, and low-cost payment method. As the whitepaper states: “A peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
（Bitcoin: A Peer-to-Peer Electronic Cash System）
2.2 The Collapse of the Intermediary Trust System
Cash payments have long been the simplest and most direct form of transaction—immediate, with no need for a third party to intervene or block the process. But as communication technology advanced, cash became inadequate for meeting payment needs across different locations, time zones, and situations, leading to the rise of intermediary payments.
Intermediary payments rely on trusted third parties like banks, PayPal, and other payment providers to offer innovative methods such as credit cards, debit cards, bank transfers, and cross-border payments. However, this system’s biggest flaw is the need to fully trust these intermediaries. This trust often comes with significant downsides, including unnecessary transaction costs, reversible transactions, and the risk of centralized misconduct.
Bitcoin emerged in 2008, during the collapse of the U.S. real estate market. Numerous financial institutions suffered massive losses due to their investments in mortgage-backed securities, leaving even the most established banks teetering on the edge of bankruptcy. This shattered public confidence in the traditional trust-based system and triggered a global financial crisis.
The core reason for this financial disaster and the resulting evaporation of wealth was the forced, unconditional trust placed in the existing financial system—trusting centralized banks and financial institutions to control, manage, and dispose of our assets.
If banks merely served as a means to store cash, the only risk would be the bank’s counterparty risk, which is relatively manageable. However, the reality is different. Money never sleeps, and banks are inherently greedy, using people’s savings to purchase government bonds or make other investments for profit. At times, banks lend too much, leading to insufficient liquidity for redemptions, resulting in their collapse.
This was the case with Silicon Valley Bank, the 16th largest bank in the U.S., which collapsed in 2023. The subsequent failures of Signature Bank and Silvergate Bank are also vivid and painful examples.
Additionally, the traditional financial system is tightly regulated. Despite advances in information technology that transcend geographical and time constraints, payments remain under the strict control of governments and state-owned banks. National and local regulations often restrict how individuals can use their wealth through the traditional financial system, particularly in countries with strict capital controls. These limitations significantly reduce the effectiveness of money—it only realizes its full value in a freely circulating environment.
As modern communication technology evolves, physical cash transactions have become virtually impractical. The shift toward digital payments is eroding individuals’ control over their monetary sovereignty, making them increasingly dependent on third-party intermediaries, with no choice but to trust them.
Banks and other financial intermediaries have collapsed in the past, and there is no doubt they will collapse again in the future.
2.3 Rebuilding Trust with Blockchain
To overcome the uncertainties of opaque trust, the risks of fund custody, and the danger of single-point failure with intermediaries, Satoshi Nakamoto, through the Bitcoin whitepaper, proposed using digital currency and blockchain technology to rebuild a payment network that operates without the need for any neutral, trusted third party.
Satoshi Nakamoto designed Bitcoin with a strong emphasis on proof and verification. By using a distributed ledger, asymmetric encryption, and a consensus mechanism, Bitcoin enables decentralized peer-to-peer transactions, eliminating the need for a trusted third party. This allows every participant in the network to verify the authenticity of each transaction without relying on mutual trust.
Verification is the key to eliminating the need for trust entirely. Don’t Trust, Verify.
In 2015, The Economist published an article titled The Trust Machine, discussing how the technology behind Bitcoin could transform the way the economy functions. Blockchain makes it possible for people to collaborate without a foundation of trust and without the need for a central trusted authority.
Simply put, it’s a machine that creates trust. In Trustless We Trust.
Blockchain is a powerful technology. At its core, it is a shared, trusted, and public ledger that anyone can examine, but no single user can control. The participants in a blockchain system collectively maintain and update the ledger, which can only be altered according to strict rules. Bitcoin’s blockchain network prevents double spending and keeps the ledger continuously updated. This is the crucial factor in creating a currency that is not controlled by a central bank.
Although Bitcoin’s early years were marred by its association with illegal activities, we cannot overlook the extraordinary potential of the blockchain technology that underpins it. The significance of this innovation extends far beyond cryptocurrency itself.
（The Economist: Bitcoin - The trust machine）
2.4 Bitcoin and Payments
Let us imagine a world where people no longer need to rely on the traditional financial intermediary system to hold, dispose, and manage our assets. People can truly control their own wealth and achieve financial sovereignty by using digital wallets and blockchain technology.
This is what the Bitcoin white paper is about.
Although the 9-page Bitcoin whitepaper released in 2008 could not offer a complete solution for a peer-to-peer electronic cash payment system, it undoubtedly served as a beacon of hope in the midst of the financial crisis, guiding those who had lost faith and illuminating a path forward.
Sixteen years later, in this era of innovation and disruption, the financial landscape is experiencing profound change. Over the past decade, billions of dollars have been invested in developing the foundational blockchain infrastructure. It’s only in recent years that we’ve achieved blockchain networks capable of handling payments at scale, making blockchain-based payments increasingly feasible and widely adopted.
As digital currencies like Bitcoin have gained popularity (according to a recent Triple-A report, approximately 562 million people globally, or 6.8% of the world’s population, own cryptocurrency in 2024) and digital currency and blockchain technology have gradually been embraced by traditional Wall Street finance—with the approval of BTC/ETH ETFs and BlackRock’s launch of the tokenized fund BUIDL—everything has changed.
The concept of Bitcoin as electronic cash is becoming a reality, thanks to the dedication of early idealists, like seeds planted long ago that are now flourishing.
We can see that the grand vision presented in the original Bitcoin whitepaper is being fulfilled by today’s blockchain technology. Blockchain-based Web3 payments are now capable of achieving instant settlement and global accessibility. The widespread practical applications of stablecoins highlight that the true potential of digital currency may lie not in its function as a currency but as part of a new payment system integrated with blockchain.
3. The Rise of TokenizationAlthough Bitcoin was originally intended as electronic cash, at one point, there was hope it could become a new global currency, capable of fulfilling the three main functions of money—a medium of exchange (e.g., using Bitcoin to buy goods and services), a store of value (investing in Bitcoin for long-term returns), and a unit of account (pricing goods and services).
Over the past decade, Bitcoin’s design for scarcity has highlighted its strength as a store of value, particularly in combating global inflationary currencies. Cryptocurrencies like Bitcoin were created primarily to reward those who confirm blockchain transactions. However, due to its significant price volatility and instability, Bitcoin is not well-suited as a unit of account for pricing goods and services.
This led to the emergence of a new type of digital currency, particularly stablecoins—tokenized money. These are typically pegged 1:1 to fiat currencies (especially the U.S. dollar) and serve as a new medium of exchange on blockchain networks. Tokenized money is designed to address the payment and accounting challenges for goods and services by maintaining a stable value, and it has been widely adopted in the Web3 payment market.
We are already witnessing the explosive growth of the stablecoin market in this wave of tokenization. However, before exploring the Web3 payment market currently dominated by stablecoins, it’s important to understand what tokenization is and the significant advantages it offers when applied to money.
3.1 What is Tokenization?
“Tokenization” is the process of recording ownership claims on financial or real assets from traditional ledgers onto a programmable blockchain platform, creating a digital representation of the asset. These assets can include traditional tangible assets (such as real estate, agricultural or mining commodities, or physical artworks), financial assets (stocks, bonds), or intangible assets (such as digital art and other intellectual property).
The resulting “token” is a tradable ownership claim recorded on a programmable blockchain platform, ensuring authenticity and traceability. A token is not just a digital certificate; it often incorporates the rules and logic governing the transfer of the underlying asset from traditional ledgers. As a result, tokens are programmable and customizable to meet specific scenarios and regulatory compliance needs.
（Tokenization and unified ledger—a blueprint for building a future monetary system）
Currently the second largest stablecoin in the worldUSDC, that is, by the U.S. private sectorCircle A tokenized currency product issued by the company using US dollars as collateral and anchor currency - US dollar stable currencyUSDC。
Due to the global currency of the U.S. dollar,USDC It can not only function as a currency trading medium and an accounting unit for goods and services, but also highlight the huge advantages of tokenization on the blockchain. These advantages are often difficult to achieve in the traditional financial system.
3.2 Advantages of Tokenization
Tokenization unlocks the immense potential of digital currency and blockchain technology for assets. In general, these advantages include:
Blockchain Advantages: 24/7 availability, data accessibility, and the ability to achieve instant atomic settlement.Token Advantages: Programmability—embedding code within tokens and enabling tokens to interact with smart contracts (composability), leading to greater automation and seamless access to decentralized finance (DeFi).
As asset tokenization expands beyond the proof-of-concept stage, the following benefits will become increasingly apparent:
3.2.1 Enhancing Capital Efficiency
Tokenization can significantly boost the capital efficiency of assets in the market. For instance, tokenized repurchase agreements (Repos) or redemptions of money market funds can be settled instantly (T+0) within minutes, compared to the traditional T+2 settlement time. In today’s high-interest-rate environment, shorter settlement times can lead to substantial cost savings. For investors, these savings in funding costs could explain the recent impactful developments in tokenized U.S. Treasury projects.
Case Study B: BlackRock’s Tokenized Fund BUIDL
On March 21, 2024, BlackRock partnered with Securitize to launch the first tokenized fund, BUIDL, on the Ethereum public blockchain. Through tokenization, the fund can achieve instant on-chain settlement with a unified ledger, significantly lowering transaction costs and improving capital efficiency. This enables:
24/7 fund subscriptions and redemptions in fiat USD, offering instant settlement and redemption—a capability long sought after by traditional financial institutions.24/7 instant 1:1 exchange between the stablecoin USDC and the fund token BUIDL, made possible through collaboration with Circle.
This tokenized fund, which bridges traditional finance with digital finance, marks a groundbreaking innovation for the financial industry.
（Analyzing BlackRockBlackrock Tokenization FundBUILD,for RWA Assets open the way toDeFi brave new world）
3.2.3 Reducing Operating Costs
The programmability of assets can be a significant source of cost savings, especially for asset classes that are typically manual, error-prone, and involve multiple intermediaries, such as corporate bonds and other fixed-income products. These products often require customized structures, precise interest calculations, and coupon payments. By embedding these operations, such as interest calculations and coupon payments, into a token’s smart contract, these functions can be automated, leading to substantial cost reductions. Moreover, the automation provided by smart contracts can also reduce the costs of services like securities lending and repurchase agreements.
Case Study C: Evergreen Tokenized Bond Project
In 2022, the Bank for International Settlements (BIS) and the Hong Kong Monetary Authority launched the Evergreen project, using tokenization and a unified ledger to issue green bonds. The project took full advantage of a distributed unified ledger to bring all bond issuance participants onto a single data platform, enabling multi-party workflows, specific participant authorizations, real-time validation, and signing capabilities. This greatly improved transaction processing efficiency, with bond settlements achieving Delivery versus Payment (DvP), reducing settlement delays and risks. The platform’s real-time data updates for participants also increased transaction transparency.
(Tokenization of Hong Kong’s Bond Market)
As time goes on, the programmability of tokenized assets can also deliver portfolio-level benefits, allowing asset managers to automatically rebalance portfolios in real-time.
3.2.2 Permissionless and Democratic Access
One of the most celebrated advantages of tokenization and blockchain is the democratization of access. This permissionless entry, combined with the ability to fractionalize tokens (i.e., dividing ownership into smaller portions to lower investment thresholds), could enhance asset liquidity, assuming the tokenized market gains widespread adoption.
In certain asset categories, the use of smart contracts to simplify labor-intensive processes can significantly improve cost efficiency, enabling services to be extended to smaller investors. However, access to these investments may be restricted by regulations, meaning that many tokenized assets might only be available to accredited investors.
Case Study D: Tokenized Private Equity Funds
We see that major private equity firms like Hamilton Lane and KKR have collaborated with Securitize to tokenize their feeder funds, offering a more affordable way for a broader range of investors to participate in top private equity funds. The minimum investment threshold has been drastically reduced from an average of $5 million to just $20,000. However, individual investors still need to undergo accredited investor verification through the Securitize platform, so some barriers remain.
（RWA Wanzi Research Report: The value, exploration and practice of fund tokenization）
3.2.4 Improved Compliance, Auditability, and Transparency
Current compliance systems typically depend on manual checks and after-the-fact analysis. By embedding specific compliance operations (such as KYC/AML/CTF checks and transfer restrictions) directly into tokenized assets, issuers can automate these processes. Additionally, blockchain’s 24/7 data availability creates opportunities for streamlined reporting, immutable record-keeping, and real-time auditability.
3.2.5 Lower Cost and Greater Flexibility in Infrastructure
Blockchain, by nature, is open-source and continually evolving, fueled by thousands of Web3 developers and billions in venture capital. Companies involved in Web3 payments can choose to operate on public permissionless blockchains or hybrid public/private blockchains. The innovations in blockchain technology (such as smart contracts and token standards) are easily and quickly adopted, further driving down operational costs.
（Tokenization: A digital-asset already seen）
3.3 The Critical Point for Mass Adoption
As technology matures and economic benefits become measurable, the digitalization of assets can be fully implemented. However, the widespread adoption of asset tokenization will not happen overnight. The biggest challenge lies in transforming the infrastructure of traditional finance within the heavily regulated financial services industry, which requires the involvement of all players across the value chain.
Despite these challenges, the first wave of tokenization is already upon us, driven mainly by investment returns in today’s high-interest-rate environment and the real-world use cases that have achieved scale, such as stablecoins and tokenized U.S. Treasury bonds.
BlackRock CEO Larry Fink highlighted the significance of tokenization for the future of finance in early 2024: “We believe that the next step for financial services is the tokenization of financial assets, where every stock, every bond, every financial asset operates on the same ledger.”
The Bank for International Settlements (BIS) has also shown great interest in tokenization, stating in a recent report: “The global monetary system stands on the verge of a historic leap. After digitalization, tokenization is the key to that leap. Tokenization enhances the monetary and financial system by transforming how intermediaries serve users, bridging gaps in information transfer, reconciliation, and settlement. It will enable new economic activities that are difficult or impossible to achieve within the current monetary system.”
Today’s flow of tokenized assets is only the beginning of this emerging field of tokenization. The history of the internet has been marked not only by the complete transformation of existing industries but also by the creation of entirely new business models that were previously impossible or even unimaginable before advances in technology and connectivity.
One of the most significant breakthroughs of blockchain technology is its ability to represent “real-world assets” (such as houses, cars, office buildings, factories, concert tickets, customer loyalty points, stock certificates, and more) as digital tokens with unique identifiers online. These tokens allow for easy online tracking, transfer, and storage of ownership proofs within a digital wallet.
Embedding the ownership of these assets into the Web3 value internet as digital currency, along with the associated flow of funds, could pave the way for a future where nearly anything can be tokenized, financed, and traded by anyone, anywhere, at any time, without relying on traditional financial intermediaries.
This flow of value is driven by Web3 payments.
4. Tokenized Money: A New Method of Currency CirculationUnderstanding tokenization helps clarify that the digital currencies supporting Web3 payments—such as stablecoins, tokenized deposits, and central bank digital currencies (CBDCs)—are manifestations of currency after it has been tokenized. These digital currencies represent a new method of currency circulation based on blockchain, not a new way of creating money.
As human society progresses, the concept and form of money have continuously evolved. From the early days of bartering with stone money and shells on Yap Island to the invention of coins and paper money, which revolutionized trade, each shift has marked a significant advancement. The advent of globalization and the increasing complexity of economic activities further spurred the need for more efficient and secure payment methods, leading to the rise of digital payments and the emergence of digital currencies. These developments have laid the groundwork for enhancing financial service efficiency, lowering barriers to access, and facilitating global integration.
（Tokenization and unified ledger—a blueprint for building a future monetary system）
Although the current form of currency is still dominated by fiat trust currencies guaranteed by national credit, stablecoins and tokenized deposits (Tokenized Deposit), central bank digital currency (CBDC) These innovative currency expressions are all innovative currency flow methods under the guidance of digital currency and blockchain technology and in the context of changing times.
4.1 Central Bank Digital Currency (CBDC）
International Monetary Fund (IMF) defines it as “a digital representation of a sovereign currency issued by the monetary authority of a jurisdiction that appears on the liability side of the monetary authority’s balance sheet.”CBDC designs vary, especially for financial institutions in the wholesale of large-scale interbank transactions.CBDC（Wholesale CBDC) and retail for public useCBDC（Retail CBDC), the latter aims to replace traditional cash payments and conduct modern payments in the form of digital cash.
In pilot projects between the Bank for International Settlements and national regulators, as well as the leading private sector,26 among them15 dedicated to exploringCBDC and digital currency. This reflects global recognition of this development trend. These pilots demonstrate the potential for stability, programmability, liquidity and efficient asset transfer of tokenized digital currencies.
Each country has its own motivations and interests to exploreCBDC of pilot. Monetary Authority of Singapore (BUT) proposed an open, interoperable digital asset network framework and conducted pilot projects in the areas of asset management, fixed income and foreign exchange. European Central Bank (ECB) emphasizes the need for central banks to remain technologically advanced to make cash or central bank currency attractive in transactions and stable in financial innovation. The European Commission proposes to create a legal framework for a digital euro, signaling the EU’s move towards a potential CBDC progress. Hong Kong demonstrates similar motivations, focusing on the acquisition of practical examples andCBDC Exploration of potential capabilities such as programmability to unlock new transaction types and the development of tokenized markets. Meanwhile, other markets such as Brazil, India and Kazakhstan are committed to usingCBDC to promote financial inclusion, e.g.Visa with brazilAgrotoken Collaborative pilot projects useCBDC Providing farmers with access to digital finance, reducing costs and risks by tokenizing crops as collateral and automating payments through smart contracts.
4.2 Tokenized Deposits (Tokenized Deposit）
Tokenized deposits are digital certificates of commercial bank deposits issued on the blockchain, combining the familiarity and reliability of bank deposits with the advantages of blockchain technology, such as programmability, instant settlement and enhanced transparency.
Tokenized deposits can be designed according to the operation method of regular bank deposits. Like regular deposits, they serve as liabilities of the issuer. Tokenized deposits cannot be directly transferred. The clearing liquidity provided by the central bank will still ensure the normal operation of the payment function.
Tokenized deposits are likely to become the cornerstone of innovation at the application level in the traditional banking financial system, providing innovative momentum for the business of the traditional banking and financial industry.
Case Study E: JPMorgan ChaseOnyx network
JPMorgan Chase began experimenting with blockchain earlier, and the essence of its tokenization business relies on tokenized deposits. Onyx, the institutional-level blockchain payment network it built, is currently capable of processing $2 billion in transactions every day. Onyx’s trading volume can be attributed to JPMorgan Chase’s “Coin System”, which focuses on solving customers’ cross-border payment and liquidity financing needs, using JPM Coin as the digital currency for cross-border transaction settlement.
At the same time, JPMorgan launched an asset tokenization platform (Digital Asset), partnered with Goldman Sachs to launch an intraday repurchase solution, partnered with BlackRock and Barclays to launch a tokenized collateral network, and partnered with local municipalities to issue bonds . Not only that, JPMorgan Chase’s application innovations through tokenization also include: After participating in BIS’s Project Guardian project last year, Onyx plans to launch a tokenized fund. Onyx is enabling its JPM Coin tokenized deposit solution for On-chain settlement on the Broadridge platform (DLR).
（Onyx by J.P.Morgan）
Case Study F: Visa’s Tokenized Deposit Initiative
In a pilot study led by the Hong Kong Monetary Authority, Visa, in collaboration with HSBC and Hang Seng Bank, explored the potential of tokenized deposits. The study presented use cases that achieved end-to-end atomic settlement in the payment process, demonstrating the ability to enhance existing settlement efficiency and support application innovation.
Firstly, tokenized deposits can fully leverage the advantages of blockchain’s unified ledger to reduce settlement risks, enable instant settlement, and improve the efficiency of fund transfers. For example, in an interbank use case (acquirer to merchant settlement), the acquiring bank sought to simplify the settlement process using tokenized deposits, making it more transparent and seamless for merchants.
In the current interbank workflow, the acquiring bank processes credit and debit card transactions on behalf of merchants. After a customer completes a transaction, the acquiring bank initiates the settlement process, ultimately transferring funds to the merchant’s account. This process can take several hours to a full day to settle, during which merchants lack real-time visibility into the settlement status, making it difficult to manage cash flow and reconciliation.
（Visa, e-HKD and the future of global money movement）
And through tokenization-HKD and Visa Solution, settlement between acquiring bank and merchant occurs in almost real time. Merchants receive settlement notifications in real time, enabling better transaction reconciliation and reducing the risk of disputes. The immutability of blockchain also provides a tamper-proof audit record, enhancing the overall transparency and trust of the settlement process.
Secondly, tokenized deposits structured on the blockchain can be used as a trading medium to realize the atomic settlement function of the blockchain with other types of tokenized assets on the chain (such as real estate, securities, commodities, etc.), enabling real-time transactions and instant settlement. . This logic also applies to other banking financial system businesses, such as mortgages, pledges, etc.
Finally, in addition to the advantages brought by blockchain, tokenized deposits can further enhance payment functions by enabling the programmability of tokens through smart contracts. These features allow automating complex business logic. Settlement between transaction parties can be more efficient, potentially reducing the number of intermediaries, as ownership transfers and payments can be handled simultaneously through smart contracts.
For example, in a real estate transaction, a buyer can use a tokenized deposit to secure the property and initiate the payment process. Smart contracts can automate the remaining transaction steps and can be triggered as soon as predefined conditions are met, such as completion of due diligence or transfer of property ownership. In this way, the use of tokenized deposits and smart contracts can minimize the need for custodial services and reduce manual intervention, thus reducing transaction costs and settlement times.
4.3 Stablecoin (Stablecoins）
The explosive rise of stablecoins over the past decade has been particularly notable. A stablecoin is a tokenized currency (digital currency) anchored to a fiat currency (usually the U.S. dollar) that is designed to maintain price stability and avoid the volatility of cryptocurrencies such as Bitcoin. This characteristic makes stablecoins an important financial tool and transaction medium, playing an increasingly important role in encrypted asset transaction settlement, cross-border payments, international trade, etc. Fiat stablecoins occupy the90% Regarding the above stablecoin market, the following discussion will all focus on fiat currency stablecoins.
4.3.1 Stablecoin Data Explodes
According to SoSoValue The data shows that as of2024 Year 7 months, approx.1650 Billions of tokenized currencies are in circulation in the form of stablecoins. According to Coinmetrics data,2023 The total annual stablecoin trading volume reaches nearly7 trillions of dollars, includingUSDT About two-thirds.
Stablecoins are experiencing an explosive rise globally, and this is clearly a long-term trend.Visa Recently launched a public-facing on-chain stablecoin data platform (Visa Onchain Analytics), provides a glimpse into the stablecoin growth trend and demonstrates how stablecoins and the underlying blockchain infrastructure can be used to facilitate global payments.
Stablecoin trading volume across the market has grown year-on-year by approximately 3.5 times (Year over Year). When focusing the analysis on transaction volume initiated directly by consumers and businesses (excluding automated high-frequency trading, large institutional fund flows, smart contract operations, etc.), as of2024 Year 5 moon-like12 Within months, stablecoin trading volume reached 2.5 Trillions of dollars. From this perspective, it isPayPal 2023 Annual trading volume 1.5 times (2024 Annual report showsPaypal The annual trading volume is 1.53 trillions of dollars,Mastercard The annual trading volume is 9 trillion), which is equivalent to that of India or the UK GDP。
（Visa Onchain Analytics）
4.3.2 Advantages of Stablecoins
Fiat-backed stablecoins offer the best of both worlds: they maintain low daily volatility while providing the benefits of blockchain—efficiency, cost-effectiveness, and global accessibility. These features make them the primary medium of exchange for Web3 payments and a reliable unit of account for goods and services. In addition to the blockchain benefits mentioned earlier, their peg to the U.S. dollar also brings out the unique value of the dollar.
1.Alleviating the pressure of currency depreciation—store of value \Currency fluctuations have had a profound negative impact on the economies of emerging markets, leading to a total GDP loss of $1.2 trillion across 17 emerging market countries between 1992 and 2022, averaging 9.4% of their GDP. U.S. dollar stablecoins help these countries mitigate the uncertainty and economic losses caused by currency volatility by providing a stable, dollar-pegged value.
Enhancing dollar accessibility—settlement currency \The U.S. dollar is stable, widely accepted, and dominates global trade. In 2022, the dollar accounted for 88% of all foreign exchange transactions and over 40% of cross-border payments. In some countries and regions, directly using the U.S. dollar as a medium of exchange is restricted. As a digital alternative to the dollar, U.S. dollar stablecoins can be sent instantly worldwide via the blockchain, operate 24/7, are accessible with just an internet connection, and facilitate convenient transactions.
According to the BVNK & Cebr report The Decade of Digital Dollars, there is strong demand for U.S. dollar stablecoins in emerging economies, reflected in the “stablecoin premium.” In the 17 countries/regions surveyed, businesses and consumers paid a premium to obtain U.S. dollar stablecoins: an average of 4.7% above the standard dollar price, with this premium rising to 30% in countries like Argentina. It is estimated that by 2024, these 17 countries will pay $4.7 billion in premiums just to obtain stablecoins, and by 2027, this figure will increase to $25.4 billion.
（The decade of digital dollars）
3) Global Accessibility – Financial Reach
According to World Bank research, around a quarter of the world’s population remains unbanked (especially in Asia, Africa and Latin America), and increased electronic payments, internet access and mobile phone use can improve financial inclusion.
Stablecoins are the best solution. Stablecoins allow anyone with an internet connection to use them without the need for traditional bank accounts and identity verification. This is a mechanism to promote global financial inclusion, and low barriers to entry also support the demand premium for USD stablecoins.
Global accessibility is crucial for stablecoin adoption in regions like Asia, Africa, and Latin America, where stablecoins, as digital/tokenized versions of cash, can safely store value and be transferred at any time. Wherever the U.S. dollar is used, stablecoins can serve as its digital counterpart, providing a way to access more value in commerce.
Case Study G: Circle USDC—The Next Evolution of the U.S. Dollar
Circle’s mission is to foster global economic growth through the frictionless exchange of value, leveraging the internet’s openness and interoperability to create a new internet financial system. Circle is focused on utilizing the innovations of the next-generation Web3 value internet to enable free movement of money, making the world more equitable and prosperous.
In 2018, Circle introduced USDC, a U.S. dollar-pegged stablecoin that is now the second-largest stablecoin by market cap, with a circulation exceeding $33 billion, representing about 20% of the stablecoin market. By 2023, Circle’s issuance and redemption of USDC for the financial system and blockchain ecosystem reached $197 billion, supporting use in over 190 countries and regions globally.
When Circle CEO Jeremy Allaire created USDC five years ago, he envisioned a digital currency form of fiat money, which he called a fiat token (before the term stablecoin was widely used). He saw it as a currency that could operate on blockchain networks, enabling anyone to build interoperable value exchange applications on this open network.
Circle positions itself as “An Open Platform for Money on the Internet.” More simply, it can be understood as the U.S. dollar API for the Web2 internet and the U.S. dollar settlement layer for the Web3 value internet. This well-regulated open-source framework can be easily integrated into other fintech solutions, traditional banking systems, and digital currency projects, facilitating the pricing and trading of the world’s most widely used currency—the U.S. dollar.
While Web2 internet infrastructure has enabled frictionless, nearly free information flow, it hasn’t facilitated value transfer. The Web3 value internet can now carry that value, tokenize it as digital currency on the blockchain, and use USDC as the stablecoin to price that value, enabling seamless, free-flowing transactions.
Today, people can transfer value over the Web3 value internet just as easily as they send emails, videos, or JPEGs—ubiquitously, globally, instantly, and at low cost—eliminating the significant economic friction inherent in today’s outdated and complex payment systems. Looking ahead, real-world assets (RWA) like cars and real estate could be widely held, financed, and traded on-chain after being tokenized, creating deeper liquidity while reducing the time, effort, and costs associated with these transactions.
In summary, Circle USDC can be described as: the U.S. dollar for pricing value, blockchain for circulating value, and the internet for promoting openness and flow. USDC represents the next evolution of the U.S. dollar.
Of the $2.2 trillion in cash circulating worldwide, 80% consists of $100 bills, indicating that much of this cash is used primarily as a store of value. Blockchain-based stablecoins can offer anonymity similar to cash but with additional advantages.
Blockchain allows stablecoins to enhance traditional U.S. dollars with programmability while providing the same cost and speed benefits as other forms of internet data. Both the programmability of stablecoins and payments open up vast possibilities.
Since USDC operates on a smart contract blockchain using open-source code, anyone can easily program it to meet simple “if/then” business conditions. These programmable, internet-based payments represent a significant breakthrough in how businesses transfer value.
For instance, Circle worked with a Kenyan company that provides agricultural seed insurance to farmers. The company uses local weather data in a smart contract to automatically pay insurance claims with USDC. Additionally, some remittance companies have programmed USDC payments to be redeemable only for medical supplies at pharmacies. These examples illustrate just a small part of what’s possible—current stablecoin payments are only scratching the surface.
By integrating programmable logic into payments and stablecoins within the USDC settlement layer, USDC essentially becomes a new global monetary operating system, unlocking limitless potential for the future of digital currency.
Case Study H: GatePay’s Web3 Payment Solution
While Circle is building a new global monetary operating system, payment service providers like GatePay are helping to further the adoption of Web3 payments, offering a more practical and feasible Web3 payment solution for traditional payment networks.
GatePay, developed by Gate.io, is a Web3 payment solution designed to help cryptocurrency holders send and receive crypto easily and flexibly across the globe, supporting real-time transactions of over 300 major cryptocurrencies.
In the early stages of the Web3 payment market, due to the need for improvements in blockchain networks and the time required to educate users about new technologies, Web3 payments have mainly focused on crypto-native users, addressing their currency exchange and daily spending needs.
To meet the demands of merchants and individual users for Web3 payment scenarios, GatePay has introduced a crypto payment gateway. GatePay supports both online and offline cryptocurrency transactions, allowing users to connect their wallets/accounts easily and pay using various methods, such as scanning QR codes. It connects with over 300 mainstream merchants and supports more than 300 different cryptocurrencies.
(GatePay Cryptocurrency Payment System Accessible to All)
To address the rising demand for Web3 payments, GatePay is also partnering with traditional cross-border payment service providers, equipping them with the capability to process cryptocurrency transactions and meet their customers’ varied and personalized needs.
GatePay’s crypto-native strengths set it apart from most traditional cross-border payment providers. The ability to handle cryptocurrencies, support multiple types of digital assets, maintain deep liquidity, and, crucially, ensure regulatory compliance are challenges that traditional cross-border payment services cannot easily overcome.
As GatePay’s Head, FZ, remarked, “In this industry, the key is not just building a tech stack but expanding channels and scenarios while meeting diverse user needs. We invite everyone to collaborate with GatePay.”
5. PayFi—The Next Chapter in Web3 PaymentsWhile the Web3 payment industry has grown in recent years, its current value is largely tied to blockchain features like instant settlement, 24/7 availability, and low transaction costs. But what about the promised interoperability, programmability, and integration with DeFi? That’s where PayFi comes in.
The convergence of Web3 payments and DeFi has given birth to PayFi. At the Hong Kong Web3 Carnival, Solana Foundation Chairwoman Lily Liu introduced and elaborated on the concept of PayFi: “PayFi is a new financial market centered around the time value of money. This on-chain financial market enables new financial paradigms and product experiences that traditional finance cannot offer.”
To understand PayFi, it’s important to grasp a few key concepts:
Time Value of Money: This foundational financial principle asserts that money’s value changes over time—the value of money today is greater than its value in the future, due to inflation and potential investment returns. If you want to access money now rather than later, you pay an additional fee—interest.
While current Web3 payments are primarily about using the money you have today, PayFi allows you to use tomorrow’s money for today’s transactions. In finance, time is money.
Tokenization of Real-World Assets (RWA): Payments are inherently linked to real-world scenarios, so achieving PayFi requires tokenizing real-world assets and moving the entire payment process onto the blockchain. This approach captures the time value of money within real-world payment scenarios.
PayFi could realize the grand vision of the Bitcoin whitepaper—peer-to-peer electronic cash transactions without trusted third parties—while using tokenized money, like stablecoins, as the medium of exchange and unit of account. This would enable efficient, fast global payments on high-performance blockchains.
More importantly, PayFi integrates DeFi, fully leveraging its interoperability, programmability, and composability to create a new on-chain financial paradigm.
Thus, the next chapter of Web3 payments begins.
Considering the diverse attributes of Web3 payments, PayFi’s business model can be divided into four categories:A. Payment tokens, such as those capturing the time value of tokenized U.S. Treasuries or yield-bearing stablecoins;B. Payment financing for RWAs, using DeFi lending to meet financing needs in real-world payment scenarios, bringing the yield of payment financing on-chain;C. Innovative Web3 payment solutions integrated with DeFi;D. Bringing traditional payment business logic onto the blockchain, realizing complete Web3 payment logic—another form of RWA tokenization.
5.1 The Time Value of Money in Payment Tokens—Tokenized U.S. Treasuries
In today’s high-interest-rate environment, tokenized U.S. Treasuries have garnered significant market attention. These products offer risk-free, highly liquid, and scalable returns on U.S. Treasuries. Additionally, their role as cash-equivalent transaction mediums allows them to greatly improve capital efficiency across various payment and financial scenarios.
The underlying assets of these tokenized U.S. Treasuries are U.S. government bonds, which essentially pay us interest for the use of our current funds. As a result, these tokenized Treasury tokens inherently embody the time value of money.
According to data from RWA.XYZ, the market size for tokenized U.S. Treasuries has grown from $770 million at the beginning of 2024 to $1.916 billion as of August 1, 2024, a 248% increase.
（RWA.XYZ）
Case Study I: Ondo Finance’s Tokenized U.S. Treasuries
Ondo Finance is a protocol for tokenized U.S. Treasuries, aimed at providing institutional-grade investment opportunities to everyone. Ondo Finance brings low-risk, stable-yield, and scalable fund products (such as U.S. Treasuries and money market funds) onto the blockchain, offering an alternative to stablecoins—allowing stablecoin holders, rather than issuers, to earn returns.
Ondo Finance previously launched OUSG, a tokenized U.S. Treasury fund for U.S. residents, and in August 2023, it introduced USDY, a yield-bearing stablecoin backed by short-term U.S. Treasuries, specifically for non-U.S. users. As of August 1, 2024, the total value locked (TVL) in OUSG and USDY has reached $570 million.
What sets USDY apart from traditional stablecoins is its permissionless nature, offering global investors a way to store value in U.S. dollars while also earning dollar-denominated returns. Additionally, USDY’s role as both a transaction medium and a settlement currency is becoming increasingly significant.
USDY = USDC + 5% U.S. Treasury yield
（Case Study: Bringing Utility to Payments with USDY）
In December 2023, Ondo Finance launched USDY on the Solana blockchain, expanding its ecosystem and pushing the boundaries of Web3 payment innovation. Several payment platforms on Solana have since integrated USDY into their offerings.
For instance, Helio, a leading Web3 payment platform on Solana with over 450,000 unique active wallets and 6,000 merchants, has integrated USDY as a native payment option. With its Solana Pay plugin, millions of Shopify merchants can now settle payments in cryptocurrency and instantly convert USDY into other stablecoins like USDC, EURC, and PYUSD. Sphere, a payment technology provider on Solana originally designed around stablecoins, has also integrated USDY, enabling merchants in emerging markets to conduct secure, cost-effective, and near-instant cross-border payments while earning returns backed by U.S. Treasuries.
In addition to its role as a payment medium, USDY also offers increased capital efficiency and composability in DeFi, such as being used as collateral for loans. On July 31, 2024, USDY was launched on the Aptos blockchain and integrated into multiple DeFi platforms within its ecosystem.
5.2 Payment Financing RWAs
Since 2023, as the crypto ecosystem has continued to seek assets with sustainable value and stable income sources, the tokenization of real-world assets (RWA) has naturally gained traction.
The explosive growth of tokenized U.S. Treasuries is evident, but this growth might be temporary. Just 2-3 years ago, we were in a zero-interest-rate environment. As U.S. Treasury yields decrease in the future, crypto capital will likely seek other high-yield, low-risk assets for investment. This is where PayFi payment financing for RWAs comes into play.
The idea behind PayFi payment financing for RWAs is straightforward: using DeFi lending to meet real-world payment needs and bringing the returns from payment financing on-chain.
（PayFi - The New Frontier of RWA）
Payment financing is a fundamental pillar of the global financial and trade ecosystem, encompassing credit cards ($16 trillion), trade finance ($10 trillion), and global payment pre-financing ($4 trillion). PayFi payment financing can emerge as a key asset class within RWAs, achieving the following:
Bringing trillions of dollars in payment transactions onto the blockchain, thereby optimizing the time value of money and driving stablecoin adoption.Providing yields that accommodate different risk appetites, from single-digit risk-free rates to attractive double-digit returns in private credit.Scaling rapidly with minimal systemic risk.Enhancing liquidity management due to the short-term nature of underlying assets in payment financing transactions.
We are already witnessing how Huma Finance is raising on-chain capital to support off-chain payment financing needs, such as pre-financing for cross-border payments, supply chain finance, and more.
5.3 Innovative Web3 Payment Services Integrated with DeFi
（PayFi, How Solana Enables the Original Vision of Blockchain Lily Liu, Solana Foundation）
Lily Liu introduced the concept of Buy Now Pay Later (BNPL) and discussed how PayFi could transform it into Buy Now Pay Never. Let’s break it down with an example. Imagine a user named Kevin spends $5 on coffee, and a PayFi payment provider processes the payment.
The PayFi provider connects with a DeFi lending protocol.Kevin is a liquidity provider (LP) in the DeFi lending protocol and earns interest from it.The PayFi provider gets Kevin’s authorization to use his interest earnings to pay for the coffee.As a result, Kevin doesn’t have to pay out of pocket; instead, his interest earnings from the DeFi protocol cover the $5.5 cost, with $0.5 going to the PayFi provider as a service fee.The PayFi provider can then convert the DeFi earnings into fiat and settle the payment with the merchant.
This is a simple yet powerful example of how Web3 payments combined with DeFi can cover transaction costs using DeFi yields. The potential of this model could be further expanded by incorporating tokenomics.
The possibilities for integrating DeFi with Web3 payment scenarios are endless. For example, Fiat24 is building a banking protocol layer on the blockchain to bring traditional banking logic into DeFi, while Ether.Fi enables users to stake crypto assets as collateral to obtain stablecoins, which can be used for fiat payments through a Crypto Payment Card.
Case Study J: Fiat24—Building a Web3 Bank on Blockchain
Fiat24 is a fintech company regulated under Swiss banking law and is the first decentralized application (DApp) to fully implement banking logic on a public blockchain (Arbitrum), powered by smart contracts. It offers users a range of Web3 banking services, including currency exchange, Web3 payment transactions, savings, transfers, and fiat exchange. Fiat24 is working to bridge the gap between crypto and traditional finance with its Banking Protocol, aiming to revolutionize traditional banking, finance, and payment systems.
（X @Fiat24Account）
Fiat24’s innovative blockchain banking architecture seamlessly merges traditional banking services with Web3 payment innovations, enhancing both convenience and security while mitigating the risk of single points of failure. Unlike traditional banks, Fiat24 serves non-custodial wallet users and can be seen as an Additional Fiat Layer for DApps, much like a Fiat Layer Banking Protocol operating beneath Uniswap.
At the fiat protocol layer, Fiat24 offers Swiss bank accounts (Cash Accounts) to KYC-verified users. This setup allows for the integration of Web3 payment services, enabling currency exchange and Web3 payments. Additionally, Fiat24’s Swiss bank accounts are directly connected to the Swiss National Bank, the European Central Bank, and the VISA/Mastercard payment networks, facilitating traditional banking services like savings, currency exchange, and merchant settlement.
（Fiat24.com）
“Just as Chainlink is positioned as the infrastructure for decentralized oracle networks, Fiat24 is positioned as the infrastructure for a decentralized digital banking network—the fiat protocol layer for DApps,” said Fiat24 Co-founder Yang. “We believe that DEXs will eventually replace CEXs. However, unlike CEXs, which can handle currency exchange through their own payment channels, DEXs face a significant challenge: as a protocol, traditional banks cannot interface with them, provide APIs, or open accounts. Fiat24 offers a perfect solution by connecting DeFi on-chain and traditional finance off-chain through a protocol, bridging the gap in fiat services for many DApps.”
As a Fiat Layer Banking Protocol, Fiat24 can bring fiat business logic into DeFi. These scenarios align with the PayFi use cases described by Lily Liu:
Collateralized Lending: Bob provides ETH as collateral on a DeFi platform to borrow stablecoins. The DeFi protocol can directly invoke the Fiat24 banking protocol to facilitate USD fiat lending.Investment/Staking for Yield: Alice stakes ETH to earn yield. The DeFi protocol can directly invoke the Fiat24 banking protocol to distribute the yield in fiat currency, enabling real-world passive income.Investment and Wealth Management: Will uses ETH to invest in tokenized securities like Coinbase through a DeFi protocol. The DeFi protocol can directly invoke the Fiat24 banking protocol to buy stocks on Nasdaq using fiat. Ondo Finance’s Global Markets is currently making this a reality.
Case Study K: Ether.Fi’s Crypto Payment Card
Ether.Fi is an innovative project within the DeFi ecosystem focused on Ethereum staking and re-staking liquidity. By offering non-custodial staking solutions, Ether.Fi enables users to earn staking rewards while maintaining liquidity, solving the problem of funds being locked in traditional staking.
Rather than focusing on staking and re-staking, let’s look at Ether.Fi’s Cash service. Essentially, this service involves a typical Crypto Payment Card, where users pay with cryptocurrency (Crypto Payin), the payment service provider handles currency conversion and connects with traditional payment networks like Visa/Mastercard, enabling fiat settlements with merchants (Fiat Payout).
（Introducing Ether.fi Cash）
Ether.Fi’s Cash service integrates seamlessly with its staking and re-staking operations, embodying PayFi features:
Ether.Fi Cash combines a digital mobile wallet with a Visa credit card, making it usable anywhere in the world.It supports standard USDC pre-paid/debit card transactions.It also allows users to use Ether.Fi’s assets as collateral to obtain USDC for spending, with repayments made using earnings from staking and liquidity.
By integrating its products, Ether.Fi enables users to save, invest, and spend cryptocurrency in one cohesive ecosystem.
The PayFi journey is just beginning. As Ether.Fi aptly puts it, “Relying on traditional payment channels still presents significant censorship risks and leads to a nightmare user experience. Depending on the U.S. dollar as a settlement currency and linking cryptocurrency to the ever-inflating junk money (Shitcoin) minted by the Federal Reserve is absurd. Both of these challenges need to be addressed in the coming years, and they are a key part of our next-phase roadmap.”
5.4 The Future of PayFi
PayFi opens up enormous potential for Web3 payments. What we see now is just the beginning—there’s a vast market and unexplored territory waiting to be transformed. This transformation involves not only innovating Web3 payments by integrating DeFi but also reimagining traditional payment systems and logic through Web3.
5.4.1 On-Chain Credit System
Currently, Web3 payments are primarily based on stablecoin transactions—paying with what you have, requiring cash stablecoins at hand. However, in the real world, we also have credit-based payment options like credit cards, loans, and installment plans. Could these be brought into Web3 payments?
A defining feature of Web3 payments is that all parties must undergo identity verification like KYC/KYB, with all transaction records stored on the blockchain. This requirement is essential for creating an on-chain credit system. If we can effectively integrate data (like on-chain transaction history, stablecoin salary payments, on-chain collateral, KYC/KYB, and compliance information) with necessary off-chain data, we could establish an on-chain credit system that drives PayFi forward.
In the following case, PolyFlow’s Payment ID can be linked to encrypted KYC/KYB information, connecting users’ Verifiable Credentials (VCs) across different platforms. This integration across platforms ensures compliance, regulatory adherence, and data sovereignty, forming the backbone of an on-chain credit system. Additionally, PolyFlow’s Payment Liquidity Pool offers an on-chain fund pool to support needs like payment financing for RWAs or credit issuance based on PID.
Case Study L: PolyFlow—Building the PayFi Crypto Payment Network
PolyFlow, an infrastructure layer for on-chain digital asset management, aims to decentralize the integration of traditional payments, crypto payments, and DeFi to address real-world payment scenarios. PolyFlow will act as the financial backbone for PayFi, setting a new standard for the financial payments industry.
Through a modular design, PolyFlow introduces two critical components: Payment ID (PID) and Payment Liquidity Pool (PLP). These components separate and manage the information flow and fund flow in payment transactions, extracting value. PID handles information flow, serving as a robust tool for identity verification, compliance, data sovereignty, and AI-driven analysis. PLP manages fund flow, with smart contracts controlling payment funds, creating a regulatory-compliant, non-custodial crypto payment network.
（PolyFlow）
PolyFlow, an innovative crypto payment network, provides a secure and compliant framework for the transfer, custody, and issuance of digital assets in a decentralized manner. Additionally, PolyFlow ensures the safety of individual users’ assets and protects their privacy while introducing greater diversity and scalability into the DeFi ecosystem.
AI can also play a role by analyzing the rich data streams generated by payments and returning data sovereignty to its original owners (instead of leaving it solely in the hands of fintech giants). Moreover, it integrates our daily payment activities onto the blockchain, creating a new real-world asset (RWA) yield category based on payments for DeFi.
Most importantly, as the financial infrastructure of PayFi, PolyFlow, through PID, enables the creation of on-chain credit, supporting consumer loans, buy now pay later options, and credit card functions for individuals, as well as business loans and supply chain financing for enterprises. Integrating with real-world scenarios is crucial for advancing PayFi and is a key factor in driving Crypto towards mass adoption.
This powerful capability allows exchanges, payment service providers, banks, supply chain finance services, and settlement networks to expand and strengthen their operations in the digital asset era. It also enables network participants (consumers, merchants, and liquidity providers) to collectively share the benefits of network effects, unlocking the true value of Web3.
5.4.2 On-Chain Transformation of Traditional Payment Logic
Currently, Web3 payments are still small in scale compared to traditional payment systems and have limited impact. This is mainly because traditional payment and settlement systems continue to dominate global fund flows. While digital currencies and blockchain technology offer the potential to fully unify information and fund flows, the current Web3 payment infrastructure is still in its early stages, centered on peer-to-peer transfers. It has yet to develop standards that can address complex payment scenarios involving multiple participants.
“In the Web3 world, built on blockchain, we believe the unification of information and fund flows will eventually be achieved in a non-custodial way. Currently, CEXs are exploring the use of digital currencies as a payment method, following a centralized wallet logic similar to Alipay, which is more mature and has proven cost and efficiency advantages. However, this approach compromises two essential features of digital currencies: their non-custodial nature and the unification of information and fund flows. While fully on-chain transaction execution is promising, there is currently no standardized on-chain settlement rule that accommodates the interests of multiple payment participants and complex payment scenarios,” said Lilin Sun, founder of the PlatON blockchain. “This is why we believe a standardized on-chain settlement system will inevitably emerge in the future.” This is the opportunity that led to the creation of TOPOS, a tokenized open payment operating system.
PlatON is a public blockchain that employs Multi-Party Computation (MPC) for privacy-preserving and intelligent computation. Powered by PlatON’s technology, the TOPOS payment system excels in privacy protection, efficient processing, and decentralization. TOPOS is dedicated to bridging the gap between Web2 and Web3, enabling financial institutions to connect real-world assets (RWA) with tokenized currencies, and building a global, open Web3 payment and settlement system.
TOPOS establishes standards for operating the underlying blockchain and provides enterprise users with a comprehensive solution, including tokenized currency issuance, management, and application. Through smart contracts and collaboration with upstream and downstream institutions, TOPOS ensures seamless payment flows from stablecoin issuers to merchants. Additionally, TOPOS offers digital currency payment processing solutions and a blockchain-based open network for cross-border remittances, providing global users with more flexible and reliable payment and settlement services.
Case Study M: PlatON On-Chain Integration of Shipping Bill of Lading
Recently, TradeGo, in partnership with the fully digital public infrastructure PlatON, successfully conducted a pilot project (PoC) in a controlled production environment. The pilot involved a $1.17 million Southeast Asian rubber import transaction, where an electronic bill of lading (eBL) was used to trigger cross-border payments via digital currency.
This pilot showcased the integration of blockchain-based electronic bills of lading, digital currencies, and smart contracts in international trade, leading to significant optimizations in trade processes, settlement methods, and payment costs. By ensuring simultaneous payment and delivery, the project not only reduced market and credit risks but also achieved up to 90% savings in direct and indirect payment costs.
(TradeGo and PlatON Successfully Pilot Digital Currency Payments Triggered by Electronic Bill of Lading)
In international trade, the shipping bill of lading is a key document. The blockchain-based electronic bill of lading (eBL) serves as a digital replacement for the traditional paper bill of lading. It offers the same legal validity and functionality as its paper counterpart, with added benefits such as structured data, tamper resistance, traceability, and programmability, enabling better data verification and automated execution when combined with digital currencies.
In this pilot, smart contracts were integrated with TradeGo’s electronic bill of lading (eBL) and leveraged PlatON’s Web3.0 confidential payment and settlement system, TOPOS, to automatically trigger digital currency payments upon submission of the bill of lading. This new settlement model achieves true “payment upon delivery,” significantly lowering the trust costs between trading parties.
This pilot is not only a technological breakthrough but also an innovative demonstration of a new payment method in international trade. By testing this in a real-world business scenario, the pilot offers the industry a feasible and efficient cross-border payment solution, guiding the industry towards lower costs and greater efficiency.
6. ConclusionDigital currencies and blockchain technology may not have a defining “iPhone moment” like AI, but their impact on transforming traditional systems, especially financial ones, will be profound, even though this transformation will follow a long-term trajectory.
Although the Bitcoin whitepaper in 2008 outlined a grand vision of creating a decentralized, peer-to-peer electronic cash payment system, it is only in recent years that blockchain-based payments have become increasingly viable and widely accepted. Over the past decade, billions of dollars have been invested in developing underlying blockchain infrastructure. Today, we finally have blockchain networks capable of supporting payment-level scale.
This journey begins with financial payments, starting from Bitcoin’s electronic cash, moving through the initial surge of tokenized money, and now the rise of PayFi, which introduces an innovative financial paradigm. How many more paths lie ahead remains unknown, but I can already see the end goal of going bankless.
As Professor Tonya M. Evans said, “In this exploration, we embark on a journey to demystify the unbanked phenomenon and reveal its profound implications for financial sovereignty.”
The concepts of digital currency and blockchain technology may not seem as revolutionary or captivating at first glance. However, the same was true for double-entry bookkeeping and the joint-stock company. Like these great innovations, the seemingly modest revolution in production relations brought about by digital currencies and blockchain technology has the potential to fundamentally alter how people trust and cooperate with one another, leading to significant societal change in the future.
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