What is PayFi?

PayFi (Payment Finance) is an innovative payment finance paradigm based on blockchain technology, designed to achieve efficient and low-cost global payment settlements through a decentralized architecture, thereby reshaping the payment system. Its core lies in maximizing the time value of money using technologies such as smart contracts and real-time settlement, fundamentally enhancing the efficiency and inclusiveness of traditional payment systems.

Unlike traditional payment systems that rely on bank settlements and suffer from delays, PayFi leverages blockchain’s distributed ledger technology to reduce transaction confirmation times from days to seconds, significantly improving the efficiency of fund circulation without manual intervention. According to Lily Liu, Chair of the Solana Foundation, at the 7th EthCC conference, PayFi is building a “new financial market that maximizes the time value of money,” with applications spanning cross-border payments, trade financing, and corporate asset management.

Origin of PayFi

The concept of PayFi has its roots in the practices of the cryptocurrency industry. As early as the Bitcoin white paper (2008), Satoshi Nakamoto proposed the idea of a “peer-to-peer electronic cash system.” However, due to issues like network congestion and fluctuating transaction fees, Bitcoin gradually deviated from its role as a payment medium. The introduction of the first stablecoin, USDT, in 2014 attempted to bridge fiat and cryptocurrency markets but still faced significant shortcomings in user experience, compliance, and capital efficiency.

It wasn’t until July 2024 that the concept of PayFi began to crystallize. Lily Liu presented the theme “The Rise of PayFi: Realizing the Vision of Cryptocurrency” at the 7th EthCC conference in Brussels. She pointed out that despite over a decade of development in blockchain technology, the payment sector has struggled to overcome the “last mile” challenge, primarily due to a lack of comprehensive financial infrastructure support.

Lily Liu believes that the maturity of PayFi requires three core conditions: a low-cost transaction network with sub-second confirmation, real-world application scenarios with tangible value, and an active developer ecosystem. Currently, projects like Solana, Huma Finance, and Ondo Finance have begun to establish the initial PayFi ecosystem, with Karrier One extending services to the physical world through blockchain SIM card technology.

Core Principle of PayFi: Time Value of Money

The time value of money is a fundamental concept in finance that emphasizes the relationship between money’s value and time. It indicates that a sum of money today is generally more valuable than the same amount in the future because current funds can be used for investment, income generation, or consumption, thus realizing their practical utility.

PayFi utilizes blockchain technology to allow users to maximize the time value of their funds in a low-cost and efficient manner. In the article “Understanding PayFi: Solana’s Next Narrative,” Lily Liu illustrates this with three key cases:

• Buy Now, Pay Never: Unlike the common “Buy Now, Pay Later” model, the core logic of “Buy Now, Pay Never” is to cover consumption expenses with investment interest without touching the principal. For example, when buying a $5 coffee, a user can deposit $50 into a blockchain lending product (like a DeFi protocol) and, once the interest accumulates to $5, the system automatically uses the interest to pay for the coffee, returning the principal intact. This process relies on “programmable money” (like smart contracts) to automate the entire flow of saving, interest calculation, and payment without manual intervention.

• Creator Monetization: Creators often face cash flow challenges due to the “upfront investment, delayed returns” nature of their work. For instance, if a video is expected to earn $10,000 but takes a month to receive, the creator may face funding shortages during that time. PayFi’s solution allows creators to receive $9,000 in cash immediately, with the platform locking in future income rights via blockchain technology to accelerate fund circulation. Although creators may forfeit a portion of their earnings (e.g., 10%), they can quickly obtain working capital, ensuring continuity in their creative process.

• Accounts Receivable: Accounts receivable is a common financial relationship between businesses and customers, referring to the money owed by customers to businesses. This can lead to cash flow issues for small and medium-sized enterprises (SMEs). Traditional solutions involve pledging accounts receivable to financial institutions for discounting, which can be cumbersome and have high barriers. PayFi optimizes this process in three ways:

  1. Blockchain Verification: Accounts receivable information is recorded on the blockchain, ensuring immutability.
  2. Smart Contract Automatic Settlement: This shortens the traditional financial review cycle.
  3. Lower Financing Barriers: SMEs can quickly match with investors on-chain, converting “future receivables” into “immediate cash flow.”

These three scenarios revolve around the “time value of money” concept—today’s $1 is worth more than tomorrow’s $1. PayFi enables individuals and businesses to manage the time value of their funds more flexibly, opening new pathways outside the traditional financial system.

Relationship of PayFi with Web3 Payments, DeFi, and RWA

PayFi has a close relationship with Web3 payments, decentralized finance (DeFi), and real-world assets (RWA):

• Web3 Payments: This refers to decentralized payment methods based on blockchain technology, and PayFi is an extension of this concept. Web3 payments emphasize user autonomy and privacy protection, while PayFi enhances user control through decentralized transaction processing. Its real-time settlement and low-cost features make it a vital component of the Web3 payment ecosystem.

• DeFi: PayFi can serve as a payment solution within the DeFi ecosystem. Through PayFi, users can conduct fast, low-cost transactions on DeFi platforms, enhancing the user experience. Conversely, DeFi introduces composability into the payment sector, enabling more complex financial operations such as borrowing, trading, and investing. For example, Huma Finance allows users to obtain zero-collateral loans based on on-chain credit history, using funds directly for bill payments or cross-border transfers, creating a “credit-payment-repayment” closed loop.

• RWA: RWA refers to digital assets linked to physical assets in the real world. PayFi utilizes tokenization technology to convert tangible assets like real estate and treasury bonds into on-chain liquidity, facilitating cross-border payments and capital flow. RWA also serves as a crucial channel for the practical application and value realization of PayFi, providing a new platform for global transactions.

Significance and Value of PayFi

For Individuals

PayFi allows users to achieve “interest-covered consumption” through blockchain interest-bearing assets (like tokenized government bonds). This “Buy Now, Pay Never” model enhances liquidity and alleviates financial pressure. Creators can also use smart contracts to cash in on future income, easing cash flow challenges. This model breaks the temporal constraints of traditional finance, enabling more efficient financial planning.

For Businesses

Small and medium-sized enterprises can tokenize accounts receivable through PayFi, achieving financing conversion in minutes instead of weeks. For instance, they can collateralize customer debts on-chain to obtain immediate cash flow without the cumbersome bank approval process. Smart contracts automate revenue sharing and settlement, reducing trust costs in supply chain finance.

For Society

PayFi replaces traditional collateral requirements with low-barrier on-chain credit, benefiting the 1.4 billion unbanked individuals globally. Users in developing countries can participate in the global financial market through stablecoins, gaining higher returns, while remote areas can leverage cross-border payment features for efficient financial services, alleviating economic inequality.
Additionally, traditional finance has over $4 trillion in idle funds due to settlement delays; PayFi can bring these funds into the on-chain DeFi world, helping to build a more decentralized, flexible, and efficient financial ecosystem.

Conclusion

PayFi represents a deep integration of blockchain, payments, and finance, seamlessly combining transactions, credit, and asset management into a unified experience. While it still faces regulatory ambiguities and technical bottlenecks, its advantages in efficiency, cost, and inclusiveness are becoming increasingly evident.

In the future, as policies clarify and the scale of RWA tokenization expands, PayFi could become the “pump” of the digital economy. As Lily Liu stated, “PayFi does not replace traditional finance; it allows money to serve humanity in a freer and smarter way.” This new paradigm of blockchain will redefine the essence of “payment”—transforming it from a mere value transfer tool into a vital network for the global economy.