Payment is a key scenario in the cryptocurrency ecosystem, with tens of thousands of cryptocurrency payments taking place every day on and off the chain. A new cryptocurrency often increases in value because of its practical use for payments, and payments become an important bridge between the Web2 world and the Web3 world.

In the Web3 payment business, some people make a lot of money by providing payment channels, while others focus on building more secure wallet technology. So, how exactly do funds move in a Web3 world? This article will give you an in-depth understanding of various business scenarios and projects in the Web3 payment industry.

1. Traditional Payment Industry’s Entry into Web3

In August last year, PayPal announced the launch of a dollar-pegged stablecoin, “PayPal USD,” for use in transfers, payments, and other services. This April, financial infrastructure platform Stripe stated that stablecoin payments would be integrated into its payment suite within a few weeks, with support for USDC payments beginning this summer. In June, Mastercard announced the launch of its first peer-to-peer transaction infrastructure feature, Mastercard Crypto Credential, enabling cross-currency cross-border payments on the blockchain for users in Latin America and Europe. Over the past two years, traditional payment industry giants have made high-profile entries into the Web3 payment sector. But what are the reasons behind this move?

1.1 What is the Traditional Payment Process?

Before uncovering the reasons, let’s first understand what payment is. The essence of payment is the flow and transfer of funds. In the traditional payment industry, users complete fund transfers through cash payments, card/bank transfers, and third-party payments. Completing a cross-border payment usually requires the support of multiple participants. Using the payment route of a bank card as an example, let’s briefly introduce the participants and the cross-border payment process.

• Card owner (user/buyer): The user selects goods/services at the merchant and initiates payment.
• Merchant: Merchants need to access the payment gateway of the payment service provider to receive and process payments through the integrated payment gateway.
• Payment service provider: Provide services such as payment gateway and payment processing. The payment information entered by the user sends a payment request through the payment gateway. Some payment service providers also offer acquiring services.
• Acquirer: A bank or financial institution that works with the merchant. The acquirer receives payment requests and forwards them to the card organization and is also responsible for handling clearing and settlement after the transaction is authorized.
• Card organization (such as MasterCard, VISA): A global network that processes payment card transactions. The card organization receives the payment request from the acquiring institution, sends an authorization request to the issuing bank, and forwards the authorization response to the acquiring institution to ensure that the transaction request is approved by the issuing bank.
• Issuer: The card issuing bank receives authorization and reimbursement requests from the card organization, first verifies the user’s identity and account status, authorizes or rejects the transaction, and allocates funds after successful authorization.
• Settlement: The final stage of the payment process, involving the transfer of funds from the user’s account to the merchant’s account. Settlement is usually coordinated by the acquirer and the issuing bank, and the actual transfer of funds may occur through an inter-bank clearing network.

The above payment process shows the clear authority and high maturity of traditional cross-border payment, high acceptance, relative security and the advantages of large-scale transactions. However, traditional cross-border payments also have some limitations:

• Long Payment Processing Times: Due to the involvement of multiple parties, cross-border payments processed through international card organizations usually require at least T+1 day to complete, meaning it takes at least T+1 day for funds to reach the merchant’s account, thus reducing immediacy.
• Multi-layered Fee Structure: Because a single transaction involves many related parties, there exists a multi-layered fee structure. For example, in a credit card payment, the acquiring institution, bank, and card organization all charge different fees.
• Limited Transparency and Time-consuming Traceability: In cases of credit card fraud, it usually takes several business days to trace and query the transaction.
• Dependence on Traditional Banks: Slow technological development and the traditional banking system’s inadequacy in addressing emerging payment needs.
• These limitations have driven technological innovation, ushering us into a new era of Web3 payment pathways.

1.2 Why traditional industries are deploying Web3 payment

Today, when the development of traditional payment is relatively complete, why are the giants gradually starting to focus on Web3?

1.2.1 Considerable industry profits

Mastercard’s net profit in 2023 is US$11.2 billion (approximately 33,400 employees), while Tether, which issues stablecoin USDT in the crypto industry, has a net profit of US$6.2 billion in 2023. The company only had about 100 employees as of last year. In contrast, the wealth created per employee is much higher than in the traditional payments industry, and so are the returns.

1.2.2 Fierce competition and high operating costs in traditional payment services drive the discovery of new businesses

We can understand from the figure that from 2018 to 2023, the compound annual growth rate of cryptocurrency ownership levels reached 99%, far exceeding the growth rate of traditional payment methods of 8%. Over the same period, the growth rate of cryptocurrency adoption has exceeded that of several U.S. payment giants.

In 2022, in the face of fierce industry competition and relatively high operating costs (operating costs accounted for 70.8% of gross profit in 2022), Paypal also began to develop cryptocurrency business. Cryptocurrency business is gradually increasing in importance to PayPal’s overall revenue.

Within one year, cryptocurrency-related operating expenses increased from $800 million to $1.2 billion, a rise of 50%. Meanwhile, cryptocurrency-related net profits grew from $700 million to $1.1 billion, an increase of 57%. The rise in new cryptocurrency-related business operating expenses reflects PayPal’s ongoing investment and confidence in this field, including technological upgrades, security measures, and market expansion.

The significant growth in net profit not only demonstrates the profitability of cryptocurrencies but also validates PayPal’s effective operational strategies in the cryptocurrency market and its optimism about the future growth potential of cryptocurrencies. Therefore, PayPal is motivated to continue exploring new industry opportunities.

1.2.3 BTC halving and BTC ETF compliance make crypto industry more recognized and incease its payment demand

The BTC halving and BTC ETF compliance have brought more recognition and payment demand to the crypto industry. The Bitcoin halving event has attracted widespread market attention by reducing the rate at which new Bitcoins are generated, increasing its scarcity and expected value growth. The launch of Bitcoin exchange-traded funds provides traditional investors with low-threshold and convenient investment channels and enhances market confidence. The expected launch of an Ethereum exchange-traded fund has further sparked interest in the Ethereum ecosystem and innovative applications. These factors collectively drive more people to understand and participate in Web3 payments.

Additionally, the increased demand for fiat-to-crypto conversion services (fiat-to-crypto and crypto-to-fiat) has driven the need for such services. These services are provided through centralized exchanges, independent fiat-to-crypto payment institutions, cryptocurrency ATMs, and POS machines supporting cryptocurrency payments. Through these channels, users can easily convert between fiat and cryptocurrencies, promoting the widespread use and adoption of cryptocurrencies.

1.2.4 Advantages of blockchain-based payments and the need for payment diversity

In 2014, Microsoft began accepting Bitcoin as payment in its online Xbox store. Twitch, the leading game streaming platform owned by Amazon, accepts Bitcoin and Bitcoin Cash for its services. Shopify, a leading e-commerce platform, supports Bitcoin payments through integration with payment processors like BitPay. The support for cryptocurrency payments by leading companies in various industries indicates that Web3 payments are bringing more possibilities.

• Reduce exchange rate risk
  Cross-border e-commerce often involves transactions between multiple currencies, and there is a certain risk of exchange rate fluctuations. Shopping in cryptocurrencies can reduce this risk because cryptocurrencies do not involve exchange losses when converting between different currencies.

• Reduce transaction costs
  Traditional cross-border payments usually come with high transaction fees and the involvement of multiple intermediary institutions. In contrast, cryptocurrency transactions generally have lower fees because they eliminate the need for banks or other financial institutions as intermediaries. If the payment is on-chain, only a network fee is required, which is typically quite low. If the transaction is facilitated through a payment service provider like Coinbase or BitPay, there will be a service fee. Compared to the layered charges of traditional payment institutions, this means that high-volume cross-border e-commerce can significantly reduce fees. For example, traditional cross-border payments might incur fees of 3-5%, while cryptocurrency payments can reduce this to less than 1%.

Due to the relatively high transaction fees on the Ethereum mainnet, more public blockchains are motivated to achieve lower network fees through technological innovation. As shown in the diagram below, since network fees are not dependent on the transaction amount but rather on the level of network congestion, large cross-border on-chain payments can incur fees of less than $0.50, significantly reducing the cost of payment fees.

Source：dune @bnbchain

• Enhance payment security
  With decentralized and distributed ledger characteristics, blockchain technology makes every transaction open and transparent, and once recorded, cannot be changed. This reduces the possibility of fraud and hacking. Due to the transparency of blockchain, merchants and consumers have increased trust in transactions. Consumers know their payment information is safe, while merchants reduce the possibility of fraud and chargebacks.
• Connecting global markets
  Using cryptocurrencies for payments is not restricted by the international banking system, allowing transactions to be completed quickly. Additionally, cryptocurrency transactions (24/7) are unaffected by holidays and working hours. Many consumers in various countries and regions may be unable to use traditional payment methods on cross-border e-commerce platforms, but they can substitute with cryptocurrencies.

1.2.5 Demand for tax avoidance

Both businesses and individual investors in the cryptocurrency industry are attracted by tax incentives. For instance, Portugal does not tax personal cryptocurrency gains; Singapore does not impose capital gains tax on cryptocurrencies; and Bermuda, with its secure and transparent regulatory environment and the Digital Asset Business Act, has attracted token issuance companies, cryptocurrency custody service providers, and blockchain R&D firms, becoming an important hub for digital assets and innovative technologies.

Since 2019, the Bermuda government has announced that it can accept tax payments, utility fees, and other administrative service fees in the form of USDC. Additionally, based on decentralized network systems, Web3 transactions themselves bypass many centralized institutions and banks, avoiding conventional tax processes. Therefore, bonuses within some digital asset companies may also be distributed in the form of stablecoins.

1.2.6 Demand for capital preservation due to local currency devaluation

For decades, Argentina has faced economic difficulties, with extreme currency devaluation periodically undermining residents’ savings and making daily financial activities challenging. As a result, Argentina is one of the most active countries for cryptocurrency in Latin America. In 2023, the inflation rate in Argentina reached 211.4%. According to Chainalysis data, approximately 10.9% of the population, or about 5 million people (out of a total population of 45.8 million), use cryptocurrencies for everyday payments.

To protect against the devaluation of the peso, Argentinians often convert their salary, which is paid in pesos, into USDT or USDC immediately. Nearly everyone is aware of the exchange rate between the dollar and the peso. Similarly, Turkey is another country where cryptocurrency is developing rapidly. Therefore, in places where there is a demand for currency devaluation and legal regulations permit, cryptocurrencies can become a form of “hard currency,” making it easier to conduct cryptocurrency-related payment operations.

1.2.7 Ways to realize political needs

For the United States, cryptocurrency has become a powerful tool for garnering votes in elections. During this election cycle, Trump has prominently promoted a friendly attitude toward cryptocurrencies while criticizing the Biden administration’s hostile stance. Trump encouraged his supporters to make cryptocurrency donations through Coinbase Commerce, which led to a surge in meme coins related to his concepts. Before the election debates at the end of June, these meme coins experienced noticeable volatility.

In Venezuela, cryptocurrency serves as a weapon against authoritarianism. During the COVID-19 pandemic in 2020, the interim government led by Guaidó decided to use cryptocurrencies to provide direct aid to the country’s doctors and nurses. This decision was prompted by the Maduro regime’s corruption and control over banks, which made it difficult for international aid to be delivered through conventional means. The initiative directly assisted 65,000 doctors and nurses, whose average monthly salary was just $5. By using cryptocurrency for aid payments, each individual received $100. Thus, decentralized cryptocurrency payment methods effectively supported the local democratic movement.

2.What is Web3 payment?

Web3 payment is based on blockchain technology. As long as you have the other party’s “wallet address”, cryptocurrency can be transferred on the blockchain network, and can be viewed and traced instantly to achieve decentralized point-to-point payment. This implementation path solves the problems of low transparency, long transaction arrival time, and high cost of multi-layered institutional intervention in traditional payments.

2.1 Market size

With the approval of BTC ETFs, the upcoming BTC halving, and the anticipated launch of ETH ETFs, more countries are bringing cryptocurrency payments under regulatory frameworks, leading to an influx of personal and institutional capital into the crypto market. As of June 23, the market capitalization of BTC has reached $1.27 trillion, while Ethereum has reached $15.2 billion.

According to a report by Triple A, by 2024, the global penetration rate of cryptocurrencies is expected to reach 6.9%, with approximately 560 million people worldwide owning cryptocurrencies, marking a 33% increase from last year’s 420 million. Asia has the highest number of cryptocurrency owners, while South America and Oceania have seen the fastest growth in ownership (116.5%). In Dubai, the penetration rate stands at 25.3%, making it the country with the highest proportion of cryptocurrency owners. This, combined with the advantages of its financial free zone and exemptions on personal income and capital gains taxes, explains why Dubai has become the headquarters for many exchanges and crypto companies in recent years.

Thus, whether in regions with the highest ownership rates or those experiencing the fastest growth, the leniency of policies and the need for practical transactions provide excellent opportunities for the exploration and development of cryptocurrency payments.

• From a corporate perspective, well-known brands in the traditional sector, such as Starbucks, Coca-Cola, Tesla, and Amazon, have embraced cryptocurrencies, leading to a gradual increase in market adoption and consumer familiarity in mainstream markets. This year, even more traditional enterprises have started accepting cryptocurrencies to expand their payment options. Ferrari has partnered with Bitpay to accept payments in Bitcoin, Ethereum, and USDC in the U.S., with plans to expand this option to Europe and other regions by early 2024. In Singapore, Grab users can now use Bitcoin, Ethereum, Singapore dollar stablecoins, USDC, and USDT for ordering rides and takeout. Thus, when industry giants begin adopting crypto payments, it not only acknowledges the crypto sector but also opens a significant door for end users through the credit backing of these B2B enterprises.
• From the user’s perspective, in 2021, Binance, the world’s largest cryptocurrency exchange, had only 3 million registered users. However, by June 2024, the number of registered users had surged to 200 million, with daily trading volume reaching $189 billion. This significant growth demonstrates that more and more people are joining the ranks of cryptocurrency users, making crypto payments a vast blue ocean of opportunity.

• From on-chain data, on-chain transaction volume and activity levels have shown consistent growth from January 2020 to March 2024. Driven by a series of favorable events, these metrics have repeatedly broken historical records and are approaching the $150 billion mark.

In the Web3 space, many project teams and exchanges have recognized the upward trend of the industry and the significant opportunities in crypto payments. They are accelerating the application for payment licenses in various regions, expanding card issuance services, and connecting Web3 payments with the real economy. Additionally, they are speeding up the construction of exchanges and on-chain wallet setups.

Recently, Coinbase announced the launch of a self-custody wallet platform that integrates asset and identity management, purchasing, sending, swapping, NFTs, and transaction history features. This provides users with a more convenient on-chain trading experience. Not only does this offer greater convenience for Coinbase’s user base, but it also serves as a key component of the Onchain Summer event, further promoting the development of Web3 payments.

3. Payment classification in Web3

3.1 First category: On - Off Ramp

3.1.1 On-ramp

Definition:

Definition:

On-ramp refers to the process of converting fiat currency (such as USD, EUR, etc.) into cryptocurrency. This process acts as an entry point into the cryptocurrency economy. Payees transfer fiat currency through centralized exchanges or third-party decentralized deposit platforms, where centralized exchanges can directly exchange the fiat for cryptocurrency and transfer it to the on-chain wallet. Third-party decentralized deposit platforms rely on market makers to convert fiat into cryptocurrency; once the market makers receive the fiat, they will deposit an equivalent amount of cryptocurrency into the payee’s on-chain wallet.

The market makers here are typically crypto-friendly banks (such as the now-defunct Silvergate Bank, Silicon Valley Bank, and Signature Bank). After these banks collapsed, more stablecoin issuers (like Tether and Circle) and payment service providers (like BCB Group) have taken on the role of liquidity providers.

On-ramp methods:

• Centralized exchange: Users can create an account after completing KYC on a centralized exchange, and purchase cryptocurrency with legal currency through a bank account, credit card or e-wallet.
• Peer-to-peer platform: These platforms directly connect buyers and sellers, enabling the exchange of fiat currencies and cryptocurrencies. Transactions typically involve a third party holding funds in escrow until the buyer and seller complete what they agree to
• OTC trading desk: OTC counters facilitate direct large-value cryptocurrency transactions between buyers and sellers. This is typically used by institutional investors or high net worth individuals
• Decentralized cryptocurrency wallet: The most common type of cryptocurrency wallet is a self-hosted wallet, which allows users to have complete control over their cryptocurrencies since there are no third parties involved

Entities involved:

Centralized exchanges, third-party decentralized on-off ramp platforms, banks, and liquidity providers (crypto-friendly banks, stablecoin issuers, payment service providers)

Fee structure:

• Payment channel fees: For example, fees charged by credit card issuers, Paypal, Apple Pay, etc.
• Exchange rate fees: The conversion rate between fiat currency (like USD) and cryptocurrencies (like USDT) is often not 1:1, as intermediaries may profit from this spread.
• Network fee (Gas fees required when transferring from a self-custodial wallet to another wallet address.)

3.1.2 Off-ramp

Definition:

As opposed to on-ramp, off-ramp refers to the process of converting cryptocurrency back into fiat currency. Users can sell their cryptocurrency holdings, exchange them for traditional currency, and then withdraw them to their bank accounts or other payment methods. This process amounts to an exit from the cryptocurrency economy.

Entities involved:

Centralized exchanges, third-party on-off ramp platforms, banks/card merchants, liquidity providers (crypto-friendly banks, stablecoin issuers, payment service providers)

Off-ramp methods:

• Centralized exchanges, peer-to-peer platforms, OTC, crypto wallets
• Crypto debit card (virtual, physical): A debit card associated with a cryptocurrency wallet or platform that converts cryptocurrencies into fiat currency and can be used for normal spending

Fee structure:

• Transaction fees: When performing a off-ramp operation, the service provider (exchange or third-party on-off ramp platform) may charge a certain transaction fee
• Exchange rate fees: If the off-ramp involves currency conversion (such as converting USD to Euro), exchange losses may be incurred
• Bank Fees: The bank receiving the funds may charge a fee for depositing the funds.

3.2 Second category: Use cryptocurrency to purchase goods or services in the real economy (paid by independent card or third-party payment platform)

3.2.1 Independent card payment (virtual card/physical card)

Traditional payment card merchants or Web3-native payment card merchants support the consumption of cryptocurrency in the real economy. Here are 4 entities, to help card issuers’ technical service providers, issuers (traditional card dealers, Web3 native card issuers), and card organizations.

In the current market environment, most of the more popular ones are actually Crypto Prepaid Debit Card. By using this card, you don’t have to bind an existing bank account, but need to convert the cryptocurrency into legal currency and load it into the card in advance.

Entity 1: Virtual card/physical card technology service provider

The issuance of credit and debit cards has traditionally been a bank monopoly in the Web2 world, with high technical and regulatory barriers. However, this is not the case in the crypto payment card sector.

Issuing technology service providers offer “Issuing as a Service” solutions. When users see a crypto card adorned with a VISA logo, it actually represents a collaborative model between the issuing party and the technology provider. These providers have integrated their APIs with payment networks like Visa and MasterCard, while also establishing partnerships with issuing banks and other industry stakeholders to provide users with real-time transaction authorization and currency conversion services.

The demand side for card issuance only needs to comply with regulations or hold the necessary licenses, allowing them to utilize the technology provider’s APIs or SaaS solutions to issue and manage crypto credit/debit cards.

*Technology providers often need to hold multiple regional licenses, offering services that include: necessary security technologies, payment processing systems, and user interfaces to support crypto card issuance, currency conversion and payments, transaction monitoring, and risk control.

Entity 2: Traditional payment card providers

Visa has partnered with Web3 infrastructure provider Transak to launch cryptocurrency withdrawals and payments through its Visa Direct solution. Users can directly withdraw cryptocurrency from wallets like MetaMask to their Visa debit cards and convert cryptocurrency into fiat currency to pay at 130 million merchants that accept Visa. Therefore, the absolute advantages of traditional payment card providers in offering cryptocurrency payment cards include well-established payment licenses, brand credibility, a large user base and merchant entry points, as well as strong financial backing.

Entity 3: Web3 Payment card providers

Hardware wallet companies like Onekey and Dupay launched virtual and physical cards last year, providing users in mainland China the option to purchase OpenAI’s ChatGPT. Their business model primarily generates revenue from card issuance fees and transaction fees, with different tiers of cards having varying limits and fee standards. In addition to Web3-native payment card providers, major exchanges have also developed business models that incorporate fee earnings and card issuance fees.

For example, Binance’s crypto payment card allows users to earn a certain amount of BNB cashback, similar to real-world “cashback” offers, while Crypto.com’s crypto payment card provides fee waivers and other payment benefits based on staking different amounts of the platform’s token, CRO. Exchanges leverage their user traffic and brand endorsement, as well as the natural consumption scenario of off-ramp funds after trading, to expand more consumer payment scenarios through card issuance.

The business logic is that exchanges already have payment scenarios for off-ramp after trading, and compared to traditional payment card providers, users of exchanges face a lower educational cost when using crypto payment cards. From a user perspective, the exchange’s app utilizes its existing trading product matrix, allowing direct interaction with the card, significantly enhancing the user experience for switching between different platforms for transfers, top-ups, and other uses.

Entity 4: Card organization

Visa and Mastercard have authorized their networks to technology service providers, collaborating with them to gain more profit. As the number of transactions involving crypto payment cards and overseas transactions increases, they receive more transaction fees, which in turn boosts their revenue. Therefore, they don’t need to issue cards themselves; they can earn this “authorization fee” simply by leveraging their payment networks and credit card brand endorsements.

Evaluation:

While each participant in the card issuance business has a different role, they all possess unique advantages and business logic. For example, virtual and physical card issuing technology service providers focus on a SaaS business model. Once they integrate licenses and technology and aggregate Web3 transaction channels, this business model becomes easily replicable and low-effort, with a broad audience. They can serve not only native Web3 issuers but also expand into other payment services using their compliance and technical advantages.

Native Web3 issuers can outsource technology, earning fees from cryptocurrency trading or card payments while easily reaching more Web3 communities, benefiting from lower customer acquisition costs among users familiar with cryptocurrencies. Traditional card issuers or payment giants, on the other hand, have substantial financial resources, the widest user base, and strong brand endorsement. This positions them to gain recognition from both virtual card users and non-crypto users, as well as earn B2B authorization fees from payment service providers.

Overall, each player in the ecosystem can capitalize on their strengths, creating a diverse and competitive landscape in the card issuance market.

3.3.3 Third-party payment platform

Traditional/Web3-related third-party payment platforms are expanding on-off ramp services as well as cryptocurrency payment options, facilitating the use and consumption of cryptocurrencies in the real economy. The following two platforms each have their own advantages: the Revolut app supports fiat currency exchange, card payments, and can naturally serve as an exchange platform for cryptocurrencies and fiat currencies, while Binance Pay, backed by the largest cryptocurrency exchange Binance, naturally meets the demand for consumption, creating a closed loop for cryptocurrency deposits, trading, withdrawals, and spending.

Revolut: Founded in the UK in 2015, Revolut is a fintech company and global neobank that offers services such as transfers and payments, boasting over 40 million users worldwide. In March 2024, the company launched Revolut Ramp, allowing Revolut users to purchase cryptocurrencies in their own wallets by collaborating with MetaMask developer Consensys, facilitating transactions between the platform and Revolut accounts without additional fees or restrictions. Additionally, traditional payment apps can link Revolut cards to users’ cryptocurrency accounts, enabling automatic conversion of cryptocurrencies to purchasing currencies during payments.

Binance Pay: Shopping platforms can choose from various cryptocurrencies to purchase gift cards for different retail brands and games (ranging from dozens to hundreds of dollars), thereby facilitating consumption in the real economy. For example, Coinbee:

Source: @Coinbee

3.3 Third category: payment scenarios between blockchain and Ansheng Payment (on-chain payment scenario)

On-chain payment is also based on the needs of a certain payment scenario in the Web3 world, which are usually derived from payment needs when participating in project party activities and transactions.

• Payments and transfers: Web3 wallets (taking Binance Web3 Wallet as an example) provide peer-to-peer payment and transfer functions. As long as you have the recipient’s wallet address, you can conduct cross-space transfers, usually incurring only a network fee (Network Fee / Gas Fee), which allows the transfer to be completed within a few minutes. Users can conveniently and quickly transfer assets globally at a low cost.

Source: @binance

• DeFi / NFT: Users can interact with DeFi applications through Web3 wallets to perform cryptocurrency deposits and loans, lending, liquidity mining and other operations. Users also purchase and trade digital assets such as NFTs.
• DEX: Web3 Wallet supports users to trade cryptocurrencies on DEX. These exchanges do not rely on centralized order books, but use smart contracts to match transactions.
• Cross-chain interaction: Multi-chain wallet supports users to transfer assets between different blockchains and realizes the interoperability of different blockchain ecosystems.
• GameFi: In GameFi, Web3 wallets can be used to purchase virtual goods, land, or other in-game virtual assets.
• Social networking and content creation: Web3 Wallet enables users to create and monetize content on decentralized social platforms, as well as receive tips and payments.

4. Payment related projects

4.1 Project 1: Stablecoin Paypal PYUSD

In August 2023, PayPal launched its first stablecoin, PYUSD, issued by Paxos, which regularly provides proof of reserve assets. The PYUSD stablecoin is issued on the Ethereum blockchain (and is now also available on Solana). PYUSD maintains a 1:1 value with the US dollar and can be exchanged within the PayPal ecosystem. The stability of PYUSD is backed by US dollar deposits, short-term US government bonds, and similar cash equivalents, ensuring that it is not affected by the volatility of other cryptocurrencies.

Use Cases: It is primarily used for gaming, remittances, and as a payment medium on Web3 platforms and decentralized exchanges. Currently, PYUSD is only available to users in the United States, with trading pairs offered on Coinbase. Due to the limited supported public chains and geographic availability, the usage of this stablecoin still needs to be expanded.

• Transfers: Users can make zero-fee transfers using PYUSD.
• Payments: PYUSD is used for payment during product settlement.
• Converting Cryptocurrencies: PYUSD can be converted to other cryptocurrencies supported by PayPal, with fees varying based on the amount converted, ranging from 1.45% to 4.9%, which is relatively high. Additionally, since it currently only supports the Ethereum chain, the network fees for transferring the stablecoin can be very expensive.

Source: @Paypal

Market Cap: Currently, PayPal’s issued stablecoin has a market cap of $270.37 million, ranking 13th among stablecoins. The total market cap of stablecoins is $170.2 billion, with PayPal’s stablecoin accounting for 0.15%. Tether holds the highest market share at 65.9%. This indicates that even with a payment giant entering the crypto industry, it’s challenging to quickly dominate the market due to late entry, involvement in fewer public chains, geographical restrictions, and limited use cases. However, PayPal is working to expand its application scope and has already launched on Solana. PYUSD aims to list on major exchanges to increase circulation and aims for compatibility within both Web3 and Web2 ecosystems.

source: @Defilama

4.2 Project 2: Mastercard - Peer-to-peer payment infrastructure

Mastercard has launched the Mastercard Crypto Credential, marking its first peer-to-peer pilot transaction in collaboration with exchanges. This feature allows users to use aliases instead of lengthy blockchain addresses during transfers. The new system aims to simplify cryptocurrency transactions for exchange users and provide a more user-friendly method for peer-to-peer transfers.

Pilot Scope: The pilot primarily focuses on Europe and Latin America, specifically including users from Argentina, Brazil, Chile, France, Guatemala, Mexico, Panama, Paraguay, Peru, Portugal, Spain, Switzerland, and Uruguay. These users will be able to make cross-border and domestic transfers across multiple currencies and blockchains. The choice of these locations for the pilot is mainly due to the relatively relaxed cryptocurrency environment in these countries and the significant demand for cryptocurrencies in Latin America due to currency devaluation.

Partner Exchanges: Exchanges such as Bit2Me, Lirium, and Mercado have already enabled real-time trading features.

Source: @Mastercard

How to use: Exchanges first conduct KYC according to the Mastercard Crypto Credential standards. At this point, users receive an alias to send and receive funds across all supported exchanges. When a user initiates a transfer, the Mastercard Crypto Credential verifies whether the recipient’s alias is valid and if the recipient’s wallet supports the digital asset and related blockchain. If the receiving wallet does not support the asset or blockchain, the sender is notified, and the transaction will not proceed, thus protecting all parties from potential loss of funds. Finally, the user enters the amount for the transfer and must input a mobile verification code to complete the transaction.

4.3 Project 3: Moonpay - on-off ramp payment infrastructure

Founded in 2019, MoonPay positions itself as the PayPal for Web3. It is now one of the few companies licensed and compliant across all states in the US through its MTL license, primarily serving as a cryptocurrency service provider focused on on-off ramp.

MoonPay enables developers to integrate its services into Web3-related applications by providing APIs and SDKs, establishing connections with centralized exchanges and wallets to offer on-off ramp services. Users can also purchase digital assets such as NFTs through the MoonPay app or various Web3 exchanges like Coinbase, OpenSea, MetaMask, and Bitcoin.com. To date, it has served over 15 million individual users.

Recent news indicates that MoonPay has been integrated into PayPal, allowing US users to purchase over 110 cryptocurrencies using their existing PayPal balance or debit cards.

• Funding History: The first round of financing raised $555 million, led by Tiger Global Management and Coatue Management, with a valuation of $3.4 billion. Notable investors include Justin Bieber, Maria Sharapova, and Bruce Willis, totaling 60 investors.
• Login Channels: MoonPay platform (KYC), partnered centralized exchanges, and wallet service providers (including MetaMask, Bitcoin.com, OpenSea, Uniswap, Sorare, etc.).

source: @Moonpay

• Business Scope

￮ On-off ramp services: MoonPay offers individuals the ability to buy or sell cryptocurrencies using fiat currencies. It provides on-ramp services for 126 cryptocurrencies with 34 fiat currencies in over 100 countries, and off-ramp services for 22 cryptocurrencies. Supported payment methods include credit and debit cards, bank transfers in euros, pounds, and dollars, as well as local payment options like PIX and Yellow Card.

￮ Cryptocurrency trading platform: MoonPay provides a secure, non-custodial cryptocurrency trading platform, allowing users to swap different cryptocurrencies without paying transaction fees. Users can connect their crypto wallets to MoonPay for cross-chain exchanges. As of April 2024, supported wallets include Trust Wallet, Ledger, MetaMask, Rainbow, Uniswap, and Exodus. In terms of deposits and withdrawals, MoonPay focuses more on connecting with large projects (such as exchanges and wallets) to drive user traffic through these platforms, whereas Alchemy Pay’s services emphasize expanding various local payment channels to enhance product localization.

￮ Enterprise-level cryptocurrency payments: MoonPay supports multiple payment methods for enterprise-level cryptocurrency transactions. Users can integrate APIs into their applications, with payment options ranging from credit cards like Visa and Mastercard to wire transfers and Apple Pay. MoonPay has a dedicated anti-money laundering monitoring system, fraud engine, and anti-fraud stack staffed by over 50 people, helping enterprise clients handle credit card refunds, fraud, and dispute issues.

￮NFT product related services:

  MoonPay Concierge Service: This premium service offers high-net-worth clients assistance in purchasing and hosting NFTs. MoonPay collaborates closely with partners like Yuga Labs to promote blue-chip NFTs such as BAYC and CryptoPunks and sell them to celebrity clients.

NFT Checkout: Through partnerships with platforms like OpenSea, Magic Eden, ENS, and Sweet.io, MoonPay offers services for buying and selling NFTs. Users can purchase NFTs using credit or debit cards, as well as payment methods like Apple Pay and Google Pay, without needing to buy cryptocurrency first.

HyperMint: A self-service infrastructure platform and Web3 API offered through a no-code platform, primarily for creators and brands. Users can:

i. Write, design, and deploy smart contracts

ii. Create, manage, mint, and sell tokens to end users

iii. Direct funds, royalties, and distribute NFTs at scale

• Moonpay’s business model:

￮ Transaction Fees, Service Fees, NFT Minting/Concierge Fees: MoonPay earns revenue by taking a percentage of total transactions. The main transaction types are buying and selling cryptocurrencies and NFTs, with service fees and transaction commissions for concierge services and NFT minting fees. The company charges a 4.5% fee for buying and selling cryptocurrencies via credit cards and a 1% fee for bank transfers (minimum $3.99), making it less friendly for small and frequent deposit/withdrawal users. For NFTs, it charges a 4.5% fee with a minimum of $0.50, with higher service fees for high-net-worth NFT users.

￮ Exchange Rate Spread: MoonPay generates revenue through the spread on exchange rates during users’ on-off ramp operations, as well as when buying or selling cryptocurrencies.

￮ API Integration Fees: MoonPay provides APIs that enable third-party platforms and developers to integrate cryptocurrency purchasing functions into their applications. MoonPay may charge these partners integration fees or subscription fees for accessing its APIs and utilizing its services.

4.4 Project 4: Alchemy Pay - payment solution provider

Alchemy Pay was founded in 2017 in Singapore as a cryptocurrency payment gateway serving both businesses and individual users. It supports payments in 173 countries, primarily focusing on Southeast Asia, which differentiates its service scope from that of MoonPay. Due to varying economic levels across Southeast Asian countries, the mainstream payment methods supported differ as well, leading to higher demands for aggregating payment options in different countries. Alchemy Pay provides a one-stop solution for payment-related services.

Recently, Alchemy Pay invested in LaPay UK Ltd, obtaining an authorized payment institution license regulated by the FCA. The company has also partnered with Hong Kong Victory Securities to offer virtual asset trading and consulting services, specifically targeting new Bitcoin and Ethereum spot ETFs. This demonstrates Alchemy Pay’s ability to respond to market trends and expand its services accordingly.

• Funding Background: Alchemy Pay completed a $10 million financing round at a valuation of $400 million, with participation from DWF Labs.
• Alchemy Pay’s Business:

a. On-off ramp of fiat currencies and cryptocurrencies:

Alchemy Pay provides channels for on-ramp, off-ramp, and purchasing cryptocurrencies. Currently, cryptocurrencies can be sold into bank accounts in over 50 fiat currencies. Compared to MoonPay, which is more popular in European and American markets, Alchemy Pay needs to integrate more payment channels in Southeast Asia and Latin America, where electronic wallet payments are more prevalent. This proactive approach aims to explore and improve user experience in developing countries. The client business mainly focuses on integrating APIs for DApps to facilitate on-off ramp services.

b. Payment gateway:

Alchemy Pay offers an enterprise-level payment gateway within a regulatory framework, providing online payment and banking solutions that allow traditional and Web3 businesses to manage multi-fiat currency accounts on the platform, facilitating conversions between fiat and cryptocurrencies. Both payers and receivers can choose to use cryptocurrencies or fiat currencies as payment methods. Additionally, Alchemy Pay offers customized cryptocurrency collection services for large enterprises.

Source: @Alchemy Pay

Personal payment: Supports all popular global and local payment methods, including debit cards, credit cards, bank transfers, mobile wallets, and more.

Source: @Alchemy Pay

c. Cryptocurrency card issuance technology solutions:

Alchemy Pay’s virtual card is a prepaid Mastercard, allowing users to directly top up dollars to the issuer’s virtual card using various cryptocurrencies.

• Currently supported currencies: USDT, USDC, ETH, BTC, and merchant platform tokens.
• Supported networks: TRC20, BEP20, ERC20, Solana, Bitcoin, Polygon.
• Currently supported card BINs: 558068 (Mastercard), 531847 (Mastercard), 404038 (Visa).

Source: @Alchemy Pay

Cooperation mode: The issuer collaborates with Alchemy Pay, which generates customized branded credit cards for merchants. Users can top up dollar amounts using USDT and platform tokens for spending, and they can instantly convert any remaining balance to a cryptocurrency wallet.

Usage Scenarios: The card can be used for purchases on all online platforms that accept Mastercard globally (such as Amazon, eBay, etc.) and can be linked with Apple Pay to facilitate in-store payments.

• Alchemy Pay’s business model

Transaction fees for personal and enterprise on-off ramp services, as well as the exchange rate spread for fiat and cryptocurrency conversions.

Integration service fees for APIs provided to physical and Web3 businesses.

Card issuance technology service fees.

Profit from platform tokens: $ACH.

• Project evaluation

In 2024, Alchemy Pay plans to strengthen its on-off ramp services, cryptocurrency card services, launch innovative Web3 bank accounts, and obtain necessary regulatory licenses.

In terms of licensing, Alchemy Pay aims to submit and obtain over 20 licenses globally this year, facilitating horizontal expansion geographically and deepening its business operations. Alchemy Pay has gradually expanded from Southeast Asia to Europe, currently applying for licenses in Singapore, Hong Kong, the U.S., the U.K., South Korea, Indonesia, Australia, and is seeking compliance certification in more regions through acquisitions or applications.

Thus, for payment service providers, the relaxation of global regulations, the gradual compliance of BTC, and the proactive acquisition of various business licenses in different regions are all highly favorable and crucial. Once payment service providers obtain licenses early on, they open up user access in that region, making it easier to acquire the most original and extensive business resources (serving both businesses and banks) and build consumer user recognition. With more resources and accumulation, it becomes easier to collaborate with traditional industries and Web3 projects requiring on-chain transaction needs, allowing for the expansion of various derivative payment services based on resource and user accumulation.

• Tokenomics

Source: @Alchemy Pay

Token usage:

Alchemy Pay’s token $ACH is a utility token that can be used to pay handling fees, corporate network fees, participate in Defi services, governance and other related purposes.

• Payment fee: Users can enjoy fee discounts when using $ACH to pay for transactions, and users can also receive rebates, discounts or other forms of incentives through the payment network.
• Enterprise payment network: Enterprises can receive enterprise transaction rewards based on their network size and transaction volume.
• DeFi rewards: DeFi participants can earn rewards through staking and other DeFi services.
• Governance: ACH holders can gain voting rights on key business decisions and protocol changes based on their holdings; ACH token holdings can be used to facilitate non-governance voting scenarios such as polls and promotions.

Token economics evaluation:

We can see from the economic tokenomics chart that approximately 77.7% of the total tokens have been released. Although there isn’t a chart showing the token release speed, based on the token allocation chart, we find that the seed round, backers, and IEO portions have all been fully released. This indicates that institutions in the private placement round (18%) may hold very low-cost tokens. Additionally, 40% of the tokens for early participants were distributed through mining rewards, which is a double-edged sword; a high percentage can encourage participation but may also lead to some selling pressure in the future.

4.5 Project 5: Bit.Store - Card Issuer

Bit.Store is a cryptocurrency payment card infrastructure solution. Initially, Bit.Store primarily operated as a cryptocurrency exchange platform for the Southeast Asian market, connecting with many large centralized exchanges for token trading on its platform. Recently, Bit.Store launched cryptocurrency payment cards, including virtual cards (denominated in USD) and physical cards (denominated in EUR), supported by Mastercard or Visa, with payment technology services provided by Alchemy.

• Licenses: Bit.Store currently holds multiple licenses, including the Hong Kong MSO license, US MSB license, European EMI license, Canadian MSB license, Indonesian trade license, and South American trade license. Its payment technology service provider, Alchemy Pay, also holds various local business licenses, facilitating its payment operations in multiple regions. Furthermore, Alchemy Pay has acquired a 15% stake in Bit.Store, primarily aiming to “fill gaps” and expand Alchemy Pay’s payment business in North America, Europe, and South America by leveraging shared licenses.
• Bit.Store Physical & Virtual Cards: While many card issuers primarily offer virtual cards, Bit.Store’s highlight is that its physical cards can be used for cash withdrawals at ATMs.

Source: @Bit.Store

In the case of Bit.Store, we can see that it conducts its business model by earning transaction fees, card fees, and exchange rate spreads. Its advantage lies in the Web2 payment channels, where, thanks to its diverse licenses across multiple regions, its physical cards connect to the widest range of traditional online payment channels (such as Apple Pay and PayPal). Additionally, it offers cash withdrawal services from physical cards that many card issuers cannot provide. In the Web3 direction, Bit.Store not only relies on large exchanges and custodial platforms to provide ample cryptocurrency liquidity but also actively engages in innovative collaborations with projects to launch co-branded cards based on trending narratives.

4.6 Project 6: Ripple - Payment network technology provider

Ripple is a fintech company whose innovative blockchain protocol, Ripple, aims to establish a decentralized ledger—Ripple Net—that allows banks and financial institutions to quickly and cost-effectively transact various assets globally, addressing the challenges faced by traditional banking systems in handling global transactions. Ripple Net is a distributed ledger that provides transaction transparency, immutability, and instant settlement. Its token is $XRP.

• Why Ripple Net is needed: Traditional banks’ problems handling cross-border transactions

In traditional banking systems, each bank maintains its own internal ledger, recording the debtor-creditor relationships with its customers. Transferring funds between customers within the same bank is relatively simple and quick, but transfers between different banks become complex, requiring trust relationships or third-party intermediaries to complete the transaction. This leads to slow transaction speeds, high costs, and a higher likelihood of errors.

Example: Suppose Customer A deposits $100 in Bank A in the U.S. and wants to transfer $50 to Customer B in Bank B in Indonesia. In a traditional banking system, this transaction might need to go through multiple intermediary banks, incurring high fees and taking several days to settle. However, through the Ripple ledger, Bank A in the U.S. can issue a $50 promissory note directly on the Ripple network, allowing for a fast, low-cost, and timely transfer of funds to Bank B in Indonesia.

• Solutions provided based on Ripple Net ledger innovation technology

a. xCurrent: xCurrent allows banks to send messages in real time, confirm payment details, and track payment progress, enabling end-to-end instant settlement.

b. xRapid: xRapid acts as a “liquidity assistant” for banks and payment providers. When there is a need to quickly convert funds between different currencies, xRapid helps them obtain the target currency at a lower cost and with extreme speed. It reduces the need to establish currency accounts in multiple locations by leveraging the liquidity of XRP.

c. xVia: xVia handles the remaining complex processes.

In summary, xCurrent serves as a bridge for interbank communication, xRapid acts as a liquidity accelerator, and xVia simplifies the payment process interface. Together, these three products form Ripple’s payment ecosystem, aimed at reducing the number of global payment intermediaries, speeding up payment times, lowering costs, and ensuring that the underlying decentralized network is more secure and transparent. Currently, over 100 banks, payment providers, exchanges, and businesses worldwide have joined Ripple Net, utilizing services such as real-time remittances, international P2P payments, electronic invoicing, global currency accounts, and real-time cash pools.

• Token Economics:

The supply of XRP is fixed at 100 billion tokens, with 20% owned by the token founders and 80% owned by Ripple itself, amounting to 80 billion tokens. Initially, 25 billion XRP were distributed and sold, while another 55 billion XRP were deposited into 55 smart contract escrow accounts, each containing 1 billion XRP tokens.

These contracts systematically release 1 billion tokens to the market each month over a total period of 55 months. At the start of the next unlock period, any unused XRP will be returned to the escrow accounts. During each transaction on the XRPL, a small amount of XRP is used as a transaction fee and burned, creating deflationary pressure. However, due to the low transaction fees, the deflationary pressure is minimal.

Source: TokenInsight

Token utilities:

a. Wallet reserve:

In the Ripple network, each account must hold a certain amount of XRP as a “wallet reserve.” This is to prevent network congestion and spam transactions, ensuring smooth network operation. The amount required for the wallet reserve is calculated based on the account’s activity level; for example, the more IOUs (i.e., debt certificates representing other currencies) an account holds, the higher the required wallet reserve.

b. Trust lines:

Trust lines establish a debt relationship between accounts in the Ripple network, allowing one account to borrow assets (such as USD, EUR, etc.) from another account. These borrowed assets exist as IOUs in the Ripple network. Setting up a trust line requires mutual agreement from both parties and is generally unrelated to XRP, although XRP can serve as an asset within a trust line.

c. Transaction fees:

When conducting transactions on the Ripple network, transaction fees must be paid in XRP. These fees are used to maintain the network’s operation, including the verification and recording of transactions. Ripple network transaction fees are relatively low, typically costing less than 1 cent per transaction, and transactions are very fast, averaging about 3 to 5 seconds. A portion of the transaction fees is burned, effectively reducing the total supply of tokens.

Evaluation:

The economic token distribution model and release speed chart for this project are not very healthy. First, a significant portion of the token release chart is held by the founders, accounting for about 20%. Secondly, a large portion of the total supply is concentrated in the top 100 wallets, indicating very high centralization.

According to the economic token release chart, the token is released very fast, with significant fluctuations, and the deflationary mechanism from burning transaction fees is not very effective. Another factor affecting the price of XRP is its ongoing legal dispute with the U.S. Securities and Exchange Commission (SEC). This lawsuit accuses Ripple Labs of conducting unregistered securities offerings, creating substantial uncertainty and risk for investors.

Despite some favorable rulings for Ripple, the unresolved status of the case continues to impact investor sentiment and contribute to market FUD. Only when its legal risks are resolved, the token’s actual use is put into operation, and more effective methods are implemented to improve its inefficient deflationary mechanism can its token value be better realized.

5. Regulation and Compliance

5.1 United States

Cryptocurrency regulation in the United States is composed of federal-level oversight by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), along with regulations from individual states. The U.S. has very strict requirements for AML, KYC, and investor protection, and in recent years, there have been frequent legal actions taken against cryptocurrency businesses. Although there is complexity due to federal and state-level regulations, with the approval of ETFs, the regulatory pathway for cryptocurrency is gradually becoming clearer, moving towards the center of the narrative.

5.2 Europe

The European Union has achieved unified regulation across its 27 member states through the Markets in Crypto-Assets Regulation (MiCA). All cryptocurrency asset service providers (CASPs) must obtain licenses as specified by MiCA, allowing them to operate throughout the EU via a “passporting mechanism,” effectively creating a large cryptocurrency market that spans 27 countries and 450 million EU residents.

Since registering a VASP license in one EU member state enables business operations across the entire EU, Lithuania, with its most lenient cryptocurrency regulations in the EU, has attracted many centralized exchanges and payment institutions to establish their registrations there.

5.3 Hong Kong

Cryptocurrency regulation in Hong Kong is jointly handled by the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority. The main types of licenses in Hong Kong include:

a. Virtual Asset Service Provider (VASP) license:

The VASP license is mainly applicable to virtual asset trading platforms.

Case: On May 26, 2024, OKX withdrew its application for a VASP license in Hong Kong and will stop providing centralized virtual asset trading services to Hong Kong users.

b. Virtual Asset Trading Platform (VATP) License:

These platforms usually allow users to buy, sell, exchange virtual assets and other trading services. Compared with the VASP license, the functions of this license are more focused on the functions of the transaction itself (trade matching and market making, order types, advanced trading tools, etc.).

Case: Gate.HK and OKX withdrew their applications for this license this year. The withdrawal of these exchanges’ applications reflects the exchange’s decision to respond to Hong Kong’s strict regulatory environment and adjust its business strategy.

c. Stable currency issuance license:

Regulated by the Hong Kong Monetary Authority, stablecoin issuers must hold reserve assets equal to their face value and provide regular reserve reports.

5.4 Dubai

Dubai has attracted international exchanges, blockchain technology companies and businesses providing payment services through its financial free zones and tax-free policies. Local cryptocurrency supervision is managed separately by the Virtual Assets Regulatory Authority and the Dubai Financial Services Authority. The licenses mainly include VASP licenses, investment tokens and encryption token licenses, payment service licenses, etc.

a. Virtual Asset Service Provider (VASP) license:

This license is applicable to companies that provide virtual asset-related services. The business mainly involves transactions, custody, payment, lending, etc., including safe custody of customer assets, internal control, AML and KYC compliance, regular reporting, etc.

Case: Binance has obtained a VASP license to provide a variety of services including spot trading, margin trading and staking products in Dubai.

b. Investment Token and Crypto Token License:

Regulated by the DFSA, it covers the issuance and trading of investment tokens and crypto tokens, ensuring compliance and transparency.

Case: Ripple’s $XRP is approved for cryptocurrency services at Dubai International Financial Centre.

c. Payment and Remittance Services License:

Mainly used for reception, transmission or transfer services of virtual assets.

6. Industry barriers and innovation trends

In different sectors of the crypto payment industry, the competitiveness of advantageous companies is reflected in the following aspects:

a. On-off ramp services:

In the field of cryptocurrency on-off ramp services, the increasing strictness of off-ramp compliance and anti-money laundering standards has made obtaining regional cryptocurrency licenses particularly crucial. For on-off ramp service providers, it is not only essential to find crypto-friendly partner banks and stable liquidity providers—especially after the collapse of banks like Silvergate Bank—but also to build a robust compliance system.

Given the regional nature of license acquisition, companies that can secure local operating qualifications more quickly through strategic partnerships, those that already have a foundation of payment licenses, and those that establish deep collaborations with crypto-friendly banks tend to demonstrate a stronger competitive advantage. Additionally, early market entrants also have the opportunity to benefit from the advantages of first-mover status.

b. Use cryptocurrencies to purchase goods or services in the real economy:

In the physical economy, the competitiveness of businesses using cryptocurrency to purchase goods or services primarily hinges on whether the company has strong brand influence, a wide network of payment partners, and deep integration capabilities with providers and payment platforms. Companies with a broad user base, especially those that have established brands in traditional payment fields, such as Visa and Mastercard, find it easier to gain the trust of non-crypto users due to their strong brand endorsement, technical processing capabilities, and ability to handle large volumes of transactions.

However, in the early stages of cryptocurrency payments, the users adopting this payment method are primarily Web3-native crypto users. Therefore, educating and marketing to enhance the awareness and trust of these users is crucial for leveraging the large non-crypto user base. This also provides a competitive edge for native crypto payment companies.

c. On-chain payment

The competitiveness of on-chain payments primarily stems from innovative blockchain technologies and their applications. For instance, on-chain identity aggregation technology enhances user privacy protection and security, allowing users to verify and use their identities freely across different platforms. Fund flow technology enables real-time movement of funds, providing innovative payment models for demand-driven and time-sensitive services.

The NFT Checkout service lowers the entry barrier for users into the NFT market through a simplified payment process, further promoting the adoption of crypto payments. As a result, native on-chain payment companies focus more on improving payment efficiency, reducing on-chain transaction costs, and enhancing user-friendly feature innovations.

7. Risks and Challenges

a. Complex global regulatory environment

Cryptocurrency regulations vary significantly from country to country, and companies need to comply with legal requirements in different regions. Regulations in the cryptocurrency field are still evolving rapidly, including new tax policies, anti-money laundering regulations and market conduct rules, high difficulty and slow speed of license application, etc., which increase the difficulty and cost of corporate compliance. For example, the EU’s MiCA regulations and the US federal and state regulations have different compliance requirements for enterprises and require a large amount of compliance resources.

b. Macroeconomic impact risk, systemic risk, and liquidity risk

￮ Macroeconomic impact

In some emerging markets and low-income regions, the widespread adoption of cryptocurrencies may weaken the effectiveness of monetary policy, which may lead to capital outflows and currency fluctuations in the local banking system, thereby affecting the stability of the financial system.

￮ Cybersecurity and technological innovation

Cryptocurrency trading platforms and wallets are at risk from cyberattacks. The complexity of blockchain technology and the irreversibility of transaction processing increase the difficulty of technology management. Once a mistake or hacker attack occurs, it is very difficult to recover the losses. Data security in the blockchain network still requires the investment of a lot of resources and advanced technology.

￮ Market volatility and liquidity risk

Following the collapse of exchanges such as FTX, crypto-friendly bank Silvergate Bank suffered severe outflows due to the bank’s over-reliance on cryptocurrency deposits, most of which were uninsured and did not bear interest. This over-concentration and rapid expansion of the business model brings multiple levels of financial risks. The collapse of the FTX exchange triggered a crisis of trust in the entire cryptocurrency market, and a large amount of funds were withdrawn from cryptocurrency-related financial institutions. However, with the BTC halving and the passage of the ETF spot, more regulators and funds are pouring into the market, which will help alleviate market volatility.

c. Fierce industry competition and financing

For traditional payment companies, user education will be a major issue, as many users fail to fully understand cryptocurrencies and the necessary knowledge to safely use cryptocurrency payment services. For Web3 native companies, it is essential to leverage their community foundation and the low educational cost of native crypto users, and continuously use innovative technologies, engaging narratives, and quality services to maintain market competitiveness. Securing investment from well-known institutions can also naturally attract more attention and traffic.

8. Summary

In recent years, traditional payment companies have increasingly ventured into Web3 payments, launching products such as stablecoins and peer-to-peer transaction infrastructures. The driving forces behind this trend include the high profit potential of the cryptocurrency industry, intense competition and high operating costs in traditional payment businesses, and the payment advantages brought by new technologies.

Web3 payment scenarios are diverse, ranging from individuals using services like MoonPay and Alchemy Pay for fiat and cryptocurrency on-off ramp services, to financial institutions conducting global fast and low-cost transactions on RippleNet, and to low-cost, varied on-chain payments accessible to everyone. These innovations not only enhance the transparency and efficiency of payments but also meet users’ demands for payment diversity and cross-border transactions.

Looking ahead, as more countries begin to regulate and legalize cryptocurrency payments, the adoption of crypto payments is expected to increase further. The development of blockchain technology and applications will further enhance the convenience, efficiency, and security of Web3 payment services.

As user and business acceptance of crypto payments rises, we can foresee that Web3 payments will become an integral part of daily payment methods, driving the global financial system toward a more decentralized, transparent, and efficient future.

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