jakiro
Author: Gate Research Institute
summary
● DeFi Summer Review and the rise of PayFi: In 2020, DeFi Summer was driven by innovative primitives such as AMM, decentralized lending, and income aggregators. TVL soared from $1 billion to $15 billion in several months, achieving explosive growth.Five years later, PayFi, as a new paradigm for on-chain payment finance, quietly emerged, aiming to apply blockchain technology to daily payments, emphasizing the accessibility and large-scale application of the network, indicating a new round of on-chain financial boom.
● PayFi’s core driving force and business model: PayFi’s core driving force is the time value of funds (TVM), which efficiently manages funds and generates returns through on-chain mechanisms.Its business model covers interest-generating payment tokens, RWA payment financing, and payment innovations that integrate Web3 with DeFi.
● The scale application and potential of stablecoins: As the core medium of PayFi, stablecoins have seen explosive growth in their application scale.As of June 2025, the global stablecoin circulation has exceeded US$240 billion, the monthly active address has exceeded 35 million, and the average daily payment has exceeded 40 million.The total transaction volume this year is close to US$20.5 trillion, which has significantly surpassed PayPal and cross-border remittance systems, surpassing Visa many times, becoming the second largest payment system after ACH.
● Global regulatory policies are gradually becoming clear: International organizations (such as FSB and BCBS) have proposed regulatory principles, and regional regulatory bills have been introduced one after another, such as the Hong Kong Stablecoin Bill, the EU MiCA, and the US GENIUS Bill, which have cleared policy obstacles for the compliance and mainstreaming of PayFi.
● Optimization of technology and user experience: Technical breakthroughs such as Layer 2 expansion (the average Gas fee is much less than US$1), account abstraction (AA) and cross-chain interoperability have greatly improved PayFi’s transaction efficiency and user experience, making its operation experience close to traditional Web2 applications.
● Economic incentives drive PayFi growth: The total market value of income stablecoins (such as USDY and sUSDE) has exceeded US$11 billion, and the cumulative income is issued exceeds US$600 million. By embedding asset income into the payment link, it achieves “payment and interest generation”.PayFi has significant advantages in cost and efficiency, such as the pilot of Celo and PayU reduces handling fees by 60%, and settlements are available in real time.
● The fundamental difference between PayFi and DeFi Summer: PayFi’s growth path is more stable, and its core driving force is practical application value rather than speculative high returns; the target users are the public rather than only encrypted native users; the capital structure is mainly based on long-term strategic capital; and it starts in a more stringent regulatory environment.PayFi’s “Summer” will be a moderate, lasting and profound innovation in payment infrastructure, rather than a bubble-like climax
1. Introduction
1.1 The horizon from DeFi Summer to PayFi
In the summer of 2020, DeFi (decentralized finance) ushered in explosive growth in the Ethereum ecosystem, launching an on-chain financial boom that is widely known as “DeFi Summer”.The movement redefined the possibilities of financial services with its exponential user growth, innovative financial primitives such as AMM, decentralized lending, income aggregators, and profound challenges to the traditional financial system.The core logic of DeFi Summer lies in its composability, that is, the superposition of Lego-style protocols, which has spawned unprecedented returns opportunities and liquidity mining boom, attracted a large amount of capital and developers to influx, and achieved a leap from concept to large-scale applications.
Five years have passed, DeFi has entered the stage of infrastructure optimization and application implementation from original accumulation, and stablecoins have become the anchor of core assets, and regulatory and compliance issues have gradually surfaced.At the same time, a new paradigm of on-chain finance with “Payment + Finance” as its core narrative is quietly emerging.PayFi focuses on applying blockchain technology to daily payment scenarios, intending to solve the pain points of the current payment system in terms of efficiency, cost, cross-border restrictions, and financial sovereignty.It not only focuses on the combination of financial protocols and capital efficiency, but also emphasizes the accessibility, availability and scale application of on-chain payment networks, and strives to expand Web3 services to a user group of billions and even billions.
This article aims to trace the explosion logic of DeFi Summer, systematically analyze the core concepts, protocol ecology, application scenarios and potential catalytic factors of PayFi, and explore whether it has the potential to trigger a new round of on-chain financial boom, “PayFi Summer”.Is PayFi Summer quietly brewing on the horizon of crypto finance?
1.2 Review DeFi Summer 2020: Change in Financial Paradigm
DeFi Summer is not an accident, but a historical synergy for years of technological accumulation, crypto culture and the evolution of financial needs.In mid-2020, DeFi protocols in the Ethereum ecosystem (such as Uniswap, Compound, Aave, etc.) quickly gathered capital, users and developers through a new incentive design, giving birth to an unprecedented on-chain financial experiment.
1.2.1 Core driving force: Composability × Income Farm × Liquidity Mining
Composability: One of the key innovations in DeFi is the seamless combination of modular protocols.Users can freely shuttle and superimpose assets in multiple protocols. For example, users stake ETH to Compound to lend DAI, and then optimize profits through Yearn.finance, which deploys these DAIs to Curve Finance’s stablecoin pool.This “protocol stack” model has greatly improved capital efficiency and financial innovation speed, forming a strong network effect.
Yield Farming: One of the firing points of DeFi Summer was Compound’s liquidity mining launch in June 2020, which surged from $1 billion to $15 billion in just a few months (end of 2020).Users can receive additional token rewards in addition to interest or transaction fees by providing liquidity or borrowing assets to the agreement.These protocol tokens (such as COMP) usually carry governance rights and have transaction value in the secondary market.Through multi-layer arbitrage and circulation strategies, income farms have pushed capital efficiency to the extreme, attracting a large amount of speculative and long-term capital to enter.
Figure 1: DeFi TVL from 2018 to 2020
Liquidity Mining: As a specific manifestation of income farms, liquidity mining encourages users to inject assets into liquidity pools of decentralized exchanges (DEXs) such as Uniswap and SushiSwap in exchange for transaction fees and additional governance tokens.This mechanism solved the problem of insufficient liquidity in early DEX, which led to rapid increase in decentralized trading volume and gave rise to the popularity of the AMMs (automated market maker) model.
1.2.2 Structural Heritage: Decentralization, Inclusion and New Financial Principles
The influence of DeFi Summer goes far beyond the brief market craze.It leaves behind a profound and lasting legacy:
● Feasibility verification of the decentralization of financial services: The DeFi protocol demonstrates the possibility of implementing complex financial functions such as lending, trading, and insurance without a central organization, challenging the logic of traditional financial intermediary and accelerating the exploration of decentralization and infrastructure reconstruction.
● Progress in financial inclusion: In theory, any user with an Internet connection can access DeFi services without thresholds, skipping traditional financial barriers such as KYC and credit ratings, and providing a path for financial participation to billions of “unbanked” or “underbank services” users around the world.
● Primitive innovation: A series of underlying financial primitives such as AMMs, flash loans, income aggregators, liquidity guidance mechanisms, etc. have been created and widely adopted, bringing new structures and boundaries to the design of financial products.
●On-chain transparency and data traceability: All DeFi operations are recorded in the public blockchain, greatly improving the transparency and auditability of financial activities, and opening up space for on-chain data analysis and strategy execution.
● Developer dividends and ecological explosion: DeFi Summer has attracted a large number of developers to enter the Web3 field, giving birth to rich middleware, interface tools, security frameworks and asset standards, laying the foundation for the subsequent multi-layer ecological prosperity.
However, DeFi Summer also exposed systemic shortcomings: such as high gas fees, network congestion, complex user experience, regulatory uncertainty, and frequent smart contract security incidents.Although these problems once restricted their scale expansion, they also indirectly promoted the rapid development of infrastructure such as Layer2, cross-chain bridges, and modular design, and provided conditions and inspiration for the implementation of narratives such as PayFi that pays more attention to “availability”.
2. What is PayFi?
If DeFi Summer focuses on rebuilding traditional financial services on blockchain, then PayFi (Payment Finance) is going further and committed to deeply integrating DeFi’s efficiency, transparency and global accessibility into daily payments and commercial settlements, thus opening up a new financial paradigm.
2.1 PayFi Overview
PayFi (Payment Finance) is a blockchain application model that deeply integrates payment functions and financial services. It is not limited to cryptocurrency payment, but uses blockchain technology to seamlessly integrate sending, receiving and settlement processes with lending, financial management, cross-border transfer and other services. It aims to build an efficient, low-cost and programmable payment financial system and promote the formation of a new financial value chain.
2.1.1 The core driving force of PayFi: Time Value of Money (TVM)
PayFi’s theoretical basis comes from the core financial concept of “monetary time value” (TVM): that is, funds are more valuable in current time than in the future because they can be invested immediately and generate returns.Lily Liu, chairman of the Solana Foundation, first proposed the PayFi concept in 2024, noting that the market is built around TVM.
PayFi uses an on-chain mechanism to realize dynamic management, investment and reuse of funds with extremely low costs and extremely high efficiency, not only significantly improving capital efficiency, but also provides a feasible path for complex financial applications such as on-chain credit, installment payments and automated investment.
2.1.2 The evolution and core features of PayFi:
The evolution of PayFi is traceable: from the preliminary exploration of on-chain stablecoins and native payments from 2018 to 2020, to the rise of RWA and off-chain revenue pledges from 2021 to 2023, to the formal proposal of the PayFi concept in 2024, it is becoming a new direction for developers and capital to focus.
The core features of PayFi include:
● Close to instant settlement: significantly shortens capital turnover time.
● Low-cost cross-border payment: Reduce intermediate links and improve efficiency.
●Security and transparency: Transaction records cannot be tampered with, enhancing trust.
● Real-time liquidity and financing: Use the time value of funds to realize instant utilization of future cash flow.
● Deep integration with RWA: Introducing real assets into on-chain payments to provide stable returns.
● Inclusiveness: Provide opportunities for people around the world who are not covered by traditional financial services.
2.1.3 PayFi’s four business models
1. Payment tokens themselves are in an interest-generating manner: Use tokenized US bonds or interest-generating stablecoins to capture the time value of the currency and improve capital efficiency (such as Ondo Finance’s USDY).
2. Payment scenario financing RWA: Use DeFi lending funds to solve financing needs in real payment scenarios and realize the on-chain payment financing rate (such as Huma Finance).
3. Web3 payment innovation business integrating DeFi: combine DeFi revenue with Web3 payment to create a novel payment model (such as the “buy but don’t pay” model, using DeFi revenue to cover payment fees; or Web3 banking models such as Fiat24; and Cash business of crypto payment cards such as Ether.Fi).
4. Traditional payment process on-chain: Tokenize and move the entire payment scenario and business process to the chain to capture the time value of currency in real-world payments more efficiently.
PayFi essentially reconstructs the value transfer behavior of “payment”, and is no longer limited to transaction matching in DeFi, but focuses on the overall optimization of on-chain capital flow, settlement and asset efficiency.
2.2 Current status of PayFi development: Accelerated evolution from concept to multi-level infrastructure ecology
With the growing demand for on-chain payments and financing, PayFi has rapidly evolved into one of the most growth-potential infrastructure directions in Web3.The “PayFi Stack” systematized by Huma Finance for the first time has built a six-layer module architecture similar to the OSI model. Each layer has clear functions to jointly support the implementation of an efficient, programmable and compliant payment finance ecosystem.
Figure 2: PayFi Ecological Map
2.2.1 PayFi stack six-layer structure: modular collaboration blueprint
● Transaction Layer: High speed and low cost are the basis of on-chain payment.High-performance blockchain networks such as Solana and Stellar provide a strong infrastructure for PayFi.Solana implements a priority fee mechanism, develops QUIC protocols and equity-weighted QoS to further improve transaction throughput and fairness; Stellar maintains decentralization and efficiency balance in cross-border payments with the SCP consensus algorithm.
● Currency Layer: Stablecoins are the “universal payment medium” of PayFi.USDC, PYUSD, Tether, etc. are supported by cash and US bonds, which are both stable and compliant; emerging projects such as Mountain and Agora provide customized solutions for needs such as micro payments and regional supervision.Infrastructures such as Bridge that supports multi-chain migration, Paxos that focuses on compliance and transparency, and Perena that focuses on dynamic staking mechanisms continue to enhance the scalability and security of the monetary layer.
● Custody Layer: Ensuring asset security is the core foundation of the financial system.Fireblocks and Ledger provide institutional-level custodial services such as MPC and multi-signature; non-custodial wallets such as Phantom and Squads meet the needs of individual users to control their assets independently; Cobo also supports dual-track custodial and non-custodial solutions to ensure that users of all types of funds can safely access the PayFi network.
● Compliance Layer: Regulatory compliance is the key guarantee for promoting mainstream adoption.Chainalysis and TRM Labs provide powerful on-chain risk identification and anti-money laundering tools; Polyflow embeds compliance logic into the hosting architecture, promotes the deep integration of on-chain services and regulatory requirements, and provides institutional users with a trusted foundation for compliance.
● Financing Layer: The core of payment financing innovation.The PayFi network built by Huma Finance realizes financing based on future accounts receivables; Credora provides decentralized credit assessment to improve credit transparency; Python Network and Chainlink provide accurate oracle services, providing exchange rates, asset pricing and reserve proofs in real time; S&P Global enters tokenized ratings, providing traditional credit extensions to the financing market.
● Application Layer: From DePIN to cross-border payments, real-life applications have reached a scale.Visa, Reap, DCS, etc. promote the popularization of crypto payment cards; DeCharge and Roam lead the construction of decentralized infrastructure; Jia and BSOS focus on the on-chainization of trade financing; Helio, Sphere, and Request provide programmable payment interfaces; Onafriq, Arf, Bitso, etc. lower global remittance thresholds and settlement delays, giving PayFi the momentum of globalization.
The “Open PayFi Stack” built by Huma Finance provides an open blueprint for the entire ecosystem.Compared with the closed platform of the traditional financial system, PayFi’s modular architecture encourages more projects to carry out professional innovation around different functional levels and form a diversified collaborative system:
● Traditional/crypto giants such as Visa, Solana, and Circle promote the integration of basic layer protocols;
● Fireblocks, Ledger, Chainalysis and other service providers will build a security and compliance foundation;
● Entrepreneurship teams such as Jia, Arf, and Reap focus on rapid verification of niche scenarios;
● The ecological map is constantly expanding, gradually forming a multi-path implementation pattern represented by DePIN, stablecoin payment, and financing tools.
2.2.2 PayFi Practical Trends and Representative Cases
With the gradual maturity of underlying infrastructure (such as stablecoins, Layer 2, and interoperability protocols), PayFi is moving from narrative concepts to real applications. The core value lies in improving payment efficiency, optimizing fund use efficiency, and opening up Web3 and real-world fund flows.Its implementation process shows three major integration trends:
●Web3 payment upgrade: From “on-chain payment” to “on-chain intelligent scheduling of funds”, that is, not only for settlement, but also capture asset returns and flexible combination strategies.
● DeFi tools realistic embedding: With the help of lending and income mechanisms, it provides users with “invisible cost coverage” and “revenue compensation” capabilities.
● RWA module empowerment: through tokenized treasury bond and payment financing structure, it provides stable anchorage, source of income and collateral assets for transactions.
Figure 3: PayFi fusion trend
The following three types of innovation paths and representative cases constitute the mainstream direction of PayFi’s current implementation:
1. Tokens are payment mediums: “yield stablecoins” that capture the time value of currency
Against the backdrop of high interest rates, tokenized products with US bonds as the underlying layer have become a new generation of payment media.This type of token can not only stably denominate the US dollar, but also produce sustainable returns. Its essence is to encode the “time value of currency” into payment assets.
Case | Ondo Finance: USDY, payment stablecoin with embedded income
Ondo Finance is committed to uplinking U.S. Treasury assets.One of its core products, USDY, is an interest-generating stablecoin designed for non-U.S. residents and institutional investors around the world, providing a US dollar-denominated and profit-generating alternative to stablecoin.
As of June 2025, USDY’s total locked value (TVL) has exceeded $680 million.Its biggest feature is that it can automatically accumulate daily income, with the stability of US dollars and interest returns.USDY’s annualized income reference guaranteed overnight financing rate (SOFR), with a current annualized return (APY) of approximately 4.29% after deducting approximately 0.5% of administrative expenses.
USDY can be converted into a stable value token with rebase function rUSDY.For users who hold rUSDY, the number of tokens will automatically increase with the increase in returns. This mechanism is similar to Lido’s stETH and can more intuitively reflect the increase in returns.
In addition, USDY has good composability and has been connected to eight blockchain network ecosystems such as Ethereum and Solana as a loan collateral, becoming one of the most realistic and penetrating basic payment tokens in the PayFi ecosystem.
2. Payment financing RWA: On-chain funds support real transaction needs
Payment financing (such as credit card settlement, trade credit, advance payment, etc.) is the blood of traditional financial transactions.PayFi integrates RWA mechanism and uses DeFi lending funds to connect to payment financing scenarios, “moving short-term, high-frequency and predictable capital needs” onto the chain, taking into account liquidity, security and yield.
Case | Huma Finance: On-chain support offline payment financing
Huma Finance has built an RWA market for financing real payment scenarios, focusing on cross-border advance funding, supply chain finance and other scenarios.Its core path is:
● Raise on-chain capital: funded by DeFi investors;
●Serving offline merchants: used to support the cross-border advancement and payment needs of small and micro merchants;
● Structured return path: Provide investors with stratified returns from low-risk (trade credit) to medium-high-risk (merchant loans).
This type of payment financing asset has a short flow cycle and a low default rate, which is an ideal on-chain bond form.Through projects such as Huma, PayFi is no longer just a “settlement means”, but also a “financing tool”, expanding the boundaries of DeFi in the real world.
3. Native payment convergence between Web3 and DeFi: Income-driven payment paradigm
In the Web3 scenario, PayFi innovators are exploring the “earnings payment model”: users do not need to pay cash, but authorize their DeFi income to automatically deduct transaction costs.This not only reduces the actual burden on users, but also builds new payment models such as “streaming payment” and “revenue payment”.
Case | Fiat24: On-chain banking protocol connects real-world fiat currency payments
Fiat24 is an on-chain banking agreement deployed at Arbitrum, licensed by Swiss regulatory authorities and provides services including savings, transfers, fiat currency exchange, lending and securities investment.The core of its model is:
● “Fire Currency Agreement Layer”: As the compliant fiat currency payment interface of DApp, it connects the on-chain DeFi and off-chain banking system;
● DeFi call payment service: Support on-chain protocol call Fiat24 to initiate operations such as US dollar lending, asset redemption, fiat currency securities investment;
● Strong composability: build a general banking service interface to open up the payment/financial closed loop of the encrypted world and the real economy.
Case | Ether.Fi’s Visa Crypto Card: Use pledge income to deduct consumption
Ether.Fi focuses on Ethereum staking and liquidity re-staking. The Cash card it launched builds a “revenue payment” model by integrating Visa network and DeFi revenue logic:
● The user pledges/re-polates ETH to generate income;
● Use this income to exchange USDC for recharge within the card;
● When using a card to consume, you do not need to sell assets or exchange fiat currency, and realize the three-fold experience of “staying a position + consumption + income deduction”.
This model effectively reduces payment friction among crypto users, avoids the bottleneck of fiat currency exchange supervision, and provides PayFi users with a coordinated path of asset compound interest and consumption freedom.
3. The key catalyst that gave birth to “PayFi Summer”
The explosion of DeFi Summer is the result of the superposition of multiple factors such as technological maturity, user demand and speculative boom.For PayFi, whether it can usher in a similar “Summer” depends on the combined action of a series of key catalysts.These catalysts cover the macro regulatory environment, underlying technology evolution, user experience optimization, and market economic incentives.
3.1 The large-scale application of stablecoins and the release of policy windows
The rise of any large-scale payment system is inseparable from efficient and stable value transmission media and powerful underlying infrastructure.In the PayFi system, stablecoins are not only payment tools, but also key bridges connecting traditional finance and the on-chain world, and are also the core prerequisite for realizing daily payment functions.
3.1.1 The scale of stablecoin usage explosive growth
As of June 2025, global stablecoins (tokenized currencies) have exceeded US$240 billion in circulation, with USDT and USDC dominating.The number of stablecoin users continues to grow, with monthly active addresses exceeding 35 million, almost doubled from 2023.In 2025, the average daily payment number of on-chain stablecoins has exceeded 40 million, and compliant stablecoins such as USDC, USDT, and PYUSD are becoming the default payment options for enterprises and users.Traditional payment giants such as Visa and PayPal have been connected to the on-chain settlement system, further improving the acceptance of off-chain merchants for stablecoins and forming a real closed-loop of capital flows.
Figure 4: Daily transactions of stablecoins
As of June 25, 2025, the total volume of stablecoin transactions this year has approached US$20.5 trillion, approaching US$31.1 trillion of the full-year transaction volume in 2024, which is much higher than the total volume in 2023 (about US$10 trillion).It is worth noting that although USDC’s market value is less than USDT, it accounts for a higher proportion of on-chain transfer transactions (54.5% vs 37%), indicating that USDC is more commonly used in high-frequency, large-value payment and settlement scenarios, especially highly consistent with PayFi usage requirements.
Figure 5: Monthly trading volume of stablecoins
According to Artemis data (30-day rolling average adjusted trading volume excluding MEV activity and centralized exchange internal settlement), stablecoin trading volume has been increasing exponentially since mid-2020.It has continued to rise since 2022, up about 2.5 to 3 times from October 2022 to mid-2024.The adjusted stablecoin transaction volume has significantly surpassed PayPal and cross-border remittance systems, surpassing Visa many times, and even approaching the transaction volume of ACH, becoming the second largest payment system (by transaction volume) after ACH.
Figure 6: Stablecoin trading volume vs other financial systems trading volume
At present, PayFi DApp’s currency layer is mainly built on USDC and supports both PYUSD and USDP.In the future, PayFi plans to further integrate non-USD stablecoins such as USDT, USDM, EURC, XSGD, GYEN, HKDR, etc. to enhance the accessibility of cross-border payments and expand the scope of application of international transactions and fiat currency settlement.
Infrastructure providers such as Portal and Perena focus on asset management of stablecoins.Portal aims to connect traditional finance with decentralized finance, providing users with efficient and secure stablecoin transaction support.
3.1.2 The window for global stablecoin regulatory policy is released
As the core payment medium of PayFi, the compliance and clear regulation of stablecoins are the key prerequisites for its large-scale implementation.With the accelerated advancement of stablecoin applications, major global regulators are actively promoting the research and legislation of the operating framework.
At the international level, standard-setting agencies such as the Financial Stability Commission (FSB) and the Basel Banking Regulatory Commission (BCBS) have proposed a series of global regulatory principles.For example, the Global Stablecoin Arrangements policy recommendations issued by FSB clarify the basic requirements for stablecoins in redemption mechanism, governance structure, liquidity management, etc.BCBS sets prudent regulatory standards for crypto assets held by banks (including stablecoins).Stable coins that meet certain conditions can be classified as “Top 1b crypto assets” and enjoy relatively loose capital requirements.This standard requires that stablecoins must be fully supported by high-quality, liquid reserve assets to ensure sufficient redemption capacity even in extreme market environments.
In terms of regional supervision, Hong Kong officially passed the “Stablecoin Bill” on May 21, 2025, establishing a fiat currency stablecoin issuance license system.This marks the Hong Kong regulatory framework from preventing risks to encouraging innovation, and will provide clear operational guidance for compliance projects such as PayFi.
In the EU, the Crypto Asset Market Supervision Act (MiCA) has come into effect in 2024, setting complete regulatory requirements for the issuance, reserves, governance and transparency of stablecoins.The implementation of MiCA provides compliance guarantees for stablecoin applications in the EU and is expected to promote the rapid expansion of PayFi in the European market.
The United States also passed the GENIUS Act on June 17, 2025 with a 63:30 vote.This is the first bill in the United States to establish a federal regulatory framework for stablecoins, filling the previous gap in the regulatory framework for stablecoins, releasing a strong compliance signal, and clearing policy obstacles for mainstream financial institutions to enter the stablecoin field.
As the regulatory environment gradually matures, PayFi-related businesses (such as stablecoin exchange, decentralized payment gateway, and on-chain remittance services) will gradually obtain a clear licensing framework and compliance support.This will significantly reduce operational risks, prompt more licensed institutions and large technology platforms to join the ecosystem, thereby promoting PayFi to accelerate its progress towards mainstream payment systems.
3.2 Technology breakthroughs and user experience enhancement
Similar to DeFi, the explosion of PayFi also requires technical breakthroughs and ultimate optimization of user experience to be driven together.New paradigms such as high-performance chains, account abstractions, and interoperability protocols have opened up new possibilities for Web3 payments.
3.2.1 Scalability breakthrough
●In the past few years, Ethereum Layer 2 and emerging public chains have made significant progress in transaction throughput and fee optimization.These L2 networks have carried a large number of DeFi activity, and the maturity of their infrastructure has laid a solid foundation for high-frequency, low-cost PayFi applications.Except for Tron and Ethereum mainnets, the average Gas fee for other mainstream L2 networks is much less than $1, significantly reducing user transaction costs.
Figure 7: Average daily Gas fee for chain
● Rollup-as-a-Service (such as Conduit, AltLayer) simplifies the Rollup deployment process and facilitates customized payment applications to run on the exclusive chain.
● Modular blockchains (such as Celestia) realize the separation of the execution layer, consensus layer and data layer, providing more flexible architectural support for large-scale payment applications.
3.2.2 Wallet Experience Upgrade
●Account Abstraction (AA): supports functions such as Gas payment, social recovery, multi-sign control and session key, greatly reducing the threshold for users to enter.Uniswap’s launch of AA smart wallets is exactly what this trend represents.
● Embedded wallet and MPC technology: Users can complete payment without leaving the application interface, taking into account convenience and asset management.
●Web2 interface design: PayFi applications are evolving towards “using without understanding blockchain”, with simplified payment processes, intelligent paths, and experiences approaching WeChat Pay or Apple Pay.
3.2.3 Cross-chain interoperability: breaking the liquidity island
●The maturity of cross-chain protocols such as IBC and CCIP allows value to flow freely among multiple chains;
● Cross-chain asset standardization promotes the unification of payment scenarios;
● Users can switch payment environments without any sense between different public chains or Layer 2, greatly improving payment experience and capital efficiency.
3.3 Web2 integration and mainstream user adoption
To truly usher in “PayFi Summer”, PayFi must break out of the encrypted native circle, deeply integrate the Web2 world, and achieve extensive connection and interaction with mainstream users.
3.3.1 The strategic entry of traditional payment giants
● PayPal introduces PYUSD: PayPal has issued the official stablecoin PYUSD and plans to deeply integrate it into the global payment network, including Venmo and Hyperwallet, covering 200,000 merchants for cross-border and B2B payments.
● Stripe cooperates with Bridge: In 2024, Stripe acquired Bridge, a stablecoin payment platform, and the transaction volume has reached the $5 billion level, indicating its firm investment in stablecoin payments.
● Visa and Mastercard are gradually making arrangements: Visa supports banks to issue stablecoins through the VTAP platform; and Mastercard is cooperating with Fiserv to promote the integration and use of FIUSD, covering 150 million merchants around the world.
With their huge user base, mature merchant network and compliance experience, these traditional payment giants will significantly accelerate PayFi’s penetration in mainstream markets.
3.3.2 In-depth participation of banks and financial institutions
● Fiserv, Circle and PayPal collaborate: This year Fiserv jointly launched the FIUSD program with Solana, Circle and PayPal, providing stablecoin services to more than 3,000 regional banks and their millions of merchants.
● Several banks (such as Bank of America, Standard Chartered, and Revolut) are developing their own or cooperative issuance of stablecoins to promote the further integration of on-chain payment infrastructure and traditional finance.
The participation of these financial institutions not only broadens the fiat currency channel, but also enhances PayFi compliance and access convenience.
3.3.3 Asset tokenization drives payment demand
As physical assets such as real estate, bonds, and stocks accelerate tokenization, demand for on-chain holdings and transactions has surged.This directly amplifies the need for efficient, programmable on-chain payment and settlement systems.Currently, the total value of on-chain RWA (real world assets) has exceeded US$24.5 billion, and the total number of asset holders has exceeded 200,000.At the practical application level, PayPal cooperated with EY (EY) to use PYUSD to conduct B2B enterprise-level settlement; and after Stripe acquired Bridge, its stablecoin payment service has been launched in more than 70 countries around the world, aiming to meet the cross-border transaction needs of global merchants.
Figure 8: Total RWA value on the chain
This series of phenomena shows that when assets are put on the chain, the basic payment mechanism must be upgraded to adapt to new usage scenarios and large-scale needs.PayFi has a natural advantage in this trend and can provide a protocol-based payment infrastructure.
3.4 Economic incentives and network effects
Economic incentives are the core driving force for the explosion of DeFi Summer. If PayFi wants to quickly and coldly start the network effect, similar incentive designs are also indispensable.
3.4.1 Income capture path in payment
In the traditional payment system, users are often just “cost bearers”; while in the PayFi model, stablecoins held by users can generate returns before payment, effectively improving the efficiency of funds and retention.
According to the report of Gate Research Institute, “Gate Research Institute: In-depth Analysis of Stablecoin Alpha Income Strategy: Capture Logic and High-yield Operation Path”, as of Q2 2025, the total market value of “yield stablecoins” such as sUSDE, USDY, sUSDS, and USDL has exceeded US$11 billion, and the main sources of income cover RWA US bonds (4%-5.5%), lending market (2%-8%), and market neutral arbitrage (5%-20%+) and other strategies:
● sUSDE (Ethena) generates an annualized return of about 7.39% through perpetual contract hedging, which can reach 9%-11% after adding ENA airdrop;
● USDS (Sky Protocol) obtains a maximum reward of 14.91% through the SSR savings mechanism and SKY staking, and the combined SparkFi airdrop strategy further enhances returns;
● USDY (Ondo Finance) is backed by short-term US bonds, with a basic APY of about 4.29%, and the total income through DeFi pledge and revolving lending strategies can reach 12%-17%.
Figure 9: The yield range of the yield stablecoins
This type of “interest-on-use” stablecoins provide clear economic incentives for PayFi users and effectively enhance their willingness to use them; the cumulative revenue of distribution has exceeded US$600 million.Typical scenarios for using income are: after users bind a PayFi wallet on an e-commerce platform, they can pledge the stablecoin to the liquidity pool in advance, and the intraday income will automatically accumulate; when paying, the agreement will unlock funds immediately and complete the deduction, ensuring that the income will not be interrupted.This mechanism of “paying while raising interest” is becoming a new paradigm for stablecoin circulation.
Figure 10: Cumulative income issuance of income stablecoins
In addition, to promote merchant access, multiple agreements provide incentives through subsidies, cashbacks and airdrops:
● Checkout.com + USDC linkage: Checkout.com, a USDC settlement service launched in cooperation with Fireblocks, has helped merchants complete transaction volume of more than US$300 million during the pilot period, supporting “24/7” uninterrupted settlement (including weekends and holidays), greatly improving the efficiency of capital flow.
● Flexa Network: Provides a transaction cashback mechanism for merchants and enhances participation motivation through the AMP mortgage model.
Further, the PayFi protocol is actively exploring the “Pay-to-Earn” model, using token release to drive early transaction activity, repeating the cold start logic verified by “transaction mining”.
In terms of developer incentives, some protocols introduce API distribution and data rebate mechanisms:
●Superfluid + Safary: Each stream payment transaction is combined to obtain a revenue share of 0.1%-0.3%;
● Paymagic SDK: Opens the traffic and payment data reflow interface, supports the profit sharing function, and has been integrated by hundreds of wallet plug-ins.
This series of mechanisms jointly promotes the construction of modular and composable payment infrastructure and builds a positive cycle of developer ecosystems with continuous attractiveness.
3.4.2 Reduce costs and improve efficiency: direct benefits of merchants and users
PayFi protocol has significant advantages over traditional payment methods in terms of cost structure and settlement efficiency, and is especially suitable for high-frequency small-value transaction scenarios such as micro-payment and cross-border settlement.
Figure 11: Settlement fees and cycles for different payment channels
For example: In the pilot cooperation between Celo and PayU in Latin America, e-commerce merchants saved more than 60% of the handling fee through stablecoin payments, and the settlement cycle was shortened to real-time arrival.In addition, Arbitrum’s average batch payment fee is less than $0.02 per transaction, which is very suitable for distribution payment needs such as advertising alliances and freelancing.
PayFi’s economic incentive logic is building a sustainable growth flywheel: high-yield → user growth → merchant access → network activity → developer ecology → continuous incentive → network effect enhancement.By designing a three-dimensional incentive system for users, merchants and developers, PayFi is leveraging the maximum network growth effect with extremely low incentive costs, becoming the core pillar of the new round of on-chain economic infrastructure.
4. Comparative analysis: PayFi and DeFi Summer—Different paths to “Summer”
The gradual clarity of the regulatory framework has cleared obstacles for the entry of financial institutions and payment giants. The maturity of underlying technologies has greatly reduced the entry threshold between users and merchants, and the deep integration of Web2 has brought about millions of potential users.These key catalyst interactions form a powerful flywheel that drives the rise of PayFi.As conditions continue to ripen, the so-called “PayFi Summer” may come naturally and become an important leap node for the Web3 world to connect to the real economy.
Although PayFi and DeFi both represent the wave of blockchain financial innovation, they have significant differences in their rise in context, internal driving forces, market environment and user base.Through comparative analysis, we can more clearly grasp PayFi’s development path, potential and boundaries and judge whether it has the market potential to ignite DeFi Summer.
Figure 12: DeFi Summer vs. PayFi Summer
4.1 Similarities between growth trajectory and innovation cycle
PayFi and DeFi Summer show several commonalities in their development path, which may herald similar evolutionary logic:
● Technology-driven innovation explosion: The arrival of the two “Summers” is inseparable from the maturity of underlying technologies.DeFi Summer relies on the programmability of Ethereum smart contracts, AMM mechanism and the emergence of early oracles; PayFi Summer relies on the compliance issuance of stablecoins, the efficient expansion capabilities of Layer 2, and the progress of cross-chain interoperability technology to promote the implementation of high-frequency and small-value payment experiences.
●The evolution of new financial primitives: DeFi Summer has given birth to a series of new financial primitives such as income farms, flash loans, and decentralized lending pools.PayFi is also developing its unique primitives, such as Streamed Payments, programmable settlement, on-chain identity and reputation systems, which are innovations that traditional payments cannot match.
● “Experience” in the early stages: Before large-scale adoption, both DeFi and PayFi went through an experimental stage dominated by crypto-native developers and early adopters.PayFi is now in a similar stage, with various innovative payment solutions emerging one after another, but it has not yet been fully popularized.
● The potential power of network effect: The PayFi protocol that successfully attracts early users will theoretically attract more users by reducing costs, improving efficiency and providing incentives, forming a strong network effect, just like the DeFi protocol.
● Challenges to the existing system: DeFi mainly challenges centralized lending and asset transactions, while PayFi is more infrastructure-oriented and tries to replace interbank clearing and global payment systems.
4.2 Key differences between market dynamics, users and capital structure
Although PayFi and DeFi have certain commonalities in their development paths, they show fundamental differentiation in key variables such as the nature of driving forces, target user structure, and capital support model, which determines their respective evolutionary rhythms and growth boundaries.
Driver: Speculative orientation vs. Practical pull
● DeFi speculation first, practicality follows: The explosion of DeFi Summer mainly relies on the strong speculative incentive mechanism driven by high returns in liquidity mining and governance token airdrops, attracting users to pursue short-term excess returns while bearing the risk of smart contracts and impermanent losses.Only after the user base and asset pool gradually settled, DeFi gradually showed its underlying financial value in the fields of transaction matching, lending and clearing.
● PayFi comes first, and incentives are supplemented: The core driving force of PayFi is to solve the actual pain points of the traditional payment system, focusing on reducing transaction costs, accelerating settlement speed and improving global accessibility.User needs are essentially oriented to “use value” and have rigid characteristics, so their growth path is more stable and sustainable, although lacking DeFi-style
The “wealth effect” that explodes in the short term, but has a solid foundation for long-term expansion.Although some PayFi protocols will also design token incentives to promote early adoption, the overall proportion of incentive mechanisms is far less than that of DeFi, and focus more on auxiliary guidance.Therefore, PayFi’s user growth depends more on the actual utility and user experience of the product itself, rather than the speculative boom driven by capital.
User structure: Encrypted native vs mass consumption
● The main user group of DeFi Summer is crypto-native participants, including professional traders, DeFi Farmers and high-risk-favored speculators, who usually have strong technical capabilities and blockchain awareness.
● PayFi is aimed at a wider mainstream group, including hundreds of millions of ordinary consumers, small and medium-sized enterprises, cross-border individual merchants and even unbanked people.Such users are sensitive to technical thresholds, have low risk tolerance, and have extremely high requirements for security and user experience.Therefore, the PayFi protocol must significantly reduce the complexity of on-chain interactions and provide a seamless experience close to Web2.Its service scenarios are also more diverse, from cross-border remittances, on-chain wage payments, and daily consumption to medium and large financial scenarios such as bulk settlement, supply chain finance and tokenized asset clearing.
Capital Structure: Liquidity “hot money” vs. Strategic capital
● The capital structure of DeFi is mainly based on “hot money” with high frequency in and out, mainly from retail investors and crypto-native funds. Its investment logic focuses on arbitrage opportunities and high APY returns. Its capital inflows are fast and exits are also fast. The investment cycle is short, and the goal is arbitrage and value capture.
● PayFi is dominated by long-term strategic capital, including Web2 investment institutions, compliance funds, and even multilateral organizations and regional development banks (such as the pilot of the IFC and the Asian Development Bank for Arf).This type of capital pays more attention to infrastructure construction and actual use scenarios, and accepts longer return cycles.The strategic entry of payment institutions such as Visa and PayPal not only provides financial support, but also opens up compliance channels and real business ecosystems for PayFi, greatly enhancing its popularization potential.
4.3 The double-edged effect of the regulatory environment
Regulation has a very different impact on DeFi Summer and PayFi, which is more of a double-edged sword to PayFi.
● DeFi Summer: Growing in a regulatory vacuum or blur.In 2020, most regulators had limited knowledge of DeFi and lacked a clear regulatory framework.This “regulatory vacuum” provides space for free innovation in DeFi protocols, but also leads to the frequent occurrence of safety accidents and the risk of running away.
● PayFi: Starting in the spotlight of supervision.PayFi involves payment clearing, cross-border transfer and stablecoin issuance, and is naturally in a sensitive area for high regulation.Although compliance requirements bring about cost increases and entry thresholds, they also bring about legitimacy, user trust and institutional endorsement, which is conducive to promoting its mainstreaming.Therefore, PayFi has faced stricter and more advanced regulatory scrutiny from the outset than DeFi Summer.
○ “Profit”: Clear regulation can provide PayFi with legality, compliance and market trust, attract large financial institutions and traditional enterprises to enter, thereby accelerating its mainstreaming.
○ “Disad”: Too stringent, lagging or fragmented regulation may stifle innovation, increase compliance costs for PayFi services, and limit its decentralized features.
PayFi probably won’t replicate the explosive growth of DeFi Summer driven by high speculative returns.Its evolution is more like the early Internet infrastructure construction. When users can complete low-cost and high-frequency payments, clearing, revenue reception and fund distribution without sensing the existence of blockchain, it is the true “Summer” moment of PayFi.
5. Conclusion
Whether PayFi can usher in its “Summer” depends on whether it has the ability to solve real problems and the conditions to achieve large-scale growth.Unlike DeFi Summer, which relies on high returns and speculative incentives, PayFi emphasizes practicality and sustainability, and is committed to improving payment efficiency, reducing costs, speeding settlement speed through blockchain technology, and expanding the accessibility of global financial services.
PayFi targets the structural pain points of the traditional payment system, with broad market potential, and its target users cover ordinary consumers, small and medium-sized enterprises and unbanked people.With the maturity of technologies such as Layer 2, cross-chain communication, account abstraction, and other technologies, the on-chain payment experience has been significantly optimized.At the same time, the regulation of stablecoin has gradually become clear, which has opened up a clear compliance path for PayFi, attracting traditional giants such as Visa and PayPal to actively make arrangements.
By combining it with RWA (such as US bonds), PayFi introduces off-chain income into the payment system to achieve the unity of liquidity and profitability of capital.This compound model of “payment + finance” not only improves user stickiness, but also creates more attractive conditions for institutional participation.
At the same time, PayFi has the opportunity to learn from the DeFi overheating cycle, make arrangements earlier in security auditing, risk control, user education, etc., and establish a more stable trust mechanism.But the challenges still exist: the regulation related to cross-border payments and stablecoins is still uncertain; crypto assets volatility may affect user confidence; wallet operations are complex and education costs are still the entry threshold for ordinary users; the monopoly and closed ecology of traditional payment institutions also constitute strong competition.
PayFi’s development path may be different from the rapid outbreak of DeFi, but will steadily expand its application scope through gradual penetration in cross-border remittances, corporate settlements, supply chain finance and other urgent needs scenarios.Its earnings model relies on solid returns supported by real assets rather than simply on-chain incentives.At the same time, the in-depth collaboration between the compliance process and centralized institutions will also help connect traditional finance with Web3 infrastructure.
Overall, PayFi is unlikely to repeat the speculative fanaticism of DeFi Summer, but more likely to be a payment infrastructure innovation driven by real demand, supported by technological evolution, and catalyzed by institutional power.Its “Summer” may unfold in a moderate and lasting way, profoundly reshaping the global payment landscape and laying a solid foundation for the connection between Web3 and the real economy.
