In-depth Analysis of the Web3 Payment Track

Web3 payments are a key scenario in the cryptocurrency ecosystem, with tens of thousands of cryptocurrency transactions occurring on and off the chain every day. A new cryptocurrency typically appreciates in value due to its practical payment use cases, and payments have become an important bridge connecting the Web2 world and the Web3 world.

In the business of Web3 payments, some people make a fortune by providing payment channels, while others focus on developing safer wallet technologies. So, how exactly is money transferred in the Web3 world? This article will take you deep into various business scenarios and projects within the Web3 payment industry.

Why Are Giants Laying Out Web3 Payments?

In August last year, Paypal announced the launch of the stablecoin "Paypal USD" pegged to the US dollar for transfers, payments, and other services; in April this year, financial infrastructure platform Stripe stated that stablecoin payments will be integrated into its payment suite within weeks and will begin supporting USDC payments this summer; in June, Mastercard announced the first launch of its peer-to-peer transaction infrastructure feature, Mastercard Crypto Credential, to enable users in Latin America and Europe to achieve cross-border payments across currencies on the blockchain. Why are traditional payment industry giants making high-profile moves into the Web3 payment industry in the past two years?

1. High Profit Attraction

Mastercard's net profit in 2023 was $11.2 billion ( with around 33,400 employees ), while Tether, which issues the stablecoin USDT in the crypto industry, reported a net profit of $6.2 billion in 2023, and the company had only about 100 employees as of last year. In comparison, the wealth generated per employee is significantly higher than that of the traditional payment industry, and so are the returns.

2. The level of cryptocurrency ownership is growing rapidly

From 2018 to 2023, the compound annual growth rate of cryptocurrency adoption reached 99%, far exceeding the growth rate of traditional payment methods at 8%. During the same period, the growth rate of cryptocurrency adoption surpassed that of several major payment giants in the United States.

3. The traditional payment industry is highly competitive with high operational costs.

In 2022, PayPal faced intense industry competition and relatively high operating costs, with operating costs accounting for 70.8% of gross profit in 2022(. It also began to strengthen its efforts in the cryptocurrency business. The importance of the cryptocurrency business in PayPal's overall revenue is gradually increasing.

Within a year, cryptocurrency-related operating expenses increased from $800 million to $1.2 billion, a growth rate of 50%, while cryptocurrency-related net profits grew from $700 million to $1.1 billion, an increase of 57%. The rise in operating expenses for new cryptocurrency-related businesses reflects PayPal's ongoing investment and confidence in this field, including areas such as technology upgrades, security measures, and market expansion.

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) 4. BTC halving and BTC ETF bring more recognition and demand

The BTC halving and the compliance of BTC ETFs have brought more recognition and payment demand to the crypto industry. The Bitcoin halving event increases its scarcity and value growth expectations by reducing the speed of new Bitcoin generation, attracting widespread market attention. The launch of Bitcoin exchange-traded funds (ETFs) provides traditional investors with low-threshold and convenient investment channels, enhancing market confidence. The anticipated launch of Ethereum exchange-traded funds has further sparked interest in the Ethereum ecosystem and innovative applications. These factors collectively drive more people to understand and participate in Web3 payments.

5. The demand for deposits and withdrawals has increased

The increase in deposit and withdrawal demand has also driven the demand for conversion services between fiat currency and cryptocurrency ###. Deposit and withdrawal refer to the conversion between fiat currency and cryptocurrency (. The channels for providing these services include centralized exchanges, independent deposit and withdrawal payment institutions, cryptocurrency ATMs, and POS machines that support cryptocurrency payments. Through these channels, users can conveniently convert between fiat currency and cryptocurrency, thereby promoting the widespread use and adoption of cryptocurrency.

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Advantages of Web3 Payments

) 1. Reduce exchange rate risk

Cross-border e-commerce often involves transactions between multiple currencies, which carry a certain risk of exchange rate fluctuations. Shopping using cryptocurrencies as a unit can reduce this risk, as cryptocurrencies do not involve the exchange losses incurred when converting between different currencies.

2. Reduce transaction costs

Traditional cross-border payments are often accompanied by high transaction fees and layers of institutional involvement. In contrast, the fees for cryptocurrency transactions are usually cheaper because they eliminate the intermediary steps of banks or other financial institutions. For on-chain payments, you only need to pay a network fee, which is typically low. If the transaction is obtained through payment service provider ### such as Coinbase, BitPay (, there is a fee involved. Compared to the layered markup of traditional payment institutions, this means that for large-volume cross-border e-commerce, it can effectively reduce transaction fees. For example, cross-border payments made through traditional methods may incur fees of 3-5%, while cryptocurrency payments can bring this rate down to below 1%.

) 3. Enhance Payment Security

The decentralized and distributed ledger characteristics of blockchain technology make every transaction public and transparent, and once recorded, it cannot be changed. This reduces the possibility of fraud and hacking attacks. Due to the transparency of blockchain, the trust level of merchants and consumers in transactions increases. Consumers know that their payment information is secure, while merchants reduce the likelihood of fraud and chargebacks.

4. Connect global markets

Using cryptocurrency for payments is not restricted by the international banking system, allowing transactions to be completed quickly; at the same time, cryptocurrency transactions ###7*24( are not affected by holidays and working hours. Consumers in many countries and regions may not be able to use traditional payment methods on cross-border e-commerce platforms, but they can use cryptocurrency as an alternative.

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Application Scenarios of Web3 Payments

) 1. Deposit

Refers to the process of converting fiat currencies ### such as US dollars, euros, etc. ( into cryptocurrencies. This process serves as the entry point into the cryptocurrency economy. Payers transfer fiat currency through centralized exchanges or third-party decentralized deposit and withdrawal platforms; centralized exchanges can directly exchange it for cryptocurrencies and transfer it to an on-chain wallet; third-party decentralized deposit and withdrawal platforms exchange cryptocurrencies through market makers, who, upon receiving the fiat currency, will send the equivalent amount of cryptocurrency to the payer's on-chain wallet.

) 2. Withdrawal

In contrast to deposits, withdrawals refer to the process of converting cryptocurrency back into fiat currency. Users can sell the cryptocurrency they hold, exchange it for traditional currency, and then withdraw it to their bank accounts or other payment methods. This process is equivalent to the export of exiting the cryptocurrency economy.

3. Purchase goods or services with cryptocurrency

Traditional payment card merchants or Web3 native payment card merchants support cryptocurrency consumption in the real economy. There are 4 entities involved: technical service providers that assist card issuers, issuers ### traditional card merchants, Web3 native issuers (, and card organizations.

In the current market environment, what is actually more popular is the crypto prepaid debit card: it does not require binding an existing bank account, and only needs to have cryptocurrency converted into fiat currency and loaded onto the card in advance.

) 4. On-chain payment

On-chain payments are also based on the demand in a certain payment scenario within the Web3 world, usually arising from payment needs during participation in project activities or transactions.

• Payments and Transfers: Web3 wallets provide peer-to-peer payment and transfer functions. As long as you have the other party's wallet address, you can conduct cross-space transfers, usually requiring a network fee of ###Network Fee / Gas Fee( cost, which can be received within minutes. Users can conveniently transfer assets quickly and at low cost on a global scale.

• DeFi / NFT: Users can interact with DeFi applications through Web3 wallets to perform operations such as cryptocurrency deposits and loans, borrowing, and liquidity mining. Users can also purchase and trade NFTs and other digital assets.

• DEX: Web3 wallets support users to trade cryptocurrencies on DEX, which do not rely on centralized order books, but match trades through smart contracts.

• Cross-chain interaction: Multi-chain wallets allow users to transfer assets between different blockchains, achieving interoperability among different blockchain ecosystems.

• GameFi: In GameFi, Web3 wallets can be used to purchase virtual goods, land, or other in-game virtual assets.

• Social Networks and Content Creation: Web3 wallets enable users to create and monetize content on decentralized social platforms, as well as receive tips and payments.

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Analysis of Representative Projects in Web3 Payments

) 1. PayPal PYUSD

In August 2023, PayPal launched its first stablecoin PYUSD, issued by Paxos, which regularly provides proof of reserves. The stablecoin PYUSD is issued on Ethereum ### and is currently live on Solana (. PYUSD maintains a 1:1 value with the US dollar and can be exchanged through the PayPal ecosystem. The stablecoin PYUSD is backed by USD deposits, short-term US Treasury bills, and similar cash equivalents to ensure its stability, unaffected by the fluctuations of other cryptocurrencies.

Use cases: Mainly used for gaming, remittances, and as a payment medium in Web3 platforms and decentralized exchanges; currently, PYUSD is only available to users in the United States, and trading pairs for PYUSD are offered on Coinbase. Due to the limited supported public blockchains and regions, the usage of this stablecoin still needs to be expanded.

• Transfer: Users can make zero-fee transfers using PYUSD.
• Payment: Use PYUSD for payment when settling the goods.
• Converting cryptocurrencies: PYUSD can be converted with other cryptocurrencies supported by Paypal, with fees varying based on the amount converted, ranging from 1.45% to 4.9%, which are relatively high; and since currently only the Ethereum chain is supported, the network fees for withdrawing stablecoins will be very expensive.

Market Value: Currently, the market value of the stablecoin issued by Paypal is $270.37M, ranking 13th in the stablecoin market value. The total market value of stablecoins is $170.2B, with Paypal's issued stablecoin accounting for 0.15%. The highest market share is held by Tether at 65.9%. This indicates that even though payment giants are entering the cryptocurrency industry, due to their late entry, involvement in fewer public chains, geographical restrictions, and limited usage scenarios, it is still difficult for them to quickly take the lead in the cryptocurrency market. However, Paypal is also working to expand its application range, and it has currently launched on Solana. The development goal of PYUSD is to be listed on major exchanges to achieve higher circulation, aiming for system compatibility between the Web3 and Web2 ecosystems.

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) 2. Mastercard Crypto Credential

Mastercard has launched the Mastercard Crypto Credential, which is the first point-to-point pilot transaction in collaboration with exchanges. Its feature is using aliases instead of lengthy blockchain addresses during transfers. This new system aims to simplify cryptocurrency transactions for exchange users and provide a more user-friendly method for point-to-point transfers.

Pilot scope: mainly Europe and Latin America, specifically including Argentina, Brazil, Chile,