Building PayFi Infrastructure: The Innovative Journey of PolyFlow

The 2008 Bitcoin white paper described a peer-to-peer electronic cash payment network that does not require a trusted third party. Payments are one of the earliest promises of blockchain technology and Satoshi Nakamoto's solution to the failures of the financial system at that time.

Although the industry has invested heavily in developing blockchain infrastructure over the past decade, we have also seen the rise of high-performance public chains and stablecoins. However, most of the current infrastructure is still built around transactions and cannot truly support the real-time and scalability of payments, which hinders the widespread adoption of Web3 payments.

So, what kind of infrastructure do we need to support real-world payment scenarios? What is the value and significance of PayFi?

This article features an in-depth conversation with Raymond, co-founder of the PayFi infrastructure PolyFlow, to understand the comprehensive thoughts and practices of this expert with over twenty years of international finance experience regarding digital finance.

The Original Intention of Founding PolyFlow

PolyFlow is the infrastructure layer of the blockchain network, aimed at integrating traditional payments, Web3 payments, and DeFi, handling real-world payment scenarios through a decentralized approach. PolyFlow will serve as the infrastructure for PayFi, driving the establishment of a new financial paradigm and industry standards.

Raymond first explained the essence of financial transactions to help us understand the value of PolyFlow:

The core of financial transactions

In traditional financial markets, any financial transaction and value transfer is inseparable from the flow of information and the flow of funds:

• Information flow refers to the information in the transaction process, including transaction initiation, payment, and settlement instructions, ensuring the accuracy and timeliness of transactions.
• Capital flow is the entire process of fund transfer between various parties in a transaction, focusing on the actual circulation of funds.

Information flow and capital flow are inseparable, jointly ensuring the safe and efficient completion of financial transactions.

Information flow and capital flow in a cross-border context

In the context of cross-border transactions, due to differences in language, currency, and regulation, the flow of information and funding in financial transactions also varies.

SWIFT focuses on the transmission of information, not on the flow of funds. It has built a standardized international financial communication network that enables banks worldwide to quickly and accurately exchange financial transaction information.

However, the flow of funds is restricted by foreign exchange controls, regulatory compliance, and other factors in various countries, making it impossible to synchronize with the information flow in real time. The flow of funds still needs to circulate through financial intermediaries in various countries, involving a complex clearing system.

Having a SWIFT CODE does not mean you can participate in this network.

promotes value circulation through PolyFlow

The original intention of PolyFlow is to build a decentralized infrastructure that allows more people to participate in the construction of a global payment network, reduce regulatory compliance pressure, eliminate fund custody risks, and minimize third-party involvement as much as possible.

PolyFlow separates the transaction information flow and capital flow originally controlled by centralized institutions through modular design, using a decentralized approach to make the transaction process more compliant with regulatory requirements, eliminate custodial risks, and connect the DeFi ecosystem utilizing blockchain characteristics, thereby facilitating the implementation of PayFi applications.

PolyFlow has launched two key components:

• Payment ID(PID): Associated with the information flow to achieve user identity recognition, compliance access, privacy protection, and other functions.
• Payment Liquidity Pool(PLP): Associated with cash flow, managed by smart contracts for payment transaction funds, providing a secure and compliant framework for the circulation of digital assets.

This establishes a business framework for the PayFi application that is lightly regulated, has no custody risks, is compatible with the DeFi ecosystem, and provides a secure and compliant framework for the circulation of digital assets.

PID: Linking the Physical World and Digital Currency Wallets

The Payment ID of PolyFlow ( PID ) is a decentralized ID, a product of transaction information flow, which can be linked with users' KYC/KYB information, associating multiple platforms with verifiable credentials, to achieve:

• Compliance Access: Includes verification information from multiple platforms, simplifying the verification process.
• Privacy Protection: Using technologies such as zero-knowledge proofs to fulfill AML/CTF obligations without disclosing privacy.
• Data sovereignty: Feedback the fund transaction information to the regulators, while returning on-chain behavioral data to the users.
• AI-driven: Associate off-chain uploaded or on-chain collected transaction data, AI analyzes to extract additional value for PID owners.

PID provides transformative advantages for PolyFlow, bridging the gap between traditional finance and the DeFi ecosystem, offering users a flexible and reliable way to manage digital identities, participate in cross-platform transactions, and build on-chain credit.

Raymond said: "PID is not equal to payment ID, but rather resembles a wallet in the physical world. Imagine a wallet in your pocket that holds not only cash, but also family photos (NFT), bank cards, driver's licenses, and ID documents (. Users can extract ZK support information, protect data privacy ), and more. Therefore, Wallet is not equal to Money Wallet; there are many more exciting possibilities for what PID can do."

PLP: Consensus on Pooling Capital Flow

The Payment Liquidity Pool of PolyFlow(PLP) is a product of capital flow, with the smart contract address used to receive trading funds, achieving on-chain custody instead of relying on centralized institutional wallets.

The decentralized model of PLP implementation:

• Decentralized Fund Custody: Provides a convenient, secure, and compliant custody solution for PayFi applications.
• Liquidity Pool: A collection of trading funds gathered through smart contracts to provide liquidity for transaction payments.
• DeFi compatible: Seamlessly connect to the DeFi ecosystem, bringing DeFi business logic to PayFi applications.
• No-risk RWA returns: Protocol earnings are directly reflected in PLP, providing a stable source of income for DeFi.

Raymond explains how PLP consolidates the consensus of capital flow from three settlement models of Web3 payments:

peer-to-peer mode

In the context of cross-border remittances, Web3 payments can achieve synchronized confirmation of transaction information flow and capital flow, demonstrating the advantages of instant settlement, low cost, openness and transparency, and global reach.

However, this peer-to-peer model cannot meet the demand of traditional finance for thousands of transactions per second/minute/day, which can easily lead to network congestion. The current scale of the cryptocurrency market at 2 trillion has already caused multiple congestion issues, making it even more difficult to support the traditional financial market, which has a scale of 400-600 trillion.

hedging mode

In traditional finance, the flow of transaction information and the flow of funds are ultimately consistent but not synchronized. The information flow interacts in real-time, while the flow of funds settles independently based on agreed periods.

Raymond illustrates the settlement method of net settlement (: Two banks process tens of thousands of transactions daily, with real-time reconciliation of information flow, determining the net amount for separate fund settlement at the end of the day. This hedging model significantly reduces costs and improves efficiency.

However, traditional models require a centralized credit system, accompanied by risks of fund custody and information opacity. PolyFlow has launched PLP to achieve hedging settlement on the blockchain, eliminating third-party risks.

The purpose of PLP is to enable trustless individuals to collaborate without the need for third-party endorsement, avoiding the uncertainty of fund custody and verifying the authenticity of each transaction. This is the consensus on the unified ledger of fund flows in blockchain.

) PayFi model

Only after forming a consensus on the flow of funds in the blockchain unified ledger can we enter the PayFi world. Raymond illustrates with the Buy Now Pay Never scenario:

Users purchase a $5 coffee through the PolyFlow gateway, with the gateway and merchant funds held in PLP. The user is also a PLP liquidity provider, providing $50 ### that generates $5.5 in daily earnings (. Based on the PLP ledger fund flow consensus, the user buys coffee today without paying, and tomorrow uses PLP earnings to pay the $5 fee, with the extra $0.5 being the overnight interest on borrowed funds.

This reflects the value of PayFi:

1. Cost reduction and efficiency enhancement: Information flow is fully interactive, while capital flow remains unchanged.
2. Improve capital efficiency: Fully utilize the capital efficiency of liquidity provided by users.
3. Innovative Financial Paradigm: Achieving product experiences that traditional finance cannot deliver, promoting the popularity of PayFi.

Raymond emphasized: "The consensus on the flow of funds on a unified blockchain ledger is the true meaning of blockchain. This will enhance the efficiency of the entire Web3 industry."

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The Value and Significance of PayFi

PayFi is eager to support the implementation of a new financial infrastructure and address compliance issues. PolyFlow is regarded as one of the first protocols to build the PayFi financial infrastructure.

The true meaning of PayFi lies in promoting the application of digital currencies in real-world scenarios.

• Positive: Helping traditional financial payment companies leverage blockchain to gain a larger market share.
• Reverse: The Web3 community addresses traditional financial pain points through Payment, achieving a new financial paradigm.

Raymond believes: "The fundamental problem that PayFi needs to solve is the effective separation of transaction information flow and capital flow, forming a consensus on the capital flow of the unified ledger on the blockchain, enhancing the efficiency of the Web3 industry, and promoting true widespread adoption."

Current Web3 payments are still in an early foundational service state, mainly using digital currencies as a payment medium to achieve peer-to-peer or hedging model settlements, with relatively limited scenarios.

The launch of PolyFlow not only allows more PayFi participants to conveniently enter the blockchain network and build PayFi in daily consumption scenarios, but more importantly, it forms a consensus on capital flow and enhances the efficiency of the entire Web3 ecosystem.

Beyond Payment

The seemingly ordinary technology of blockchain distributed ledger has the potential to change the way human society operates.

PolyFlow is integrating the transformative power of digital currencies and blockchain technology to create a new decentralized PayFi cryptocurrency payment network, driving a shift in innovative financial paradigms and unlocking the true value of Web3.

Ultimately, make the grand vision in the Bitcoin white paper a reality.

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