Web3 Research: OKX Pay’s Role and Limitations in the PayFi Ecosystem

Big companies are joining the game!

Author: Mia Miao, Qirui Zhao, Mankiw Blockchain Legal Services

PayFi's past and present, redefining Web3 payments

Since its birth, the Internet has gone from the "read-only" information era of Web1.0 to the "readable + writable" interactive information era of Web2.0, and is gradually moving towards Web3.0, a new era based on blockchain technology, user-centered, decentralized, and self-owned value. This evolution is not only a technological iteration, but also a profound change in network philosophy, value distribution, and user rights. Under this grand narrative, payment, the basic function that maintains economic activities, is also undergoing a "redefinition" driven by underlying technology and concepts.

1. The evolution of PayFi: the inevitable advancement of value interconnection

The traditional payment system is rooted in a centralized trust model. Intermediaries such as banks and credit card companies are the "gatekeepers" of value circulation. This model has greatly promoted commercial circulation in a certain historical period, but it has also exposed many inherent pain points: high transaction costs, especially the cumbersome processes and layers of fees in cross-border payments; inefficient settlement speed, international remittances may take days to complete; lack of transparency, users lack clear control over the process of fund circulation; and high dependence on infrastructure, making it difficult for billions of people around the world to obtain basic financial services. The dominance of Web2 platforms also brings about centralized control of user data and content, as well as potential censorship and abuse of power.

As the first widely accepted cryptocurrency, Bitcoin's white paper defines it as a peer-to-peer (P2P) electronic cash system designed to enable online payments without third-party intervention. This marks the beginning of the decentralized payment concept. However, Bitcoin's extreme value volatility severely limits its potential as a medium of daily transactions.

Subsequently, the emergence of stablecoins has greatly alleviated the price volatility of crypto assets, making it one of the main means of payment in the blockchain field. Stablecoins such as USDC and USDT play the role of "on-chain dollars" on the blockchain and are widely used in payment, trading and DeFi scenarios, becoming an important tool for the digital economy.

It is in this context that the concept of PayFi (Payment Finance) came into being. Lily Liu of the Solana Foundation is considered to be the originator of the concept of PayFi, which she defines as "the process of creating new financial markets around the time value of money." PayFi is not a completely independent concept, but an innovative application that integrates Web3 encrypted payments, decentralized finance (DeFi), and real-world assets (RWA). It aims to use blockchain technology to innovate the payment system, achieve more efficient and lower-cost transactions, and combine financial services with payment functions to provide a new financial experience and application scenarios.

The evolution of PayFi clearly reflects the development trajectory of Web3 payment from theory to practice, from a single function to an integrated ecosystem. Starting from Bitcoin's peer-to-peer payment vision, it uses stablecoins to solve the problem of value fluctuations, and further absorbs DeFi's advantages in liquidity, programmability, and revenue generation, while introducing real-world assets onto the chain through RWA. The core goal of PayFi is to promote the application of digital assets in real-world scenarios and improve the efficiency of financial transactions by unlocking the time value of money (TVM). It is not just a simple payment, but also integrates financial activities such as payment, financing, and investment into a unified decentralized framework.

From a technical architecture perspective, PayFi is generally understood to include multiple layers: a settlement layer based on high-performance blockchains (such as Solana, Stellar, or Layer2 solutions); an asset issuance layer responsible for issuing payment media (stablecoins, etc.); a currency acceptance layer that connects legal tender and crypto assets; and a user-oriented front-end application layer. In addition, there are support layers responsible for custody, compliance, financing, etc. This layered architecture provides a technical foundation for the steady development of PayFi.

2. Web3 vs. Web2: Reshaping of power and value

The core difference between Web2 payment and Web3 payment lies in the fundamental differences in the underlying trust mechanism and the way value is circulated. This is not just a difference in technical details, but also a redefinition of user rights and system architecture.

The deeper logic is that Web3 payment builds a "machine trust" network through blockchain technology. Transaction rules are written into smart contracts and automatically executed, rather than relying on manual processes. The user's identity (through DID) and assets (through tokens) are truly owned by the user and stored on the user's blockchain address, rather than hosted on a centralized platform. This model fundamentally challenges the platform monopoly of data and value distribution in the Web2 era, giving users greater autonomy and value capture capabilities.

On this basis, PayFi has pushed the programmability of Web3 payments and its deep integration with DeFi/RWA to the extreme. It is not only a tool for low-cost and fast transfers, but also an ecosystem built on the payment process that can provide complex financial services such as real-time financing, income generation, and asset management. This integration makes "payment" no longer an isolated link, but a bridge connecting real-world assets and on-chain financial services, releasing the time value of funds. This marks a paradigm shift in payment from simple accounting and settlement functions to a value circulation infrastructure with rich financial attributes.

3. Large-scale enterprise layout: the entry of giants and the confirmation of paradigm

Web3 payment, especially the blueprint of "payment as finance" drawn by PayFi, is attracting the attention of various giants with its huge transformative potential. This includes not only the in-depth expansion of the native power of encryption, but also the entry of traditional payment, finance and even Internet technology giants. Their entry is not only a strong endorsement of the value of the Web3 payment track, but also a sign that this field is accelerating from early exploration to mainstream application.

• "Defense and Evolution" of Traditional Payment and Financial Giants

Visa & Mastercard: These two giants of the credit card network are not sitting idly by. They have long begun to experiment with the use of stablecoins (such as USDC) for settlement and explore how to connect their huge global merchant network with blockchain payments. For example, Visa has cooperated with multiple crypto platforms to issue bank cards that support cryptocurrency consumption and tested USDC settlement in its network, which can significantly reduce the complexity and cost of cross-border transactions. This is a typical strategy of "embracing innovation to avoid being disrupted."

PayPal: As a pioneer in online payments, PayPal has launched its own stablecoin PYUSD, and allows users to buy, sell, hold and transfer specific cryptocurrencies on its platform, and even use them for payments at some merchants. This marks its strategic extension from the Web2 payment hinterland to the Web3 field, attempting to introduce the advantages of encrypted payments into its existing ecosystem within the framework of user experience and compliance.

SWIFT: Even SWIFT, which is at the core of traditional international interbank communications and payment instructions, is actively exploring the interoperability of central bank digital currencies (CBDCs) and tokenized assets, trying to find its place in the new financial infrastructure.

• "Cross-border and empowerment" of Internet technology giants

China's Internet giants: With the domestic payment market structure already established, cross-border e-commerce and overseas business have become new growth points. The pain points of traditional cross-border payments - high cost, slow speed, exchange rate risk - are particularly prominent for them. Therefore, with the help of policy windows in Hong Kong and other places, exploring the use of Web3 payment tools such as stablecoins to optimize international fund settlement has become a strategic choice. JD.com, through its Hong Kong subsidiary, has taken a fancy to the disruptive potential of stablecoins in improving cross-border payment efficiency and reducing operating costs, and is trying to "change lanes and overtake" in the overseas payment track.

Overseas technology giants: Meta (formerly Facebook) once ambitiously promoted the Diem (formerly Libra) stablecoin project, aiming to build a global, low-cost payment network, especially for people who lack banking services. Although frustrated by regulatory pressure, its attempt deeply reveals the desire of technology giants with massive users and social scenarios to enter the payment and even financial fields, as well as the potential of Web3 technology in realizing this vision.

• The “ecological closed loop” of crypto-native exchanges

Coinbase & OKX, etc.: These large centralized exchanges naturally have users, assets and trading scenarios. They actively deploy payment businesses, such as Coinbase Commerce providing cryptocurrency payment services to merchants, and OKX launching OKX Pay. The logic is to build a complete ecological closed loop from deposit, transaction, storage to payment consumption by integrating fiat currency deposit and withdrawal channels, stablecoins, custodial wallets and payment solutions. Obtaining a payment license is not only for the compliance of trading business, but also lays the foundation for the expansion of its payment business.

4. Deep revelation from the giants’ layout: from “testing the waters” to “strategic positioning”

The actions of the big companies are far from simply "riding on the wave". They have seen the strategic value of Web3 payment, especially the PayFi concept:

• Efficiency Revolution: The near real-time and low-cost characteristics of blockchain payment are a dimensionality reduction attack on the existing payment system.
• New financial paradigm: The combination of payment with DeFi and RWA opens up huge space for innovation in financial services, such as instant clearing, programmatic financing, and automated market making.
• User sovereignty trend: Although some giants still adopt a centralized or semi-centralized model, the concept of returning user data and asset ownership advocated by Web3 is an irreversible trend. They must think about how to adapt to this trend.
• Globalization Accelerator: For companies with international ambitions, Web3 payments provide a way to bypass traditional complex financial intermediaries and achieve more efficient global capital flows.

The exploration and investment of these giants not only brought funds, technology and users to Web3 payment, but more importantly, they are educating the market through practical applications, promoting the maturity of the regulatory framework, and accelerating the transformation of Web3 payment from "niche geek tool" to "mainstream infrastructure". Every move they make in the PayFi track is contributing to the final formation of this payment revolution, and jointly verifying the huge potential of Web3 payment to reshape the global financial landscape.

OKX Pay’s product structure: old wine in new bottles

"The first payment application in the industry that truly integrates non-custodial and compliance" is how OKX founder Star Xu positioned OKX Pay, which means providing a decentralized payment path through the centralized exchange ecosystem. While enjoying the convenience of the OKX platform account system, users can also complete on-chain payments through non-custodial wallets, creating a hybrid experience of "autonomy + platform endorsement". Let's break down the underlying logic of the product:

1. Multi-signature + ZK Email + AA: The “safe + easy-to-use” combination behind OKX Pay

The multi-signature mechanism (Multisig) has been standardized since the Bitcoin protocol in 2012 and is one of the current mainstream non-custodial asset security strategies. It reduces the systemic risk caused by the loss or theft of a single private key by splitting the transaction authorization into multiple signature authority holders (i.e., multiple private keys or recovery authority setters). Simply put, an account can be controlled by multiple people, and everyone must "sign" together to use the assets. OKX Pay uses a double signature method, one is the user's Passkey signature, and the other is OKX as the "account guardian."

Passkey signatures are based on asymmetric cryptography and incorporate device and biometrics to help users use on-chain services without seed phrase, providing a very user-friendly experience. OKX signatures also integrate ZK Email and Account Abstraction (AA) into the product architecture to enhance identity privacy and transaction flexibility, and strive to solve the problems of high user entry barriers, difficult key management, and fragmented payment experience.

ZK Email (Zero-Knowledge Email): Through the Zero-Knowledge Proof mechanism, it realizes the encryption and privacy protection of user authentication information, allowing users to complete on-chain identity operations without exposing their specific email addresses, becoming one of the more friendly entry mechanisms in the Web3 world. It simplifies the access rights management of users' on-chain identities and also lowers the threshold of traditional seed phrase. In simple terms, through encrypted emails, friends can transfer money to you by entering your email address. You receive the encrypted email and click to complete the payment. Technical details such as wallet addresses and private keys are all automatically processed in the background, so you don't have to worry about making the wrong transfer wallet address.

Account Abstraction: By "abstracting" the Ethereum account model, wallets are allowed to implement smart contract control permissions, custom transaction logic, multi-factor authentication and other functions, which greatly improves the flexibility and programmability of transactions, and users do not need to directly sign complex transaction data. In simple terms, it makes "the wallet a customizable smart account" .

To sum up in one sentence: ZK Email allows you to use your wallet as easily as using an email address, AA makes your wallet as smart and secure as an app, and OKX Pay packages all of these together to make on-chain payments truly suitable for ordinary people.

2. Compliance integration: Finding a balance between on-chain payment and regulation

Although OKX Pay uses self-hosted wallets and on-chain settlement, it still has embedded compliance design in key links such as user access, transaction analysis, and cooperative merchant review, including real-name authentication (KYC), anti-money laundering (AML) and other mechanisms. This may seem contradictory, but in fact OKX Pay adopts a "accessible and regulated" strategy, that is: the platform does not directly control user assets, but can impose restrictions on high-risk behaviors in the ecosystem through "service entry", "ecological access", "account binding", "limit management" and other means.

The specific manifestations are:

• User identification through OKX login or account binding actually establishes a centralized user profile
• High-frequency transfers, merchant collections, community creation, etc. require identity binding or risk control review
• The platform retains the ability to "block entrances" for malicious addresses, sensitive areas, illegal goods payments, etc.
• Although the funds flow on the chain, the platform can still suspend traffic support such as aggregators and recommendation pages

This mechanism is called "platform-level compliance clamping", which completes some regulatory functions based on ecological entrances and API permissions without using user private keys. It represents a realistic intermediate form - a fusion model of "Web2 legal logic + Web3 technical architecture" . Truly decentralized products, centralized compliance management.

SocialFi in PayFi's guise

Currently, the PayFi part of OKX Pay is only focused on transfers between users within OKX, and has not been connected to third-party merchants. It is more dependent on OKX subsidies, including 0 transaction fees on the X Layer chain, passive staking income, etc. Its real value is an ecological enhancer, that is, "payment + red envelope fission", which promotes the deep binding of OKX users and communities through socialized payment.

During the transfer, OKX Pay will request access to the user's address book. If the phone number in your address book matches an existing OKX account, you can complete the transfer with one click, saving the trouble of finding a wallet address. If the other party has not registered yet, the system will automatically start a 48-hour "freeze period" to suspend the transfer first, and guide you to invite friends to register OKX and create OKX Pay and activate the account.

This design is actually a smarter way to attract new customers. Compared with the traditional "referral code + bonus" mechanism, or various marketing activities to attract new customers (the cost of acquiring each new user may be as high as 20U), OKX Pay's transfer invitation naturally carries a social trust relationship, which is not only more natural, but also cheaper. It is a "0-cost social customer acquisition" that is closer to the growth logic of the Web3 ecosystem.

OKX's real trick is actually the KOL community based on Pay group chat, which is similar to the communication mechanism of "WeChat group". KOLs can create group chats and share QR codes, and users can join them with one click by scanning the QR code. In this group, KOLs can send red envelopes and discuss Crypto market conditions, and bypass the supervision of sensitive words by traditional chat software, making communication freer and closer to the Web3 atmosphere.

According to insiders, OKX specially hired a product manager from DeBox, a long-established SocialFi project, for this function, and customized the system according to the WeChat community gameplay. This move is very "understanding of Chinese users" - low threshold, high activity, which not only enhances user stickiness, but also requires almost no operational investment . Compared with the overseas market where Twitter is the main media, this design that tends to "fission of acquaintance circles" is obviously more suitable for the Chinese community ecology, and can better meet the growing demand for the integration of payment and social networking.

Standing between structural dividends and regulatory gray walls

Although OKX Pay opened up the market with a combination of "Web3 payment + social asset network", its long-term development still faces multiple challenges from compliance, user behavior, business model and geopolitical policy. Behind the structural dividends are unresolved systemic problems in on-chain payments.

1. Commercial competition: closed ecosystem and limited paths

Although OKX Pay claims to create a Web3 payment tool, its current usage scenarios are mainly limited to exchanges, like a local function plug-in, rather than a payment network that can go beyond exchanges and serve a wider ecosystem. Compared with native payment protocols or traditional payment companies, it still lacks independent value and expansion paths.

• Limited usage scenarios: Currently, OKX Pay is mainly used for asset transfers, red envelopes, rewards, etc. within the platform. These functions are just small adjustments to the original capital flow path, rather than real innovations in the payment experience.
• Lack of external access: Unlike some native Web3 payment protocols (such as PayFi) that can be accessed by DApps or off-chain merchants, OKX Pay does not have an open SDK or system integration interface, nor has it progressed to support real off-chain payment scenarios.
• User habits have not been established: Products such as Binance Pay are also trying to expand payment functions, but overall, payment services of centralized exchanges have not yet become the main choice of users. It is very difficult for OKX Pay to break through in this regard.
• It is difficult to connect ecosystems: different exchanges operate independently, and payment systems are incompatible with each other. Users' payment needs often rely on trust in the platform itself, lacking interoperability and network effects.

2. Legal compliance: Blurred boundaries and considerable risks

Although OKX Pay complies with basic KYC/AML requirements, once it enters the field of on-chain payment, it will involve more complex regulatory issues. Compliance is not only a technical process issue, but also related to the platform's responsibility boundaries and legal risks.

Identity identification may be insufficient: OKX’s KYC can meet the exchange’s compliance requirements, but whether it is sufficient to cope with higher standards such as cross-border payments and anti-money laundering remains to be confirmed. In particular, when users transfer assets out of the platform for on-chain payments, the effectiveness of identity tracking will be discounted.

On-chain transparency brings privacy conflicts: On-chain payments can be publicly tracked. Although real names are not displayed, user portraits can be reconstructed with off-chain data. EU GDPR and other laws have strict restrictions on this "identifiability". If mixed currency or zero-knowledge technology is introduced in the future to protect privacy, it may cause regulatory concerns about "facilitation of money laundering."

• The boundaries of platform responsibilities are unclear:

If payment fails, transfer errors occur, or fraud occurs, does OKX have any arbitration or compensation obligations?

In the absence of a definition of responsibility like that of a third-party payment institution, can users hold the platform accountable? Should the platform assume functions such as freezing funds and resolving disputes?

• Regulatory definitions are not yet unified:

Whether OKX Pay is an MSB (money service provider) or a VASP (virtual asset service provider) depends on the interpretation of its payment function in different places. Some countries may regard it as a wallet tool, while others consider it to be equivalent to a payment institution.

• Global policies vary widely:

The EU’s MiCA regulation begins to establish a unified framework, but requires specific implementation by member states;

Regulation in the United States is fragmented, with the SEC, FinCEN and other agencies still blurring the lines between transactions, payments and securities;

Southeast Asia and the Middle East have loose regulations, but many countries can hold people accountable later on charges such as "anti-terrorist financing" or "illegal fund transfer." The lack of a clear compliance path increases uncontrollable risks.

Is OKX Pay a protocol? Or is it a tool for building an ecosystem for large companies?

On the surface, PayFi is the ideal of a decentralized protocol, but in actual implementation, especially in the CEX ecosystem represented by OKX Pay, it is more of a well-packaged SocialFi marketing tool. OKX Pay attracts users through the concept of PayFi, strengthens the binding of social interaction and payment behavior, enhances user stickiness and ecological activity, and reflects the important role of large companies in promoting the popularization of Web3 payments.

For the industry, PayFi is not only an innovative driving force for the implementation of Web3 payments, but also hides the risk of centralization driven by giant capital. At the same time, as legal supervision gradually improves, the PayFi ecosystem needs to find a balance between compliance and openness, which is both a challenge and a necessary path to promote the healthy development of the industry.

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