Innovation of Blockchain Payment Infrastructure: In-depth Interview with PolyFlow Co-founder Raymond

The Bitcoin white paper published in 2008 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 digital currency and Blockchain technology, and also the Blockchain solution proposed by Satoshi Nakamoto in response to the then-failing financial system.

In the past decade, the industry has invested heavily in developing underlying Blockchain infrastructure, and now we have seen the rapid development of high-performance Blockchains and stablecoins. However, most current infrastructure is still built around transactions and cannot truly support the real-time nature 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 documents an in-depth conversation with Raymond, co-founder of the PayFi infrastructure PolyFlow. Raymond has over twenty years of international financial consulting management experience and possesses deep insights into global digital finance. Under his leadership, Huiyuan Tong has become a comprehensive global financial services company covering international payments, cross-border remittances, foreign exchange, and prepaid card services. At the same time, he is also a well-known investor in the field of global digital finance, investing in several leading companies across fintech, digital banking, Blockchain, Web3, and artificial intelligence sectors. Raymond is also a senior advisor to the Canadian National Development Bank and a member of the expert group at the Financial Research Institute of the Development Research Center of the State Council of China.

1. The Original Intention of Establishing PolyFlow

PolyFlow is the infrastructure layer of the Blockchain network, aimed at integrating traditional payments, Web3 payments, and decentralized finance ( DeFi ), processing real-world payment scenarios in a decentralized manner. PolyFlow will serve as the infrastructure for PayFi, driving the establishment of a new financial paradigm and industry standards.

1.1 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, which together constitute the foundation of financial transactions.

• 信息流(Information Flow) refers to the information in the transaction process, including the collection of transaction initiation, payment, and settlement instructions, ensuring the accuracy and timeliness of transactions, with a focus on transaction instructions and data transmission.

• 资金流(Fund Flow) refers to the entire process of fund transfers that occur among parties during the trading phase, focusing on the actual circulation of funds.

Information flow and capital flow are inseparable in financial transactions; their effective combination ensures that financial transactions are completed safely and efficiently.

1.2 Information flow and capital flow in the cross-border context

Due to differences in language, currency, and regulation, the pathways for the flow of information and capital in financial transactions in a cross-border context are also different.

For example, SWIFT focuses only on the transmission of information flow, without involving the flow of funds. SWIFT has built a highly standardized and automated international financial communication network through standardized messaging formats, enabling banks around the world to quickly and accurately exchange financial transaction information.

Transaction information can be fully transmitted through SWIFT, but the flow of funds is restricted by foreign exchange controls, regulatory compliance, anti-money laundering, and other factors in various jurisdictions, making it impossible to synchronize with the information flow in real time. The flow of funds still needs to circulate through financial intermediary institutions of banks in various countries, involving complex domestic clearing systems, cross-border payment clearing systems, and international payment clearing systems.

What further hinders the global flow of value is that even having a SWIFT CODE does not mean being qualified to participate in this network.

1.3 Promote value circulation through PolyFlow

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

The core concept of PolyFlow is to effectively separate the transaction information flow and capital flow controlled by centralized institutions through modular design, using a decentralized approach to make each transaction process more compliant with regulatory standards, eliminate capital custody risks, and leverage the characteristics of blockchain to connect the DeFi ecosystem, facilitating the large-scale implementation of PayFi applications.

PolyFlow has launched two key components: Payment ID(PID) and Payment Liquidity Pool(PLP).

• PID is associated with information flow to achieve user identity recognition and compliance access, privacy protection and data sovereignty, AI data processing, X to earn, and other functions;

• PLP is associated with capital flow, managed by smart contracts for payment transaction funds, providing a secure and compliant framework for the circulation, custody, and issuance of digital assets, introducing the composability and scalability of the DeFi ecosystem.

PolyFlow has built a business architecture for PayFi applications that features light regulatory compliance, no custodial risk, and compatibility with the DeFi ecosystem, as well as a secure and compliant framework for the circulation, custody, and issuance of digital assets.

The Bitcoin and Blockchain network built by Satoshi Nakamoto represents a new solution to financial currency issues in the digital age, aiming to address the problem of third-party trust in the flow and transaction of value across time and space. These are the goals that PolyFlow is committed to achieving.

2. PID - Connecting the Physical World and Digital Currency Wallets

The Payment ID(PID) launched by PolyFlow is a decentralized ID, a product of the splitting of transaction information flow, which can be linked to encrypted user privacy protection KYC/KYB proof information, associating users' verifiable credentials( on multiple platforms, achieving:

• Compliance Access: PID can contain multiple verification information from different platforms, which helps simplify the verification process.

• Privacy Protection: PID uses technologies such as zero-knowledge proofs to fulfill obligations like AML/CTF without disclosing user privacy.

• Data Sovereignty: PID can not only feedback transaction information to regulators to meet compliance requirements but also return on-chain behavior data to users.

• AI-driven: PID can associate transaction data uploaded off-chain or collected on-chain. AI can analyze rich daily transaction data to extract additional value for PID owners, playing an important role in establishing an on-chain credit system.

The innovative introduction of PID provides transformative advantages for PolyFlow, enabling the construction of a bridge 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 does not necessarily equal the ID used for payment, but should be more like a wallet in the physical world. Imagine what else is in your wallet besides cash? It could be family photos ), NFT (, bank cards, driver's licenses, and ID documents ), as well as user ZK support for information extraction, data privacy protection (, etc. Therefore, Wallet cannot necessarily equal Money Wallet, and there are many more expectations for what PID can do. The Scan to Earn project currently built around PID is one of them."

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3. PLP - Consensus on the Convergence of Capital Flow

The Payment Liquidity Pool)PLP( launched by PolyFlow is a product of fund flow splitting. The smart contract address is used to receive transaction funds, realizing on-chain custody of funds, rather than relying on the traditional method of expensive enterprise wallets from centralized institutions.

The PLP decentralized model can achieve:

• Decentralized Fund Custody: Provides a convenient, secure, and compliant custody method for PayFi applications, ensuring the safety of funds while minimizing the need for transaction intermediaries.

• Liquidity Pool: Aggregates trading funds through smart contract addresses to provide liquidity for financing needs in transactions.

• DeFi Compatibility: Centralized applications cannot be compatible with the decentralized DeFi ecosystem. The PLP built on the Blockchain can seamlessly connect to the DeFi ecosystem, bringing DeFi business logic to PayFi applications.

• No-risk RWA income category: The income generated by the protocol is directly reflected in the PLP, and this income based on real-world payment transaction scenarios provides a risk-free stable source for DeFi.

The architecture of PLP can flexibly integrate with the DeFi ecosystem, ensuring that PayFi applications adapt to the ever-changing landscape of digital assets.

Raymond explains the goal of PLP in consolidating funds flow consensus through three settlement models of Web3 payment:

) Peer-to-Peer Model

In the scenario of cross-border remittances, Web3 payments based on the characteristics of Blockchain can achieve synchronous confirmation of transaction information flow and fund flow, with information reflected on a public and transparent Blockchain ledger, where the entire network jointly records and confirms, making transaction information immutable.

In such low-frequency scenarios, the synchronization of information flow and capital flow fully reflects the advantages of Web3 payments, including near-instant settlement, low transaction costs, open and transparent ledgers, and global reach.

However, the current method of synchronizing on-chain peer-to-peer information flow and capital flow cannot meet the high-frequency demand for thousands of transactions per second/minute/day like traditional financial payments, which can easily lead to blockchain network congestion.

In 2023, VISA processes about 720 million transactions daily, with an average of 8,300 transactions per second generated by users, which is 8 times the TPS of the current highest performance Blockchain Solana. Therefore, Web3 payments are relatively inefficient compared to traditional payment methods in this context.

Raymond explained: "Currently, the efficiency of blockchain and distributed ledger technology cannot support the accounting of every single transaction. In traditional finance, it is sufficient to meet the accounting needs between both parties involved in a transaction, but the current peer-to-peer model requires the entire network to account for every single transaction together. It is hard to imagine a situation where the whole network is jointly accounting for tens of thousands of transactions per second. To accommodate the current total scale of the cryptocurrency market at 20 trillion, there have already been multiple instances of network congestion, let alone the desire to incorporate the traditional financial market, which has a scale of 400 trillion to 600 trillion."

Raymond stated: "Our answer is: we must believe in the power of technology. As computing power continues to improve, the efficiency of payment settlement will eventually be resolved. However, we cannot use future technology to solve today's problems; we still need to solve it from the essence of Blockchain - building consensus on the flow of funds."

3.2 Hedge Mode

In traditional finance, although the information flow and capital flow of transactions ultimately align, they are not synchronized. The information flow data based on digital networks can interact fully and in real-time, while for capital flow, the underlying funds are still held in fixed addresses and settle independently according to agreed settlement cycles, resulting in low interaction demand for capital flow.

Raymond exemplifies the cross-border fund transfer and settlement: Bank A in China and Bank B in the United States handle tens of thousands of fund transactions daily. As mentioned earlier, if the two banks synchronize the settlement of transaction information flow and fund flow for each transaction, no existing financial infrastructure can meet such a huge settlement demand, nor is it necessary.

Therefore, a net settlement method ( Net Settlement ) has emerged to handle multiple transactions between counterparties. In this method, the information flow between the two banks interacts in real-time and fully, achieving the hedging of each other's ledgers. At the end of the day ###, assuming daily settlement (, after the information flow of tens of thousands of financial transactions is completed, the net amount is finally determined for separate settlement of funds.

For example, if the net amount is that Bank A owes Bank B 20 million, then at that time, Bank A only needs to make a one-time payment of 20 million to Bank B to settle the funds flow for tens of thousands of transactions on that day; or if the net amount is exactly 0, then the funds flow between the two banks will not change.

Raymond explained: "In this case, the actual underlying fund flow changes of tens of thousands of transactions are very small; what everyone is doing is the interaction of information flow. This is why, in traditional finance, despite the large volume of underlying assets, the requirements for banks' ability to handle underlying assets, the system's capability, and the payment and settlement capability are not that high."

Net Settlement ) This hedging settlement method can greatly reduce transaction costs, improve settlement efficiency, lower counterparty credit risk, and enhance capital utilization efficiency.

However, at the same time, this traditional model inevitably requires a centralized credit system, and this strong trust relationship needs to be achieved through multiple methods such as historical credibility, strict auditing, compliance regulation, collateral support, and contract guarantees, accompanied by the risks of fund custody and information opacity.

In order to achieve a more efficient fund flow hedging settlement method like netting on the Blockchain and eliminate the centralization risks brought by third parties, PolyFlow launched PLP to settle funds on the same Block chain ledger.

The purpose of doing this is to allow people without a foundation of trust to cooperate without needing any third-party trust endorsements.