Recently, there has been a renaissance in RWA and payfi. During this quiet time, I have been studying U.S. stablecoin payments and some related laws and regulations.

In 2022, I encountered a small team from Berkeley that was working on a BNPL (buy now pay later) project, which later received investment from Sequoia. After that, like most projects, it seems to have gone silent.

Many people may still not know what BNPL is. Simply put, in the U.S. there is Affirm, and in China, there is Ant Financial's Huabei. This should make it easier to understand.

However, this business model can be quite profitable.

1. They can charge merchants a service fee (merchants are willing to pay fees to improve user conversion rates), which is similar to traditional credit card points, but mainly used in online shopping. For example, when you purchase something, you can choose to pay in installments with Affirm.

2. They charge users a portion of the loan interest (e.g., non-0% APR plans).

3. They provide virtual cards for offline consumption, charging fees equivalent to credit card fees.

Basically, everyone in the U.S. is a slave to installment payments. I often see people buying a pair of Converse canvas shoes and choosing to pay in 12 installments, and it seems like everyone is not concerned about the high interest rates due to poor math skills.

However, in today's renaissance of RWA and payfi, people are accustomed to the existence of U cards, but crypto BNPL still hasn't taken off. I think the main difficulties are as follows:

1. KYC is difficult. Most users who need this are in mainland China, where fiat currency and credit card payments are very mature and convenient. Therefore, the demand for crypto is not so high. Only mainland China has a natural demand due to foreign exchange conversion difficulties, but KYC, you know.

2. There is no way to link on-chain assets to off-chain assets, which simply means that debt collection is difficult.

Traditionally, if you owe money to Ant Huabei, they can freeze your assets through the court and impose high consumption restrictions as punishment. In the U.S., small loan collection can be quite brutal. I’ve heard of collection agencies that call you saying you’ve won the lottery, and then quietly tow your car once you park it somewhere.

Once a user runs away, it’s very difficult for BNPL companies to protect their rights.

3. There is a lack of indicators for credit evaluation. Many crypto millionaires may have substantial crypto assets, but in real life, due to not paying taxes and lacking stable jobs, they might not even be able to borrow $20,000. Thus, how to assess a person's credit rating based on on-chain behavior is also a major challenge.

Small institutions definitely can't handle the above difficulties, but what if this business is done by industry giants like Binance/Coinbase?

First of all, the KYC issues of CEX are certainly resolved, and there are also partnerships with credit card companies for payment, including collaborations with hotels and airlines that I see major exchanges are negotiating.

The remaining key point is how to construct a stable and reliable on-chain/CEX asset credit rating based on users' crypto assets, and then turn this standard into an industry consensus. Currently, it is unclear if any teams in the industry are working on this. If it can really be achieved, it could truly open a financial golden age of P2P innovation and entrepreneurship in the crypto space.