LightningFi #2: PayFi

PayFi is a catchy new buzzword, poised to become a key term in Web3. This article explores why the Lightning Network is best suited for PayFi, given that it was designed as a payment network from day one.

LightningFi

To recap, Lnfi is here to bring Web3 and tokenization to the Lightning Network through LightningFi, which essentially represents DeFi on the Lightning Network. LightningFi will unlock a world of opportunities by positioning the Lightning Network as the ultimate settlement layer. Our vision is for everyone to own an LN node and seamlessly send and receive payments over Lightning. LightningFi will act as the catalyst to help achieve this vision.

Lnfi has seen great success with the introduction of “LightningFi #1 — Channel Mining,” where users only need to set up an LN Node and open a channel with Bitcoin deposits to earn channel mining rewards. These rewards represent a stake in the protocol and an entitlement to future protocol revenue. This initiative mirrors traditional finance, where users open a bank account, deposit fiat, and earn interest. Through LN Node and Channel Mining, we’ve helped 120 new users set up their own Lightning nodes with minimal clicks and no technical expertise.

What is PayFi

PayFi was first introduced by Lily Liu, Chair of the Solana Foundation, as a novel way to design financial markets centered around the Time Value of Money (TVM), enabling financial primitives and product experiences that are difficult, if not impossible, to achieve in traditional or even Web2 finance.

Why will PayFi be superior on the Lightning Network compared to other blockchains?

1. The Lightning Network offers unique advantages: (a) high performance with over 1 million TPS, (b) exceptional security, © the Taproot Assets Protocol, which enables a payer to send one type of Taproot Asset while the payee receives another type — both the asset conversion and transmission are handled atomically on the Lightning Network, and (d) the Lightning Network already has significant adoption and strong network effects.
2. Lnfi’s stack enables off-chain tokenization, utilizing the Lightning Network for off-chain settlement and Nostr as an application layer for off-chain computation and execution, while still ensuring verifiability and finality on the Bitcoin mainnet. This approach facilitates a globally scalable economy — something that is challenging, if not impossible, to achieve with existing blockchain solutions that manage all computation, execution, and settlement on-chain.
3. Lnfi’s stack also allows for deeper integration with traditional internet and financial systems, as the Lightning Network does today. Many traditional merchants can easily accept Lightning as a payment channel, facilitating off-chain interactions between users, merchants, and rewards providers. For example, I can scan a Lightning invoice (a QR code) to make a real-life payment using tokens and be rewarded with Taproot Assets, all without involving on-chain states or smart contracts (this is how Lightning scales off-chain!). In contrast, on existing blockchains, PayFi can only be implemented on-chain, tied to activities that involve blockchain states and smart contracts. Traditional enterprises can integrate with little to no knowledge of blockchain technology. This truly bridges the gap between crypto and traditional commerce.

Pay-And-Earn

The first iteration of PayFi on Lightning by Lnfi is Pay-And-Earn. Users making payments through Lightning will earn rewards in Taproot Assets or Bitcoin. Pay-And-Earn utilizes the Lightning Network to ensure that transactions are verifiable — the recipient’s information is embedded in the Lightning invoice, serving as an identifier to confirm whether the payment was correctly made to a merchant. If so, the transaction is eligible for Pay-And-Earn rewards. Meanwhile, Nostr guarantees transaction transparency, allowing users to purchase actual goods without causing congestion or unnecessary strain on the Bitcoin network.

Pay-And-Earn can be adopted by anyone using Lnfi to implement Payment Mining for a Token Distribution Event or to establish cashback incentives using their Taproot Assets and Bitcoins.

With PayFi on Lightning, we are about to embark on a groundbreaking initiative in collaboration with our partners. We will continue to explore and implement PayFi features that will unlock greater utility for humanity — achieving what was previously impossible in traditional finance.