Stripe Acquires Bridge: A Game Changer for Crypto and Stablecoin Adoption?

1. What does Stripe's biggest acquisition, Bridge, mean for the crypto industry?

Stripe is one of the world's largest online payment service providers and processors, and the platform helps businesses accept online and in-person payments through its developer-friendly API. In 2023 alone, Stripe processed more than $1 trillion in transaction volume, and its adoption ranking is second only to ApplePay.

Last month, Stripe made a big acquisition, acquiring stablecoin platform Bridge for $1.1 billion, the largest acquisition in cryptocurrency history.

Recent cryptocurrency M&A activity, such as Robinhood's acquisition of Bitstamp for $200 million, has begun to reflect the growing demand of tech/financial giants to reach 2B and 2C cryptocurrency businesses that prioritize compliance and have a mature user base. Bridge is no exception.

You may have noticed that stablecoin adoption has surged around the world. According to a16z's report, stablecoin transaction volume has reached $8.5 trillion in the second quarter of 2024, more than double Visa's $3.9 trillion in the same period.

Stripe believes that stablecoins have potential and are the perfect medium to achieve a smooth and efficient process of asset conversion. Although Bridge only generates $10 million to $15 million in revenue per year, Stripe paid a nearly 100x premium to acquire the company. This highlights that Stripe's motivation is not only related to Bridge's current revenue, but also to the compliance, partnerships, and technology that Bridge can bring to the Stripe ecosystem.

2. What is Bridge?

Bridge is a stablecoin platform that allows businesses or users to transfer tokenized dollars using blockchain. Users can purchase cryptocurrencies with fiat currency via wire/ACH transfers to whitelisted banks, or sell cryptocurrencies for fiat currency by sending assets to designated wallets. It also provides custodial wallets to help businesses accept, store or transfer stablecoins through a set of simple APIs.

In the background, Bridge handles KYC, regulatory compliance, etc., allowing enterprises to easily integrate and start accepting cryptocurrencies as a payment method. Currently, Bridge supports USD/EUR as legal currency payments and accepts 5 stablecoins on 9 different chains.

About the team, Bridge founders Zach Abrams and Sean Yu worked at Coinbase as head of consumer products and senior developer, respectively. Before being acquired, Bridge raised a total of $58 million from various venture capital firms, of which about $40 million came from Sequoia Capital. This already shows that investors were confident in the product before the acquisition.

2.1 Bridge's strengths and moats:

Bridge is not the first product to solve the problem of cross-border transaction services. In fact, Ripple (XRP) has been providing cross-border transfer and payment services for the past 3 years, but it relies on its own currency as a medium, and users must bear the downside risk of the currency. However, in an era where regulated stablecoins like USDC provide greater protection and resilience, such solutions are outdated. Bridge solves this problem in a more efficient and compliant way.

2.2 Compliance and Cooperation

Bridge's strengths lie in the compliance and cooperation it has obtained. First, according to Sequoia's report, Bridge complies with all US and European financial regulations and anti-money laundering laws, holds remittance licenses in 22 states, and cooperates with the US State Department and Treasury Department for asset transfers. Before integrating with Bridge, companies need to provide ownership and establishment documents to prove their credibility. For more information, please refer to the following document: Bridge As Story Protocol founder SY Lee pointed out, content businesses generally lack network effects, which forces them to rely on large content production and marketing budgets to survive. This overwhelming negotiating power makes it difficult for smaller IPs to be profitable, often causing them to fail before they even launch. Even large IP studios are hesitant to develop new IPs, choosing instead to focus on expanding existing IPs.

The credibility and reputation that Bridge gains from compliance will significantly improve and expand its business channels, as can be seen from their recent collaboration with SpaceX, which Bridge will use for stablecoin management in its global financial operations (Source: Ledger)

In addition to compliance, Bridge also allows enterprises to customize and issue stablecoins using Bridge's orchestration API, with the underlying US dollars invested in US Treasuries to earn a 5% yield or remain idle. This opens up the possibility for enterprises and even CBDCs to create and customize their tokenized dollars for various use cases while adhering to compliance, with all reserves held within Bridge in the form of cash and treasury bills. 2.3 Use Cases of Bridge: 2.4 In Today’s Payment Solutions: The global demand for electronic payment solutions is rising, and the electronic payment industry is expected to grow at an annual rate of 9.9%, with a market size of $90 billion. Today’s digital payment solutions, especially in the United States, charge up to 1.5-3.5% in fees per transaction (Visa charges 1.5-3.5%, Stripe charges 3.4%, Europe is capped at ~0.3%, and global payments (such as paypal) are capped at ~2%).

Bridge fees are expected to be much lower as they are primarily composed of blockchain transaction fees and developer or issuer fees.

In October, Stripe launched a feature called "Pay with Stablecoins" in its customer checkout product, charging a 1.5% transaction fee. While it has not been confirmed that the feature was co-created with Bridge or that the fee was designed by Stripe, it shows that Bridge, as an alternative payment solution, has the potential to provide a more cost-effective option for digital payments.

In addition, data breaches have been a long-standing problem in the traditional electronic payment industry. The tamper-proof nature and security of smart contracts can effectively solve these problems. In addition to cost savings, Bridge also unlocks access to $180 billion in stablecoin liquidity in the blockchain ecosystem, enabling Stripe to expand its influence into the cryptocurrency market.

• In the Unbanked:

Bridge can provide a solution for businesses in underserved regions to store their USD or EUR in a custodial wallet, thereby building a better system for transferring, paying, or investing in tokenized USD, depending on their needs.

In addition, financial institutions can begin to offer more complex structured products that accept stablecoins as deposits, creating more business opportunities for them to leverage on-chain funds.

Since these transactions are conducted on the blockchain, the selected chain can also benefit from the associated transaction fees. Therefore, Bridge can enhance on-chain transaction activity and potentially improve the returns of validators and stakers.

• In DeFi:

Enterprises can also participate in DeFi to earn additional returns. For example, they can borrow or lend tokenized dollars on platforms such as Aave to earn interest, or leverage cryptocurrency investments for potential returns.

Alternatively, users can provide liquidity for stablecoin pairs on Uniswap V2/V3 to earn trading fees. While DeFi investments come with significant risks, they provide opportunities to maximize capital efficiency of idle assets.

Given the dominance of USDC and USDT in the market, I believe Bridge's integration can further consolidate their role in the evolving cryptocurrency space.

3.Market Outlook

1. Until recently, the use case of cryptocurrency has been largely hampered by its adoption as a payment solution. However, Stripe's acquisition of Bridge has the potential to change the trend, making cryptocurrency payments as seamless and indistinguishable from traditional fiat currency transactions and potentially becoming the backbone of PayFi in the future.

2. The largest M&A in cryptocurrency history highlights that the stablecoin and regulated payments industries have achieved clear product-market fit and undeniable utility. Value transfer remains the most compelling use case for cryptocurrency, and regulated stablecoins are becoming the primary medium of payment.

4. Key Takeaways

• Bridge is a stablecoin platform that enables businesses and users to transfer, store and pay tokenized USD using blockchain technology. Bridge manages all compliance and regulatory issues in the background.

• Bridge’s strengths lie in its compliance and acquired partnerships. It complies with all US and European financial regulations and anti-money laundering laws and works with reputable partners such as the US State Department and Treasury Department.

• Regions without direct access to the financial system can benefit greatly from Bridge due to the economic security provided by the US dollar.

• Businesses can now participate in DeFi and maximize capital efficiency of idle assets. Bridge acts as a link to inject more capital into stablecoins and is expected to boost the overall DeFi economy.

• Lower fees, faster settlements, and data security are some of the main advantages of blockchain compared to today's electronic payment solutions. Bridge has the potential to replace or become a better alternative to current payment systems.