Crypto Payment Channels: Superconductors for Payments

As time goes by 2025, blockchain has gradually built a financial payment ecosystem parallel to the traditional financial system. The encrypted payment channel has carried 200 billion stablecoins and 5.62 trillion US dollars in stablecoin transactions in 2024. This is Visa's adjusted data, which is more suitable for payment itself and is almost the annual transaction volume of Mastercard. According to the statistical caliber of Cathie Wood, ARK Invest's report, in 2024, the annualized transaction volume of stablecoins will reach 15.6 trillion US dollars, which is about 119% and 200% of Visa and Mastercard respectively.

In any case, the popularity and large-scale adoption of crypto payments are indisputable facts, especially represented by Stripe's $1.1 billion acquisition of stablecoin service provider Bridge. As Stripe CEO Patrick Collison said, crypto payment channels are superconductors of payment. They form the basis of a parallel financial system that provides faster settlement times, lower fees, and the ability to operate seamlessly across borders. It took a decade for the idea to mature, but today we see hundreds of companies working to make it a reality. In the next decade, we will see crypto channels become the core of financial innovation and drive global economic growth.

Previously, we have introduced the Web3 encrypted payment system built with blockchain as the infrastructure through multiple Web3 payment articles:

• Web3 payment 10,000-word research report: The all-out attack of industry giants is expected to change the existing encryption market landscape, which introduces how Web3 payment is built and the layout of market giants in 2023;

• Web3 payment 10,000-word research report: From electronic cash, tokenized currency, to the future of PayFi, which systematically introduces how Web3 payment has evolved from electronic cash to tokenized currency/digital dollar, as well as future development trends. You can also refer to the Circle 2025 USDC Market Economic Report: Digital Dollar on the Internet of Value.

• Web3 Payment 10,000-word Research Report: How Stablecoins Will Perform in 2025, let's take a look from the perspective of stablecoins.

The following articles will be based on the perspective of global crypto payment regional market adoption. After all, the different logics of financial efficiency improvement in the northern hemisphere and anti-inflation value storage in the southern hemisphere have created a situation where you are in the Red Mansion and I am in the West. In addition, since both payment and currency are on the chain, how to combine crypto payment with DeFi to achieve the maximum utility of payment is also a future trend, which is what we call PayFi or DeFi 2.0? Welcome to communicate, so stay tuned.

There are still many things that need to be solved, just as Kevin's boss listed:

• transaction market: $16 trillion

• trade finance: $89 trillion

• remittance $4 trillion prefund

• the average international transfer rate is close to 7 %

• 3-5 business day to arrive

• 1.4 billion people have no bank accounts

So this compilation Dmitriy Berenzon's article Cryptorails: Superconductors for Payments takes a very holistic approach from the perspective of traditional payments to see how blockchain-based encrypted payment channels can bring benefits to traditional payment channels, and provides multiple real-world application scenarios and future predictions, which are worth reading in depth.

In 2009, when Satoshi Nakamoto released Bitcoin, he envisioned using encrypted networks for payments, allowing payments to flow freely on the Internet like information. Although this direction was correct, the technology, economic model, and ecosystem at the time were not suitable for commercializing this use case. Fast forward to 2025, and we have witnessed the convergence of several important innovations and developments that make this vision inevitable: stablecoins have been widely adopted by consumers and businesses, market makers and OTC desks can now easily hold stablecoins on their balance sheets, DeFi applications have created a strong on-chain financial infrastructure, there is a large amount of acceptance of deposits and withdrawals around the world, block space is faster and cheaper, embedded wallets simplify the user experience, and a clearer regulatory framework reduces uncertainty. Today, we have the opportunity to build a new generation of payment companies that leverage the power of "crypto-channels" to achieve better unit economics than the traditional financial payment system, which is subject to multiple rent-seeking intermediaries and outdated infrastructure. These crypto-channels are forming the backbone of a parallel financial system that operates in real time 24/7 and is global in nature.

In this article, Dmitriy Berenzon will:

• Explain the key components of the traditional financial system;

• Overview the main current use cases for crypto channels;

• Discuss the barriers and challenges to continued adoption;

• Share your predictions for where the market will be in five years.

To further inspire this post, it’s worth noting that there are many more companies operating here than you might think — about 280 as of the time of writing:

I. Existing Payment Channels

In order to understand the importance of crypto channels, one must first understand the key concepts of existing payment channels and the complex market structure and system architecture in which they operate. If you are already familiar with these, feel free to skip this section.

1.1 Card Networks

Although the topology of the card network is complex, the main participants in credit card transactions have remained unchanged for the past 70 years. Essentially, there are four main participants in credit card payments:

1. Merchants

2. Cardholders

3. Issuing Banks

4. Acquiring Banks

The first two are simple, but the last two are worth explaining.

Issuing banks, or card issuers, provide credit or debit cards to customers and authorize transactions. When a transaction is requested, the issuing bank decides whether to approve it by checking the cardholder's account balance, available credit, and other factors. Credit cards essentially borrow funds from the issuer, while debit cards transfer money directly from your account.

If merchants want to accept credit card payments, they need an acquirer (which can be a bank, payment processor, gateway, or independent sales organization) that is an authorized member of the card association network. The term acquirer derives from its role in collecting payments on behalf of merchants and ensuring that those funds reach the merchant's account.

The credit card association network itself provides the channels and rules for credit card payments. They connect acquirers with issuing banks, provide clearing functions, set participation rules, and determine transaction fees. ISO 8583 remains the main international standard that defines how credit card payment information (such as authorization, settlement, refund) is constructed and exchanged between network participants. In the network environment, issuers and acquirers are like their distributors - issuers are responsible for putting more cards in the hands of users, while acquirers are responsible for putting as many card terminals and payment gateways as possible in the hands of merchants so that they can accept credit card payments.

In addition, there are two types of credit card association networks: "open loop" and "closed loop". Open loop networks like Visa and Mastercard involve multiple parties: issuing banks, acquiring banks, and the credit card association network itself. The card association network facilitates communications and transaction routing, but is more like a marketplace, relying on financial institutions to issue cards and manage customer accounts. Only banks are allowed to issue credit cards for open-loop networks. Each debit or credit card has a bank identification number (BIN), which is provided to the bank by Visa, while non-bank entities like PayFacs require a "BIN sponsor" to issue cards or process transactions. In contrast, closed-loop networks like American Express are self-sufficient, with one company handling all aspects of the transaction process - they typically issue their own cards, are their own bank, and provide their own merchant acquiring services. The general consideration is that closed-loop systems offer more control and better profits, but at the cost of more limited merchant acceptance. Conversely, open-loop systems offer wider adoption, but at the cost of control and revenue sharing among the participating parties.

Source: Arvy

The economics of payments are complex, with multiple layers of fees in the network. Interchange fees are part of the payment fee charged by issuing banks for providing access to their customers. While technically acquiring banks pay the interchange fees directly, the costs are often passed on to merchants. The card network typically sets the interchange fee, which often accounts for the majority of the total cost of a payment. These fees vary widely across regions and transaction types. For example, in the United States, consumer credit card fees range from ~1.2% to ~3%, while in the European Union they are capped at 0.3%. In addition, the Scheme Fees are also determined by the card organization network to compensate the network for connecting the acquiring institution and the issuing bank and acting as a "channel" to ensure the accurate flow of transactions and funds. There are also Settlement Fees to be paid to the acquiring institution, which is usually a percentage of the transaction settlement amount or transaction volume.  

While these are the most important players in the value chain, the reality is that today’s market structure is much more complex in practice:

Source: 22nd

There are several other important players in the above chain:

• Payment Gateway encrypts and transmits payment information, connects payment processors and acquirers for authorization, and communicates transaction approval or rejection to businesses in real time.

• Payment Processor processes payments on behalf of acquiring banks. It forwards the transaction details from the gateway to the acquiring bank, which then communicates with the issuing bank through the card association network to obtain authorization. The payment processor receives the authorization response and sends it back to the gateway to complete the transaction. It also handles settlement, which is the process by which the funds actually enter the merchant's bank account. Typically, a business sends a batch of authorization transactions to the payment processor, which submits these transactions to the acquiring bank to initiate the transfer of funds from the issuing bank to the merchant's account.

• Payment Facilitator or Payment Service Provider was pioneered by PayPal and Square around 2010, and is like a small payment processor between merchants and acquiring banks. It effectively acts as an aggregator by bundling many smaller merchants into its system to achieve economies of scale and streamline operations by managing money flows, processing transactions and ensuring payments. PayFacs holds direct merchant IDs from the card scheme network and takes on the responsibility for onboarding, compliance (e.g. AML laws) and underwriting on behalf of the merchants it works with.

• Orchestration Platform is a middleware technology layer that simplifies and optimizes the payment process for merchants. It connects to multiple processors, gateways and acquirers through a single API to increase transaction success rates, reduce costs and improve performance by routing payments based on factors such as location or fees.

1.2 Automated Clearing House

The Automated Clearing House (ACH) is one of the largest payment networks in the United States and is actually owned by the banks that use it. It was originally established in the 1970s, but really became popular when the US government began using it to send social security payments, which encouraged banks across the country to join the network. Today, it is widely used for payroll processing, bill payments, and B2B transactions.

There are two main types of ACH transactions: remittances and withdrawals. When a user receives a paycheck or pays a bill online using a bank account, the user is using the ACH network. There are multiple players involved in the process: the company or person who initiates the payment (the originator), their bank (the ODFI), the receiving bank (the RDFI), and the operator who acts as the operator for all of these transactions. In the ACH process, the originator submits the transaction to the ODFI, which then sends the transaction to the ACH operator, which then switches the transaction to the RDFI. At the end of each day, the operator calculates the net settlement totals for its member banks (the Federal Reserve manages the actual settlement).

Source: America’s Payment System: A Guide for Payment Professionals

One ​​of the most important things about ACH is how it handles risk. When a company initiates an ACH payment, its bank (the ODFI) is responsible for making sure everything is legal. This is especially important for withdrawals—imagine if someone used your bank account information without permission. To prevent this, regulations allow disputes to be filed within 60 days of receiving a statement, and companies like PayPal have developed clever verification methods, such as making small test deposits to confirm account ownership.

The ACH system has struggled to keep up with modern demands. In 2015, they launched Same-Day ACH, which can process payments much faster. Still, it relies on batch processing rather than real-time transfers, and has limitations. For example, you can't send more than $25,000 in a single transaction, and it doesn't work for international payments.

1.3 Wire

Wire transfers are at the heart of high-value payment processing, and the two main systems in the United States are Fedwire and CHIPS. These systems handle time-critical, guaranteed payments that need to be settled immediately, such as securities transactions, major business transactions, and real estate purchases. Once executed, wire transfers are generally irrevocable and cannot be canceled or reversed without the recipient's consent. Unlike conventional payment networks, which process transactions in batches, modern wire transfers use a real-time gross settlement (RTGS) system, which means that each transaction is settled individually as it occurs. This is an important feature because the system processes hundreds of billions of dollars a day, and the risk of a bank using traditional net settlement failing intraday is too great.

Fedwire is an RTGS system that allows participating financial institutions to send and receive same-day funds transfers. When a business initiates a wire transfer, its bank authenticates the request, debits the funds from its account, and sends a message to Fedwire. The Federal Reserve Bank then immediately debits the sending bank's account and credits the receiving bank's account, which then credits the ultimate recipient's account. The system operates weekdays from 9 p.m. to 7 p.m. ET the previous night and is closed on weekends and federal holidays.

CHIPS, owned by large U.S. banks through clearing houses, is a private sector alternative, but is smaller, serving only a few large banks.

Unlike Fedwire's RTGS approach, CHIPS is a netting settlement system, meaning the system allows multiple payments between the same counterparties. For example, if Alice wants to send Bob $10 million and Bob wants to send Alice $2 million, CHIPS will combine these payments into one payment of $8 million from Bob to Alice. While this means CHIPS payments take longer than real-time transactions, most payments are still settled intraday.

Complementing these systems, SWIFT is not actually a payment system, but a global messaging network for financial institutions. It is a member-owned cooperative whose shareholders represent more than 11,000 member organizations. SWIFT enables banks and securities firms around the world to exchange secure structured messages, many of which initiate payment transactions across various networks. According to Statrys, SWIFT transfers take about 18 hours to complete.

In the general process, the sender of funds instructs its bank to send a wire to the receiver. The value chain below is a simple case where two banks belong to the same wire transfer network.  

Source: The U.S. Payment System: A Guide for Payment Professionals

In more complex cases, especially cross-border payments, transactions need to be executed through a correspondent banking relationship, typically using SWIFT to coordinate payments.

Source: Matt Brown

Real Use Cases

Now that we have a basic understanding of traditional payment rails, we can focus on where crypto payment rails are advantageous.

Crypto payment rails are most effective in situations where traditional dollar usage is limited but demand for dollars is high. Think of places where dollars are needed to store wealth or as a bank alternative, but traditional dollar bank accounts are not easily accessible. These countries are often economically unstable, have high inflation, currency controls, or have underdeveloped banking systems, such as Argentina, Venezuela, Nigeria, Turkey, and Ukraine. Furthermore, one could argue that the U.S. dollar is a superior store of value than most other currencies, with consumers and businesses often choosing the dollar because it can be easily used as a medium of exchange or converted into local fiat currency at the point of sale.

The advantages of crypto payment rails are also most evident in scenarios where payments are globalized, as blockchain networks are not bound by national borders and they rely on existing internet connections to provide global coverage. According to the World Bank, there are currently 92 RTGS systems in operation worldwide, each of which is typically owned by its own central bank. While they are ideal for processing domestic payments within these countries, the problem is that they cannot "talk to each other." Crypto payment rails can act as glue between these different systems, as well as extend them to countries that do not have them.

Crypto payments are also particularly useful for payments that have a certain degree of urgency or generally have a high time preference. This includes cross-border supplier payments and foreign aid payments. This is also helpful in scenarios where the correspondent banking network is particularly inefficient. For example, despite geographical proximity, it is actually more difficult to send money from Mexico to the United States than from Hong Kong to the United States. Even in developed corridors such as the United States to Europe, payments often need to go through four or more correspondent banks.

On the other hand, crypto payment corridors are less attractive for domestic transactions in developed countries, especially where credit card usage is high or real-time payment systems already exist. For example, intra-European payments flow smoothly through SEPA, and the stability of the euro eliminates the need for dollar-denominated alternatives.

2.1 Merchant Acceptance

Merchant acquiring can be divided into two different use cases: front-end integration and back-end integration. In the front-end approach, merchants can directly accept cryptocurrencies as a payment method for customers. While this is one of the oldest use cases, it has historically not seen much volume because few people held cryptocurrency, even fewer wanted to spend it, and for those who did, there were limited useful options. Today’s market is different because more people hold crypto assets (including stablecoins) and more merchants accept them as a payment option because it enables them to reach new customer segments and ultimately sell more goods and services. From a geographic perspective, most of the volume comes from businesses selling to consumers in countries that were early adopters of cryptocurrency, which are typically emerging markets like China, Vietnam, and India. From a merchant perspective, most of the demand comes from online gambling and retail stock brokerages that want to reach users in emerging markets, Web2 and Web3 markets like watch vendors and content creators, and real money games like fantasy sports and sweepstakes.

The "front-end" merchant onboarding process typically looks like this:

• The PSP typically creates a wallet for the merchant after KYC/KYB;

• The user sends crypto to the PSP;

• The PSP converts the crypto to fiat via a liquidity provider or stablecoin issuer and sends the funds to the merchant's local bank account, possibly using other licensed partners.

The main challenge holding back continued adoption of this use case is psychological, as cryptocurrencies do not seem "real" to many people. There are two major user personas that need to be addressed: one who doesn't care about its value at all and wants to treat everything as magic internet money; and the other who is pragmatic and deposits funds directly into the bank.

In addition, it will be more difficult for consumers to adopt crypto payments in the United States because credit card rewards are actually 1% to 5% shopping rebates paid to consumers. There have been attempts to convince merchants to promote crypto payments directly to consumers as an alternative payment method to credit cards, but so far they have not been successful. While reducing interchange rates is a good idea for merchants, it is not a problem for consumers. Merchant Customer Exchange launched in 2012 and failed in 2016 for exactly this reason - they could not start the consumer side of the adoption flywheel. In other words, it is difficult for merchants to directly incentivize users to switch from credit card payments to crypto assets because payments are already "free" for consumers, so the value proposition should be solved at the consumer level first.

In the back-end approach, crypto payments can provide merchants with faster settlement times and access to funds. Settlements can take 2-3 days for Visa and Mastercard, 5 days for American Express, and longer for international settlements, such as approximately 30 days in Brazil. In some use cases, such as markets like Uber, merchants may need to pre-fund bank accounts to allow for payment prior to settlement.

Instead, one can effectively enter a crypto payment channel through the user's credit card, transfer funds on-chain, and ultimately transfer funds directly to the merchant's bank account in local currency. In addition to improving working capital due to the reduced period of funds tied up in the payment path, merchants can further improve their fund management by freely and instantly converting between digital dollars and yield assets such as tokenized U.S. Treasuries.

More specifically, the “backend” merchant acceptance process might look like this:

1. The user enters their credit card information to complete the transaction;

2. The PSP creates a wallet for the customer and funds that wallet through an on-ramp that accepts traditional payment methods;

3. The credit card transaction buys USDC, which is then sent from the customer’s wallet to the merchant’s wallet;

4. The PSP may choose to transfer to the merchant’s bank account via local railways T+0 (i.e. same-day);

5. The PSP may choose to transfer to the merchant’s bank account via local railways T+0 (i.e. same-day);

6. The PSP may choose to transfer to the merchant’s bank account via local railways T+0 (i.e. same-day);

7. 

   2.2 Debit Cards

   The ability to link debit cards directly to non-custodial smart contract wallets has created an unexpectedly powerful bridge between blockchain space and the real world, driving organic adoption across different user roles. In emerging markets, these cards are becoming the primary spending tool, increasingly replacing traditional banks. Interestingly, even in countries with stable currencies, consumers are using these cards to gradually accumulate USD savings while avoiding foreign exchange (FX) fees on purchases. High net worth individuals are also increasingly using these crypto-pegged debit cards as an efficient tool to spend USDC globally.

   The advantage of debit cards over credit cards lies in two factors: debit cards face fewer regulatory restrictions (for example, MCC 6051 is outright rejected in Pakistan and Bangladesh, where capital controls are strict), and debit cards carry a lower risk of fraud, as chargebacks of already settled crypto transactions can create serious liability issues for credit cards.

   In the long run, crypto wallet-bound cards for mobile payments may actually be the best way to combat fraud, as there is biometric authentication on the phone: scanning your face, spending, and recharging money from your bank account to the wallet. 2.3 Remittances Remittances refer to the act of sending money from the country of work back to their home country by people who have moved abroad in search of work. According to the World Bank, remittances will total about $656 billion in 2023, equivalent to the GDP of Belgium. Traditional remittance systems are costly, resulting in less money in the pockets of recipients. On average, cross-border remittances cost 6.4% of the remittance amount, but these fees vary widely - from 2.2% for a remittance from Malaysia to India (even lower for high-volume channels such as the United States to India), to as much as 47.6% for a remittance from Turkey to Bulgaria. Banks tend to have the highest fees, around 12%, while remittance operators such as MoneyGram have an average fee of 5.5%.

   

   Source: World Bank

   Crypto payments can provide a faster and cheaper way to send money overseas, and the number of such companies depends largely on the size of the broader remittance market, with the largest corridors being from the U.S. to Latin America (particularly Mexico, Argentina, and Brazil), the U.S. to India, and the U.S. to the Philippines. An important factor driving this trend are non-custodial embedded wallets, which provide users with a Web2-grade user experience.

   The process of making a remittance payment using crypto payments might look like this:

   • The sender enters the PSP through a bank account, debit card, credit card, or directly to an on-chain address; if the sender does not have a wallet, one is created for them;

   • The PSP converts USDT/USDC into the recipient's local currency, either directly or through a market maker or OTC partner;

   • The PSP pays the fiat currency to the recipient's bank account, either directly from their integrated bank account or through a local payment gateway; alternatively, the PSP can also first generate a non-custodial wallet for the recipient to claim the funds and give them the option of keeping them on-chain;

   • In many cases, the recipient needs to complete KYC before they can receive the funds.

   Despite this, the path to market for crypto remittance projects remains difficult. One problem is that you often need to incentivize people to move away from remittance operators, which can be expensive. Another problem is that transfers on most Web2 payment applications are already free, so local transfers alone are not enough to overcome the network effects of existing applications. Finally, while the on-chain transfer component works well, you still need to interact with traditional banking institutions in the "last mile", so users may still end up with the same or even worse problems due to the costs and frictions of currency acceptance for deposits and withdrawals. In particular, payment gateways that convert to local fiat currency and pay in customized ways such as mobile phones or self-service terminals will occupy the largest profit space.

   2.4 B2B Payments

   Cross-Border (XB) B2B payments are one of the most promising applications for crypto payments because of the inefficiencies of the traditional payment system. Payments through the correspondent banking system can take weeks to settle, and in some extreme cases even longer - one founder said it took them 2.5 months to send supplier payments from Africa to Asia. As another example, cross-border payments from Ghana to Nigeria (two neighboring countries) can take weeks and transfer fees are as high as 10%.

   In addition, cross-border settlements are slow and expensive for PSPs. For companies like Stripe that do payments, it can take up to a week to pay international merchants, and they have to lock up funds to cover fraud and chargeback risks. Shortening the conversion cycle will free up a lot of working capital.

   XB B2B payments have been able to make significant progress on the crypto channel, mainly because merchants care more about fees than consumers. Reducing transaction costs by 0.5% to 1% doesn't sound like much, but when the volume is high, especially for businesses with thin margins, this fee is considerable. In addition, speed is also important. Getting payments completed in hours instead of days or weeks has a significant impact on a company's working capital. In addition, businesses are more tolerant of poorer user experiences and more complex experiences than consumers who expect a smooth out-of-the-box experience.

   Additionally, the cross-border payments market is massive — estimates vary widely from source to source, but according to McKinsey, revenues are estimated at $240 billion and volumes are estimated at $150 trillion in 2022.That being said, building a sustainable business is still difficult. While a “stablecoin sandwich” — exchanging local currency for a stablecoin and back again — is certainly faster, it is also expensive, as accepting deposits and withdrawals on both sides eats into margins and often results in unsustainable unit economics.While some companies have tried to address this by building in-house market-making arms, this is very balance sheet intensive and difficult to scale. Furthermore, customer onboarding is also relatively slow, concerned about regulation and risk, and often requires a lot of education.

   That being said, FX costs could fall rapidly over the next two years as stablecoin legislation opens the door for more businesses to hold and operate digital dollars. As more in-and-out currency acceptances and token issuers will have direct banking relationships, they will be able to effectively offer wholesale acceptance rates at internet scale.

   2.4.1 XB Supplier Payments

   For B2B payments, the majority of cross-border transactions are importers paying suppliers, typically buyers in the US, Latin America, or Europe, and suppliers in Africa or Asia. Local payment corridors in these countries are underdeveloped, making it difficult to find local banking partners. Crypto payments can also help alleviate country-specific pain points. For example, in Brazil, you can’t pay millions of dollars using traditional payment corridors, making it difficult for businesses to make international payments. Some well-known companies, such as SpaceX, are already using crypto payments for this use case.

   2.4.2 XB Receivables

   Businesses with global customers often have difficulty collecting funds in a timely and efficient manner. They often work with multiple PSPs to collect funds for them locally, but need a way to collect payments quickly, which can take days or even weeks, depending on the country. Crypto payments are faster than SWIFT transfers and can compress the time to T+0.

   Here is an example of the payment process for a Brazilian business purchasing goods from a German business:

   • The buyer sends Real to the PSP via PIX;

   • The PSP converts Real to USD and then to USDC;

   • The PSP sends USDC to the seller's wallet;

   • If the seller wants local fiat currency, the PSP sends USDC to the market maker or trading desk to convert into local currency;

   

   2.4.3 Treasury Operations

   Companies can also use crypto payment corridors to improve treasury operations and accelerate global expansion. They can hold USD balances and use local on- and off-ramps to reduce FX risk and enter new markets faster, even if local banks are unwilling to support them. They can also use crypto payment corridors as an internal means of reorganizing and repatriating funds between the countries in which they operate.

   2.4.4 Foreign Aid Disbursement

   Another common use case we see for B2B is time-critical payments, for which these crypto channels can be used to reach recipients faster. One example is foreign aid disbursements - allowing NGOs to use crypto payment channels to send money to local export agents, who can then individually make payments to eligible individuals. This can be particularly effective in economies with very weak local financial systems and/or governments. For example, in a country like South Sudan, where the central bank has collapsed, local payments can take over a month. But as long as there is a mobile phone and an internet connection, there are ways to bring digital currency into the country, and individuals can exchange digital currency for fiat currency and vice versa.

   The payment flow for this use case might look like this:

   • The NGO provides funds to the PSP;

   • The PSP sends a bank transfer to the OTC partner;

   • The OTC partner converts fiat currency into USDC and sends it to the local partner’s wallet;

   • The local partner obtains USDC through peer-to-peer (P2P) traders.

   2.5 Payroll

   From a consumer perspective, one of the most promising early adopters is freelancers and contractors, especially in emerging markets. The value proposition for these users is that more money ends up in their pockets rather than going to intermediaries, and that money can be digital dollars. This use case also brings cost benefits to the other side of the business sending large-scale payments, and is particularly useful for cryptocurrency-native companies (such as exchanges) that already hold most of their funds in cryptocurrency.

   The process for contractor payment is usually as follows:

   • The company conducts KYB/KYC with the PSP;

   • The company sends USD to the PSP or sends USDC to a wallet address tied to the contractor;

   • The contractor can decide whether to keep it as cryptocurrency or withdraw it to a bank account, and the PSP usually signs some master service agreements with one or more OTC partners who hold relevant licenses in their respective jurisdictions to make local payments.

   

   2.6 On/Off-ramps

   On/Off-ramps is a crowded market with intense competition. While many early attempts failed to scale, the market has matured over the past few years with many companies operating sustainably and providing local payment channels around the world. While on/off-ramps can be used as a standalone product (e.g. simply buying crypto assets), they are arguably the most critical part of the payment process for bundled services such as payments.

   Building a deposit and withdrawal currency acceptance usually involves three parts: obtaining the necessary licenses (e.g. VASP, MTL, MSB), securing local banking partners or PSPs with access to local payment channels, and connecting to market makers or OTC desks for liquidity.

   Initially, exchanges dominated access to the market, but today, more and more liquidity providers (from small FX and OTC desks to large trading firms such as Cumberland and FalconX) are providing access to the market. These firms can often handle up to $100 million in volume per day, so they are less likely to exhaust the liquidity of hot assets. Some teams may even prefer them because they can promise spreads, which helps control profit margins.

   Getting in and out of the non-U.S. portion of currency acceptance is often much more difficult than the U.S. portion, due to licensing, liquidity, and orchestration complexities. This is especially true in Latin America and Africa, where there are dozens of currencies and payment methods. For example, you can use PDAX in the Philippines because it’s the largest cryptocurrency exchange there, but in Kenya you’ll need to use multiple local partners like Clixpesa, Fronbank, and Pritium, depending on the payment method.  

   P2P channels rely on a network of “agents” — local individuals, currency providers, and small businesses like supermarkets and pharmacies — who provide fiat and stablecoin liquidity. These agents are particularly prevalent in Africa, where many already operate mobile money stalls for services like MPesa, and their primary motivation is financial incentive — they make money from transaction fees and foreign exchange spreads. In fact, for individuals in high-inflation economies such as Venezuela and Nigeria, becoming an agent can be more lucrative than traditional service jobs such as taxi drivers or food delivery. They can also work from home using their mobile phones, and usually only need a bank account and mobile money to start working. What makes this system particularly powerful is its ability to support dozens of local payment methods without the need for formal licensing or integration, as transfers occur between individual bank accounts. It is worth noting that the foreign exchange rates of P2P channels are often more competitive. For example, the Bank of Khartoum in Sudan often charges foreign exchange fees of up to 25%, while local cryptocurrency P2P ramps offer foreign exchange fees of 8% to 9%, which is actually the market exchange rate rather than the bank-imposed exchange rate. Similarly, P2P channels are able to offer foreign exchange rates that are about 7% cheaper than the bank exchange rate in Ghana and Venezuela. Generally, the interest rate spread is smaller in countries with a larger supply of US dollars. In addition, the best markets for P2P channels are those with high inflation, high smartphone penetration, weak property rights, and unclear regulatory guidelines, because financial institutions will not touch cryptocurrencies, which creates an environment for self-custody and P2P to flourish. The payment process of a P2P gateway may look like this: The user can choose or automatically designate a counterparty or "agent" who already has USDT, which is usually custodied by the P2P platform; The user sends fiat currency to the agent through the local payment channel; The agent confirms receipt and sends USDT to the user.

From a market structure perspective, most on- and off-ramps are commoditized, with little customer loyalty as they will often choose the cheapest option. To remain competitive, local payment corridors may need to expand coverage, optimize for the most popular channels, and find the best local partners. In the long term, we may see consolidation into a few on- and off-ramps per country, each with a comprehensive license, supporting all local payment methods, and providing the most liquidity. Aggregators will be particularly useful in the medium term as local providers are often faster and cheaper, and combined options often offer the best price and completion rates for consumers. They will likely also suffer the least from commoditization if they can efficiently optimize and route payments across hundreds of partners and routes. This also applies to orchestration platforms, including compliance, PSP selection, bank partner selection, and value-added services such as card issuance.

From a consumer perspective, the good news is that fees are likely to trend towards zero. We're already seeing this today on Coinbase, where the cost of instant conversion from USD to USDC is $0. In the long run, most stablecoin issuers are likely to offer this service to large wallets and fintech companies, further compressing fees.

Third, compliance and regulatory licensing

Obtaining a regulatory license is a painful but necessary step to expand the scope of crypto payment applications. For startups, there are two ways: partner with an already licensed entity or obtain a license independently. Partnering with a licensed partner allows startups to bypass the high costs and long time associated with obtaining a license on their own, but at the cost of lower profit margins because a large portion of revenue goes to the licensed partner. Alternatively, startups can choose to invest upfront (potentially hundreds of thousands to millions of dollars) to obtain a license independently. While this path often takes months or even years (one project said it took them 2 years), it enables startups to deliver a more comprehensive product directly to users. While there are established protocols for obtaining regulatory licenses in many jurisdictions, achieving global licensing coverage is extremely challenging or even impossible, as each region has its own unique money transmission regulations and you would need over 100 licenses to cover the globe. For example, in the U.S. alone, a project would need a money transmission license (MTL) in each state, a BitLicense in New York, and a money services business (MSB) registration with the Financial Crimes Enforcement Network. Simply obtaining an MTL for all states could cost anywhere from $500,000 to $2 million and could take up to a year. Overseas, the requirements are just as dizzying. Importantly, startups that are non-custodial and don’t touch the flow of money can often bypass immediate licensing requirements and get to market faster.

Four Challenges

Payment adoption is often difficult because it’s a chicken-and-egg problem. Either you get consumers to widely adopt a payment method, which will force merchants to accept it, or you get merchants to use a specific payment method, which will force consumers to adopt it. For example, credit cards were a niche market in Latin America until Uber became popular in 2012; everyone wanted a credit card because it allowed them to use Uber, which was safer and (initially) cheaper than taxis. This allowed other on-demand apps like Rappi to become popular because now people had smartphones and credit cards. This created a virtuous cycle where more and more people wanted credit cards because there were more cool apps that required credit cards for payment. This also applies to mainstream consumer adoption of crypto payments. We haven’t seen use cases where using stablecoins for payments is particularly beneficial or outright necessary, though debit cards and remittance apps are getting us closer to that moment. P2P apps have a chance if they can unlock a whole new online behavior — micropayments and creator payments seem like exciting candidates. This applies to consumer apps in general, which won’t be adopted without step-function improvements over the status quo. On the in-and-out currency acceptance side, there are still some issues: High failure rates: If you’ve tried to get in with a credit card, you understand the frustration. User experience barriers: While early adopters can accept the pain of acquiring assets through an exchange, the early majority of users will likely use them directly in a specific app. To support this, we need smooth in-app upgrades, ideally via Apple Pay.

8. High Fees: Access fees are still very expensive - fees can still be as high as 5%-10% depending on the provider and region.

9. Inconsistent Quality: Reliability and compliance still vary too much, especially for non-USD currencies.

An issue that is not discussed in depth is privacy. While privacy is not a serious issue for individuals or companies at present, it will become an issue once crypto payments are adopted as the main mechanism for commerce. When malicious actors begin to monitor the payment activities of individuals, companies, and governments through public keys, there will be serious negative consequences. One way to solve this problem in the short term is to "protect privacy through obscurity", and start a new wallet every time you need to send or receive funds on the chain.

In addition, establishing a banking relationship is often the hardest part, as this is another chicken-and-egg problem. Bank partners will accept you if they get volume and make money, but you need banks to get that volume in the first place. Additionally, only 4-6 small US banks currently support crypto payment companies, and several of those banks have reached their internal compliance limits. This is partly because crypto payments today are still classified as “high-risk activities” similar to marijuana, adult media, and online gambling.

Contributing to this problem is that compliance is still not at the level of traditional payment companies. This includes AML/KYC and Travel Rule compliance, OFAC screening, cybersecurity policies, and consumer protection policies. Even more challenging is to bake compliance directly into crypto payments, rather than relying on out-of-band solutions and companies. Lightspark’s Universal Currency Address offers a creative solution to this challenge by facilitating the exchange of compliance data between participating institutions.

V. Future Outlook

On the consumer side, we are currently at a stage where certain groups of people are beginning to accept stablecoins, especially freelancers, contractors, and remote workers. By leveraging a network of credit card organizations to provide consumers with dollar exposure and daily spending power, we are also getting closer to the demand for dollars in emerging economies. In other words, debit cards and embedded wallets have become a "bridge" to bring cryptocurrencies to the off-chain in a form that is intuitive to mainstream consumers. On the business side, we are at the beginning stages of mainstream adoption. Companies are using stablecoins on a large scale, and this number will increase significantly over the next decade.

With all of this in mind, here are my 20 predictions for the state of the industry in the next 5 years:

1. $200 billion to $500 billion in annual payments through crypto corridors, driven primarily by B2B payments.

2. More than 30 new banks globally launched natively on crypto payment corridors.

3. Fintechs race to stay relevant, with dozens of crypto-native companies being acquired.

4. Some crypto companies (likely stablecoin issuers) will acquire fintechs and banks that are struggling due to high CAC and operating costs.

5. There are about 3 crypto networks (L1 and L2) emerging and scaling with architectures designed for payments. Such networks are similar in spirit to Ripple, but with a sound technology stack, economic model, and go-to-market strategy.

6. 80% of online merchants will accept cryptocurrencies as payment, either through existing PSPs expanding their offerings or through crypto-native payment processors providing them with a better experience.

7. The network of card organizations will be expanded to cover approximately 240 countries and regions (currently there are approximately 210), using stablecoins as a last-mile solution.

8. The majority of remittance volume on 15 remittance corridors around the world will be carried out through encrypted payment corridors.

9. On-chain privacy primitives will eventually be adopted, driven by businesses and countries using encrypted payment corridors rather than consumers.

10. 10% of all foreign aid spending will be sent through encrypted payment corridors.

11. The deposit and withdrawal money acceptance market structure will become rigid, with 2-3 providers per country getting the majority of volume and partnerships.

12. The number of P2P money acceptance liquidity providers will be as many as the number of food delivery drivers in the countries where they operate. As volume increases, agents will become economically sustainable jobs and continue to be at least 5%-10% cheaper than the FX rates quoted by banks.

13. >10 million remote workers, freelancers, and contract workers will be paid for their services through crypto payment rails (either directly in stablecoins or local currencies).

14. 99% of AI agent commerce (including agent-to-agent, agent-to-person, and person-to-agent) will be conducted on-chain through encrypted payment channels.

15. >25 well-known partner banks in the United States will provide support for companies operating on encrypted payment channels, eliminating bottlenecks exacerbated by operational bottlenecks.

16. Financial institutions will try to issue their own stablecoins to facilitate global real-time settlement.

17. Stand-alone "crypto Venmo" applications still cannot become popular because the user roles are still too niche, but large messaging platforms like Telegram will integrate encrypted payment channels and begin to be used for P2P payments and remittances.

18. With less money tied up in transit, loan and credit companies will begin to receive and pay payments through crypto payment channels to improve their working capital.

19. Several non-US dollar stablecoins will begin to be tokenized on a large scale, giving rise to an on-chain foreign exchange market.

20. Due to government bureaucracy, CBDCs are still in the experimental stage and have not yet reached commercial scale.

VI. Conclusion

As Stripe CEO Patrick Collison said, crypto channels are superconductors of payments. They form the basis of a parallel financial system that offers faster settlement times, lower fees, and the ability to operate seamlessly across borders. It took a decade for the idea to mature, but today we see hundreds of companies working to make it a reality. Over the next decade, we will see cryptographic channels become central to financial innovation and drive global economic growth.