Author: Haotian Source: X, @tmel0211
It's been a while since the Crypto + AI space has seen such exciting news: KiteAI has secured $18M in Series A funding from global payments giant PayPal Ventures and top VC firm General Catalyst. Many people are buzzing about this news, but most are still confused. Let me break it down:
1) Why is PayPal betting on KiteAI to build its payment layer 1?
Previously, Stripe announced a direct entry into the payment layer 1, Tempo. Circle, after years of developing USDC, is planning its layer 1, Arc. Now, PayPal is also entering the fray with its investment in Kite AI. The underlying logic can be summed up in one sentence: A fight for control of the next-generation payment infrastructure.
1) Why is PayPal betting on KiteAI to build its payment layer 1?
Previously, Stripe announced a direct entry into the payment layer 1, Tempo.
Circle, after years of developing USDC, is planning its layer 1, Arc.
Essentially, this exposes the anxiety of these traditional payment giants about a "pipeline crisis." Their original business model was to profit from the difference in transaction fees and interest on deposited funds. With the rise of new cross-border stablecoins, they must adapt to this trend and develop a compatible payment system. The difference is simply that Stripe and Circle chose to reinvent the wheel, while PayPal invested in KiteAI. 2) Why did PayPal enter the AI+payment market? PayPal isn't solely focused on micropayments. Instead, through KiteAI, it's integrating AI agents into new scenarios. This is because the pain point of micropayments isn't technically driven. Traditional mobile payments are sufficient to support high-frequency microtransactions. However, if AI agents are to automatically handle user payment needs, the logic is significantly different. An AI agent might make dozens of API calls per second, each of which incurs a fee. This will inevitably lead to a 24/7, fully automated micropayment network based on logic, not emotion. Traditional payment giants all understand this: when AI agents begin conducting autonomous transactions at scale, existing payment systems simply cannot sustain them. Think about it: a shopping agent must compare prices, confirm inventory, and place orders and pay in milliseconds. Each step involves micropayments and trust verification. How could the current centralized clearing systems of Visa and Mastercard possibly handle this? Therefore, PayPal's bet on KiteAI is effectively a double bet: not only on next-generation crypto payment infrastructure, but also on the trillion-dollar AI agent economy. 3) Why is an AI layer 1 essential? What are KiteAI's advantages? Current public chain transaction fee models are designed for high-value transactions, but AI agent microtransactions completely change the rules, generating a continuous, high-frequency, low-value transaction stream. Dozens of API calls can occur per second, hundreds of decisions can be made per minute, and tens of thousands of microtransactions can easily occur daily. This creates a vicious cycle: if the transaction value doesn't cover the transaction fee costs, the AI agent economy concept won't work. Even the cheapest layer 2 infrastructure can easily paralyze the network when handling the massive, concurrent microtransactions of a large AI agent fleet. To address this, KiteAI has focused on three key areas: identity, wallets, and rules, primarily to ensure both autonomous and controllable AI agents. For example, if an AI agent wants to perform a procurement task, its "Agent Passport" will define the purchase scope and budget, while the "Wallet System" will support native batch micropayments, and the "Rules Engine" will enable anomaly risk control detection and real-time interception. Simply put, this redefines the infrastructure standard for AI agents. However, components alone are not enough; a consensus mechanism specifically adapted for AI is also required: KiteAI's solution utilizes a state channel system combined with PoAI consensus. On the one hand, massive microtransactions are bundled and processed off-chain, with settlement only on-chain at key nodes, ensuring both efficiency and trustlessness. On the other hand, economic incentives are built into the protocol layer: those whose data improves model performance and whose services complete the task are rewarded. 4) Why is Wall Street willing to invest in KiteAI? In fact, KiteAI's team was a perfect fit for PayPal, and Wall Street invested primarily in its team structure: Chi Zhang, a Berkeley AI PhD, leads product development at Databricks; Scott Shi Einstein, who built AI infrastructure and built a security analytics platform from scratch at Uber. Furthermore, the angel investor group includes key personnel from NASDAQ, PayPal, Ripple, and OpenAI. These individuals aren't pure crypto-native idealists, but rather practical individuals who truly understand enterprise needs, regulatory compliance, and how to productize technology. In the current narrative window of appealing to Wall Street, this lineup is practically tailor-made for Wall Street's storytelling. Think about it: General Catalyst, a top VC firm with $33 billion under management, invested in two rounds in a row because it saw KiteAI's rare combination of AI and payments expertise.
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