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 a stablecoin transaction volume of 5.62 trillion US dollars 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 report of ARK Invest, which uses Wood Sister's statistical caliber, 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 this 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.
There are still many things that need to be solved, as Kevin listed:
transaction market: $16 trillion
trade finance: $89 trillion
remittance $4 trillion prefund
The average international transfer fee is close to 7%
3-5 business days to arrive
1.4 billion people do not have bank accounts
This article Cryptorails: Superconductors for Payments by Dmitriy Berenzon is a comprehensive article that looks at how blockchain-based encrypted payment channels can bring benefits to traditional payment channels from the perspective of traditional payments. It also provides multiple real-world application scenarios and future predictions, which are worth reading in depth. Please enjoy:
Author: Dmitriy BerenzonPartner@archetypevc
When Satoshi Nakamoto released Bitcoin in 2009, he envisioned using encrypted networks for payments, allowing payments to flow freely on the Internet like information. Although this direction is 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 deposit and withdrawal currency acceptance around the world, blockspace is faster and cheaper, embedded wallets simplify the user experience, and clearer regulatory frameworks reduce uncertainty.
Today, we have the opportunity to build a new generation of payment companies that leverage the power of “crypto rails” to achieve better unit economics than the traditional financial payment system, which is constrained by multiple rent-seeking intermediaries and antiquated infrastructure. These crypto rails 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;
Outline the main current use cases for encrypted channels;
discuss 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 — around 280 as of this writing:
1. 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 they operate in. If you are already familiar with these, feel free to skip this section.
1.1 Card Networks
Although the topology of the credit card network is complex, the main players in credit card transactions have remained the same over the past 70 years. Essentially, there are four main players involved in credit card payments:
1. Merchants;
2. Cardholder;
3. Card issuing bank;
4. Acquiring bank;
The first two are easy, but the last two are worth explaining.
The issuing bank, or card issuer, provides a credit or debit card to a customer and authorizes the transaction. 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. A credit card essentially loans the issuer's funds, while a debit card transfers 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 credit card network. The term acquirer comes from its role of collecting payments on behalf of merchants and ensuring that these funds reach the merchant's account.
The credit card 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 (e.g., 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 getting more cards into the hands of users, while acquirers are responsible for getting as many card terminals and payment gateways into the hands of merchants as possible so that they can accept credit card payments.
Additionally, 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 credit card association network facilitates communications and transaction routing, but is more like a marketplace, relying on financial institutions to issue credit 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) that is provided to banks by Visa, while non-bank entities like PayFacs require a "BIN sponsor" to issue credit 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 margins, but at the expense of more limited merchant acceptance. Conversely, open-loop systems offer broader adoption, but at the expense of control and revenue sharing among the participating parties.
Source: Arvy
The economics of payments are very complex, with multiple layers of fees in the network. Interchange Fees are part of the payment fees 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 fees, which often make up the majority of the total cost of payments. 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, Scheme Fees are also determined by the card network and are used to compensate the network for connecting the acquiring institution and the issuing bank, and acting as a "gateway" to ensure the accurate flow of transactions and funds. There are also Settlement Fees that are paid to the acquiring institution and are 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
In the above link, there are several important participants:
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.
A payment processor processes payments on behalf of an acquiring bank. It forwards the transaction details from the gateway to the acquiring bank, which then communicates with the issuing bank through the card organization 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 a 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.
A 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 the flow of funds, processing transactions and ensuring payments. PayFacs holds direct merchant IDs from the card association network and takes on the responsibilities of onboarding, compliance (such as anti-money laundering laws) and underwriting on behalf of the merchants it works with.
The Orchestration Platform is a middleware technology layer that simplifies and optimizes merchants’ payment processes. It connects to multiple processors, gateways, and acquirers through a single API, increasing transaction success rates, reducing costs, and improving 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 initiating 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 hands the transaction off to the RDFI. At the end of each day, the operator calculates the net settlement total for its member banks (the Federal Reserve manages the actual settlement).
Source: America’s Payments 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 (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 processes payments faster. Still, it relies on batch processing rather than real-time transfer, 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 require immediate settlement, 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 consent of the recipient. Unlike conventional payment networks, which process transactions in batches, modern wire transfers use a real-time gross settlement system (RTGS), 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 every 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 verifies 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 final recipient's account. The system operates weekdays from 9 p.m. to 7 p.m. EST the previous night and is closed on weekends and federal holidays.
Owned by large U.S. banks through clearing houses, CHIPS is an alternative to the private sector, but is smaller and only serves a handful of large banks. Unlike Fedwire's RTGS method, CHIPS is a netting settlement system, meaning that 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 consolidate these payments into a single 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 their bank to send a wire to the receiver. The value chain below is a simple case where two banks are part of the same wire transfer network.
Source: America’s Payments System: A Guide for Payment Professionals
In more complex cases, particularly cross-border payments, transactions need to be executed through a correspondent banking network, often using SWIFT to coordinate payments.
Source: Matt Brown
2. Real-world use cases
Now that we have a basic understanding of traditional payment rails, we can focus on the advantages of crypto payment rails.
Crypto payment rails work best in situations where traditional dollar usage is limited but demand for the U.S. dollar is high. Think of places where dollars are needed to store wealth or as a bank alternative, but where 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. In addition, one could argue that the U.S. dollar is a superior store of value than most other currencies, and consumers and businesses often choose the U.S. 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 channels are also most obvious in the scenario of globalized payments, because blockchain networks are not restricted 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 around the world, each of which is usually 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 channels can act as a glue between these different systems, and can also expand them to countries that do not have these systems.
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 rails 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 broken down 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 their customers. While this is one of the oldest use cases, historically it has not seen much volume because few people hold crypto, even fewer want to spend it, and for those who do, there are limited useful options. Today’s market is different because more people hold crypto assets (including stablecoins), and more merchants are accepting 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 are early adopters of cryptocurrency, typically emerging markets such as China, Vietnam, and India. From a merchant perspective, most of the demand comes from online gambling and retail stock brokerages looking to reach users in emerging markets, Web2 and Web3 markets such as watch vendors and content creators, and real money games such as fantasy sports and sweepstakes.
The "front end" merchant acceptance process typically looks like this:
1.PSP usually creates a wallet for the merchant after KYC/KYB;
2. The user sends the cryptocurrency to the PSP;
3. The PSP converts the cryptocurrency into fiat currency through 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. Two broad user personas need to be addressed: one who doesn’t care about value at all and wants to treat everything as magical internet money, and one who is pragmatic and would just deposit their funds directly into a bank.
Additionally, it will be more difficult for consumers to adopt crypto payments in the United States because credit card rewards are effectively paying consumers 1% to 5% back on their purchases. There have been attempts to convince merchants to promote crypto payments directly to consumers as an alternative to credit cards, but so far they have not been successful. While lowering interchange rates is a good idea for merchants, it is not a problem for consumers. The Merchant Customer Exchange was 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 method, crypto payments can provide merchants with faster settlement times and access to funds. Settlements for Visa and Mastercard may take 2-3 days, American Express takes 5 days, and international settlements take longer, such as about 30 days in Brazil. In some use cases, such as markets such as Uber, merchants may need to pre-fund bank accounts to disburse payments before 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 the wallet through an on-ramp that accepts traditional payment methods;
3. A credit card transaction buys USDC and then sends it from the customer’s wallet to the merchant’s wallet;
4.PSP can choose to transfer the funds to the merchant’s bank account via local railways T+0 (i.e. same day);
5.PSP usually receives funds from the acquiring bank within T+1 or T+2 (i.e. within 1-2 days).
2.2 Debit Cards
The ability to link a debit card directly to a non-custodial smart contract wallet creates a surprisingly powerful bridge between blockchain space and the real world, driving organic adoption across different user personas. In emerging markets, these cards are becoming a primary spending tool, increasingly replacing traditional banks. Interestingly, even in countries with stable currencies, consumers are leveraging these cards to gradually accumulate USD savings while avoiding foreign exchange (FX) fees on purchases. High net worth individuals are also increasingly using these cryptocurrency-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, the MCC 6051 is rejected outright in Pakistan and Bangladesh, where capital controls are strict), and debit cards have a lower risk of fraud, as chargebacks of already settled crypto transactions would raise serious liability issues for credit cards.
In the long run, cards tied to crypto wallets 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 adding money from your bank account to your wallet.
2.3 Remittance
Remittances, which are the money people who move abroad in search of work send back to their home country, will total about $656 billion in 2023, equivalent to Belgium’s GDP, according to the World Bank.
Traditional remittance systems are costly, resulting in less money in recipients’ pockets. On average, cross-border remittances cost 6.4% of the amount sent, but these fees vary widely—from 2.2% for a transfer from Malaysia to India (and even lower for high-volume corridors like the U.S. to India) to as much as 47.6% for a transfer from Turkey to Bulgaria. Banks tend to have the highest fees, at around 12%, while remittance operators like MoneyGram charge an average 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 volume corridors being from the United States to Latin America (particularly Mexico, Argentina, and Brazil), the United States to India, and the United States to the Philippines. An important factor driving this trend is non-custodial embedded wallets, which provide users with a Web2-level user experience.
The process of using crypto payments for remittance payments might look like this:
1. The sender enters the PSP via 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;
2. The PSP converts USDT/USDC into the recipient’s local currency, either directly or through a market maker or OTC partner;
3. 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 first generate a non-custodial wallet for the recipient to claim the funds and give them the option to keep them on-chain;
4. In many cases, the recipient needs to complete KYC before receiving the funds.
Still, 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 at the "last mile", so users may still end up with the same or even worse problems due to deposit and withdrawal currency acceptance costs and friction. In particular, payment gateways that convert to local fiat currency and pay in customized methods 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, as traditional payment systems are inefficient. 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 process payments, it can take up to a week for them 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 transaction volume is large, especially for businesses with thin margins, the fees are considerable. In addition, speed is also important. Getting payments done 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.
Furthermore, the cross-border payments market is massive — estimates vary widely between sources, but according to McKinsey, it is estimated to be around $240 billion in revenue and $150 trillion in volume 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 because accepting deposits and withdrawals on both sides eats into profits 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. Additionally, customer onboarding is also relatively slow, there are concerns about regulation and risk, and a lot of education is often required.
That being said, as stablecoin legislation opens the door for more businesses to hold and operate digital dollars, foreign exchange costs could drop rapidly over the next two years. As more on- and off-ramps and token issuers will have direct banking relationships, they will be able to effectively offer wholesale on-ramps at internet scale.
2.4.1 XB Supplier Payments
For B2B payments, the majority of cross-border transactions involve importers paying suppliers, typically buyers in the United States, Latin America, or Europe, and suppliers in Africa or Asia. Local payment channels in these countries are underdeveloped, making it difficult to find local banking partners. Crypto payments can also help alleviate pain points in specific countries. For example, in Brazil, you can’t pay millions of dollars using traditional payment channels, which makes 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 funds 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:
1. The buyer sends the Real to the PSP via PIX;
2.PSP converts Real to USD and then to USDC;
3.PSP sends USDC to the seller’s wallet;
4. If the seller wants local fiat currency, the PSP will send USDC to a market maker or trading desk to convert to local currency;
5. If the seller has a license/bank account, the PSP can remit payment to the seller through a local payment gateway, if not, a local partner can be used.
2.4.3 Treasury Operations
Companies can also use crypto payment corridors to improve financial operations and accelerate global expansion. They can hold USD balances and use local on- and off-ramps to reduce foreign exchange 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 countries where they operate.
2.4.4 Foreign Aid Disbursement
Another common use case we see for B2B is time-critical payments, for which these crypto corridors can be used to reach recipients faster. One example is foreign aid payments - allowing NGOs to use crypto payment corridors to send money to local export agents, who can then individually make payments to eligible individuals. This can be especially 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:
1. Non-governmental organizations provide funding to PSP;
2. PSP sends bank transfer to OTC partner;
3. The OTC partner converts the fiat currency into USDC and sends it to the local partner’s wallet;
4. Local partners acquire 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 in digital dollars. This use case also brings cost benefits to businesses on the other side of sending large-scale payments, and is particularly useful for crypto-native companies (such as exchanges) that already hold most of their funds in crypto.
The process for contractor payment is usually as follows:
1. The company conducts KYB/KYC with PSP;
2. The company sends USD to the PSP or USDC to the wallet address tied to the contractor;
3. The contractor can decide whether to keep it as cryptocurrency or withdraw it to a bank account, and the PSP usually enters into some master service agreements with one or more off-site partners who hold relevant licenses in their respective jurisdictions to make local payments.
2.6 Currency Acceptance for Deposit and Withdrawal (On/Off-ramps)
Cash-in and cash-out currency acceptance is a crowded market with a lot of 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 cash-in and cash-out currency acceptance 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 typically involves three parts: obtaining the necessary licenses (e.g. VASP, MTL, MSB), securing a local banking partner or PSP with access to local payment channels, and connecting to a market maker or OTC desk 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 deplete liquidity for hot assets. Some teams may even prefer them because they can promise spreads, which helps control profit margins.
The non-US portion of inbound and outbound currency acceptance is often much more difficult than the US 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 is the largest cryptocurrency exchange there, but in Kenya you need to use multiple local partners such as Clixpesa, Fronbank, and Pritium depending on the payment method.
P2P channels rely on a network of “agents” — local individuals, money 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 incentives — they make money through transaction fees and foreign exchange spreads. In fact, for individuals in high-inflation economies like Venezuela and Nigeria, becoming an agent can be more lucrative than traditional service jobs like taxi driving or delivering food. They can also work from home using their phones, and typically only need a bank account and mobile money to get started. 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 usually more competitive. For example, the Bank of Khartoum in Sudan usually charges up to 25% in foreign exchange fees, while the foreign exchange fees offered by local cryptocurrency P2P ramps are 8% to 9%, which is actually the market exchange rate rather than the bank-imposed exchange rate. Similarly, P2P channels are able to provide foreign exchange rates that are about 7% cheaper than the bank exchange rate in Ghana and Venezuela. Generally, in countries with a large supply of US dollars, the interest rate spread is smaller. 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 flow of a P2P portal might look like this:
1. Users can select or automatically designate a counterparty or “agent” who already has USDT, which is usually held in custody by a P2P platform;
2. The user sends legal tender to the agent through the local payment channel;
3. The agent confirms receipt and sends USDT to the user.
From a market structure perspective, most inbound and outbound currency acceptances are commoditized, with little customer loyalty as they will typically 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 inbound and outbound currency acceptance corridors per country, each with a comprehensive license, supporting all local payment methods, and providing maximum liquidity. Aggregators will be particularly useful in the medium term as local providers are often faster and cheaper, and combined options often provide the best price and completion rate for consumers. They may 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 go to zero. We’re already seeing this today on Coinbase, where the cost of instant conversion from USD to USDC is $0. In the long term, most stablecoin issuers are likely to offer this service to large wallets and fintech companies, further compressing fees.
III. Compliance Supervision License
Obtaining a regulatory license is a painful but necessary step to expand the scope of crypto payment applications. For startups, there are two approaches: partner with an already licensed entity or obtain a license independently. Working 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 as 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 provide more comprehensive products directly to users.
While there are established protocols for obtaining regulatory licenses in many jurisdictions, achieving global licensing coverage is extremely challenging, if not 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 United States 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 can cost anywhere from $500,000 to $2 million and can take up to a year. Overseas, the requirements are equally dizzying. Importantly, startups that are non-custodial and do not touch the flow of money can often bypass immediate licensing requirements and get to market faster.
Challenges
Payment adoption is often difficult because it’s a chicken and egg problem. Either get consumers to widely adopt a payment method, which will force merchants to accept it, or 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 have yet to see use cases where using stablecoins for payments is particularly advantageous 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 will not be adopted without step-change functionality improvements over the status quo.
There are still some problems in the acceptance of deposit and withdrawal currencies:
- High failure rate: If you’ve ever tried to get in using a credit card, you’ll understand the frustration.
- User experience barriers: While early adopters can accept the pain of acquiring assets through exchanges, the majority of early users are likely to use them directly within a specific application. To support this, we need smooth in-app upgrades, preferably through Apple Pay.
- High costs: Access fees are still very expensive—can still be as high as 5% to 10%, depending on the provider and the region.
- Inconsistent quality: Reliability and compliance still vary too much, especially for non-USD currencies.
One issue that is not discussed in depth is privacy. While privacy is not a serious issue for individuals or companies today, it will become an issue once crypto payments are adopted as the primary mechanism for commerce. When malicious actors begin to monitor the payment activity of individuals, companies, and governments through public keys, there will be serious negative consequences. One way to address this in the short term is to “protect privacy through obscurity” by starting a new wallet every time you need to send or receive funds on-chain.
Additionally, establishing a banking relationship is often the hardest part, as it’s another chicken-and-egg problem. If a banking partner gets volume and makes money, they’ll take you on, but you need a bank to get that volume in the first place. Additionally, there are only 4-6 small US banks that 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 a “high-risk activity” similar to marijuana, adult media, and online gambling.
Contributing to this problem is that compliance is still not at the same level as 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 stablecoins are beginning to be accepted by certain segments of the population, especially freelancers, contractors, and remote workers. We are also getting closer to the demand for the dollar in emerging economies by leveraging a network of credit card organizations to provide consumers with dollar exposure and daily spending power. In other words, debit cards and embedded wallets have become the "bridge" that brings cryptocurrencies off-chain in a form that is intuitive to mainstream consumers. On the business side, we are at the beginning of mainstream adoption. Companies are using stablecoins on a large scale, and this number will increase significantly over the next decade.
With all of that in mind, here are my 20 predictions for the state of the industry over the next 5 years:
1. The annual payment volume through crypto channels is $200 billion to $500 billion, mainly driven by B2B payments.
2. More than 30 new banks around the world have been launched natively on crypto payment channels.
3. Fintech companies compete to stay relevant, with dozens of crypto-native companies being acquired.
4. Some crypto companies (likely stablecoin issuers) will acquire fintech companies and banks that are struggling due to high CAC and operating costs.
5. About 3 crypto networks (L1 and L2) emerge and scale with architectures designed for payments. Such networks are similar to Ripple in spirit, but have a reasonable technology stack, economic model, and go-to-market strategy.
6. 80% of online merchants will accept cryptocurrencies as a means of payment, either through existing PSPs to expand their offerings or through crypto-native payment processors to provide them with a better experience.
7. The card organization network will expand to cover about 240 countries and regions (currently about 210), using stablecoins as a last-mile solution.
8. Most of the remittance volume of the world's 15 remittance corridors 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 channels rather than consumers.
10. 10% of all foreign aid expenditures will be sent through encrypted payment channels.
11. The structure of the currency acceptance market for deposits and withdrawals will become rigid, with 2-3 suppliers in each country obtaining the majority of transaction volume and partnerships.
12. The number of P2P money acceptance liquidity providers will be as numerous as the number of food couriers in the countries they operate in. As trading volumes increase, agents will become financially 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 channels (directly in stablecoins or local currencies).
14.99% of AI agent commerce (including agent-to-agent, agent-to-human, and human-to-agent) will be conducted on-chain through encrypted payment channels.
15.> 25 well-known partner banks in the United States will provide support to companies operating on the crypto payment channel to eliminate bottlenecks exacerbated by operational bottlenecks.
16. Financial institutions will try to issue their own stablecoins to facilitate global real-time settlement.
17. Standalone “crypto Venmo” apps will still fail to catch on because the user roles are still too niche, but large messaging platforms like Telegram will integrate crypto payment channels and start being used for P2P payments and remittances.
18. With less money tied up in transit, loan and credit companies will start receiving and paying payments through crypto payment channels to improve their working capital.
19. Several non-USD stablecoins will begin to be tokenized on a large scale, giving rise to on-chain foreign exchange markets.
20. Due to government bureaucracy, CBDC is still in the experimental stage and has not yet reached commercial scale.
VI. Conclusion
As Stripe CEO Patrick Collison said, crypto channels are superconductors for 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 this 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.
If you are building something with cryptorails, please contact me. You can find me on Twitter /X and Farcaster.
Many thanks to Jeremy Allaire, Sam Broner, Christian Catalini, Katie Chiou, Wyatt Lonergan, and DC Posch for discussions and feedback on this article.
