Chainfeeds Summary:
Crypto payments can only truly succeed if the user experience of traditional payments can be combined with the self-custody of crypto.
Article source:
https://x.com/paramonoww/status/2031428418672251148
Article Author:
Pavel Paramonov
Opinion:
Pavel Paramonov: In crypto payment scenarios, each transaction is essentially a top-up. When a user transfers money to someone else, they are topping up the recipient's account; when paying a merchant, they are topping up the merchant's account. However, different types of top-ups have completely different trust assumptions and user experiences: CEXs, crypto wallets, crypto cards, or crypto payment services each have vastly different settlement mechanisms and experiences. Crypto cards achieve near-instant payment experiences because they don't actually use cryptocurrency at the consumption stage; instead, they use fiat currency overdraft payments. The POS system settles through the Visa, Mastercard, or Amex network, and merchants don't need to wait for on-chain confirmation. However, the settlement problem with crypto cards exists in the top-up stage: from the time a user sends assets to when the assets are available, it requires multiple on-chain transfer confirmations and application display, causing a certain delay. In contrast, the ultimate goal of true on-chain payments is to achieve native crypto transactions between buyers and merchants, but due to differences in on-chain settlement time and finality, transactions cannot be completed instantly, which is the fundamental reason why the crypto payment experience is still imperfect. Most L1 blockchains exhibit two types of finality: optimistic finality and economic finality. Optimistic finality means a transaction appears confirmed in the wallet, but there's still a risk of it being rolled back; economic finality, on the other hand, means the transaction is irreversible and truly complete. The time difference between these two can lead to a reorg, where the blockchain discards some blocks and adopts a new history, rendering subsequent transactions that depend on the previous one invalid. For example, if Alice transfers 1 ETH to you, and you immediately transfer 0.5 ETH to Bob, but Alice's transaction is reorged, Bob's transaction is invalid, and the ultimate victims are Bob and you, while Alice (the malicious user) becomes the sole winner. This is why exchanges require multiple confirmations before a user's transaction is available, and retail payment scenarios cannot wait for multiple block confirmations, necessitating new settlement solutions to avoid users and merchants bearing on-chain risks. Currently, there are two main types of crypto payment models: crypto cards and wallet payments. Crypto cards absorb all risks through existing payment networks, offering a user-friendly experience, but are still subject to traditional financial limitations and cannot truly achieve self-custodial payments. Wallet payments allow users to pay directly from their wallets, offering a completely permissionless and transparent experience. However, merchants bear the settlement risk, and the user experience (UX) is complex, requiring operations such as scanning QR codes, selecting tokens, and choosing networks. Even PoS integration attempts like WalletConnect still suffer from operational complexity. Innovative solutions like Flexa employ a collateralized asset (AMP token) guarantee model: merchants receive instant authorization, on-chain transactions are confirmed in the background, and if a transaction fails, the collateralized asset compensates the merchant. This model separates merchant settlement from on-chain finality, making the payment experience nearly instantaneous, while allowing multi-chain payments without increasing merchant complexity. Combining the advantages of traditional payment UX with crypto self-custody, crypto payments can achieve larger-scale deployment in the future.
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