Unlocking New Potential With Web3 Payments
An Overview of Innovative Developments and Use Cases
A Primer on Payments
Payments are an integral part of every application and business. As such, they naturally apply to entities across both the Web2 and Web3 spaces. With advancements at both the infrastructure and application layer, we’ve truly started to scratch the surface of what’s possible with Web3 payment technology.
When it comes to payments, it’s important to realize that even seemingly small changes to existing models can lead to tremendous impacts on network and business value. We’ve seen this clearly in Web2 commerce with the evolution from one-time payments to recurring subscriptions. This new payment model sparked disproportionate change in digital business models on a global scale, completely altering profitable interactions between businesses and their customers. To overview, the recurring subscription model introduced several notable changes:
Creating a reliable revenue stream
Subscription models provide businesses with a steady income stream, which can help with long-term planning and investment.
Improving customer retention
Subscriptions can help businesses build loyalty by providing a consistent and convenient experience.
Enhancing customer relationships
Based on pricing feedback, subscription services can help businesses make data-driven decisions to establish a deeper connection with their customers.
Increasing customer lifetime value
The longer a customer stays subscribed, the more valuable they become to the business.
Incentives for upgrades
For products like software, businesses are incentivized to develop and release new updates to their customers to retain their business. This removes the need for customers to pay for every incremental product upgrade while creating an overall faster tech development cycle.
Essentially, by modifying the cadence and management of payments, Web2 businesses were able to create an entirely new business model perfectly suited for the internet. Aside from the obvious software and e-commerce examples, this brought new value to businesses across a wide range of sectors, including food & beverage, beauty & wellness, and even industrial manufacturing.
There is no reason that similar enhancements can’t be made in Web3 payment tooling and have a similarly large impact. As a matter of fact, they already are.
This piece will begin by exploring several unique innovations in Web3 payment tooling over the last few years. Then, we’ll turn to one of the most identifiably valuable use cases for Web3 payment technology: cross-border payments.
Payment Streaming
Let us first cover in-depth a few tooling improvements that have been developed over the last few years — the first being payment streaming. Payment streaming is an innovative method that enables continuous, real-time micro-payments of digital currencies over a specified time period. Unlike traditional payment systems that handle transactions as lump sums, payment streaming allows for a steady flow of funds, unlocking significant benefits for users/organizations.
At its core, payment streaming takes advantage of the fractional nature of cryptocurrencies, which can be divided into extremely small units. By leveraging this ability, streaming protocols like Sablier, Superfluid, and LlamaPay, have created systems where users can continuously transfer value without waiting for conventional pay periods. The sender locks into a smart contract a certain amount of assets to be distributed over a predefined (or open-ended) period to a recipient, with transactions occurring at the desired cadence. In some cases, the recipient may receive an NFT representing the payment stream, providing a tangible representation of the continuous flow of funds.
The real-time nature of payment streaming significantly improves existing payment models by introducing flexibility, automation, and a seamless user experience. There are several noteworthy impacts:
Enhanced payroll solutions
One of the early applications of payment streaming was in payroll services, particularly within decentralized organizations. In this model, employees and contributors can receive real-time payments for their work, eliminating the need to wait for bi-weekly or monthly pay cycles. This feature offers liquidity advantages, especially for workers in industries where immediate access to earnings may be important. It also creates a transparent and flexible system for employers and employees alike, promoting a smoother payroll process more responsive to individual contributions.
Dynamic subscriptions
When it comes to driving value in digital commerce, recall how significant the transition from one-time payments to recurring subscriptions was in the Web2 space.
In Web3, payment streaming can replicate and enhance the traditional subscription models found in Web2 businesses. With protocols like Superfluid, users can set up recurring payments on any desired cadence. We can think of this as a Web3 version of Stripe, and the value-add here is substantial. This dynamic approach allows businesses to offer flexible subscription services that align with user preferences and cash flow.
Moreover, it introduces the possibility of innovative payment structures. For example, subscription fees might decrease over time based on loyalty, or networks may even provide revenue-sharing opportunities for long-term subscribers. Enabled by new payment tooling, these functions all seek to provide greater network value over time.
Micro-payments for access and content
Payment streams are particularly valuable in content-driven ecosystems (think creator economy), where micro-payments can be used to access digital products or services in real-time. In theory, users can pay only for the time they spend accessing content, offering businesses granular insights into consumer preferences and usage patterns. This model is highly applicable to areas such as music streaming, digital community memberships, and pay-as-you-go services.
DeFi and lending innovations
In DeFi, payment streaming opens new opportunities for managing capital more efficiently. By locking assets into streams, DeFi platforms can develop new collateral mechanisms for loans or other financial products. These payment streams can fund loans based on future income, offering businesses and individuals a way to leverage their future cash flows. This is particularly relevant for small and medium-sized enterprises (SMEs) that often face liquidity challenges.
The Evolution of Payment Streaming
One interesting transformation set to take place in payment streaming is the move towards dynamic issuance. Traditional streaming methods have been linear in form, meaning that payment streams are made to be paid out at a consistent rate over time. The concept of dynamic issuance allows a payment stream’s issuance rate to evolve into exponential, logarithmic, and step-function forms.
Dynamic Payment Streaming Models (source: Messari)
To visualize an application of this dynamic streaming, consider loyalty-based subscription discounts. A platform could offer subscriptions in which the longer a user stays subscribed, the less they pay over time, resulting in a custom decreasing payment curve. For instance, a music streaming service could decrease the user's subscription cost each year if they remain subscribed, rewarding long-term users with progressively lower fees. After a certain period, the user might even qualify to receive a small share of the platform’s revenue through the same payment stream. The flexibility in this system encourages long-term customer loyalty and promotes positive advertising to onboard more subscribers.
Dynamic issuance ultimately allows payments to adapt to user behavior, incentivizing loyalty, performance, and engagement while providing developers with a flexible and programmable payment structure.
Payment Splitting
Payment splitting is a powerful innovation in Web3 payment protocols that enables the automatic distribution of funds among multiple parties based on predefined logic. This is a marked improvement over traditional methods, where manual transactions, intermediaries, or centralized platforms are required to manage and distribute payments. Through the use of smart contracts, payment splitting makes the process more efficient, transparent, and programmable.
Payment splitting protocols typically function by pooling payments in a smart contract and then dividing the funds among recipients based on specific criteria. This may take the form of proportional splits, tiered payouts, or waterfall models, which are simply different payment structures affecting the timing and order in which payments are made.
Platforms like 0xSplits have been pioneers in this space, creating highly flexible frameworks that allow developers to easily integrate multi-party payout mechanisms into dApps. The architecture of such splitting protocols is designed to be gas-efficient and customizable, offering several key benefits:
Gas efficiency
To split payments, funds are pooled into a contract, and the actual distribution of those funds occurs only when recipients choose to withdraw their share. This reduces the overall number of transactions and, in turn, the associated gas costs. The system shifts the gas burden to recipients, who can decide when and how frequently they want to claim their funds. This allows for strategic cost management.
Programmable logic
Payment splitting protocols introduce a highly programmable environment for distributing funds. For instance, users can set up proportional splits where each party receives a certain percentage of the total payment. Alternatively, tiered payout structures, known as “waterfall” models, can be used. In this setup, one party receives payments up to a defined threshold, after which the remaining funds are distributed to other parties. This flexibility allows for complex financial agreements to be encoded into smart contracts, automating the entire process without the need for manual intervention or third-party management.
Pull architecture
Another important aspect of payment splitting is the pull architecture, which separates the division and distribution of funds. Once a payment is split within the smart contract, the funds remain there until the recipients actively claim them. This enables recipients to control the timing of their withdrawals, reducing the frequency of gas-heavy transactions and allowing them to optimize their gas fees and tax burdens.
The Future of Payment Splitting
Similarly to streaming, payment splitting has enormous potential in industries like the creator economy, where multiple parties contribute to the development and distribution of digital assets. For example, a musician releasing a song as an NFT may need to distribute revenues between themselves, a producer, and a graphic designer. Protocols have already positioned themselves to provide value in these areas; platforms like 0xSplits allow this to be automated, ensuring that all parties receive their respective shares without any additional overhead. This feature greatly simplifies royalty payments and revenue sharing, creating transparency and fostering trust among collaborators.
As payment splitting matures, it’s starting to find greater application in DeFi as well. DeFi projects often have multiple stakeholders (think LPs, developers, token holders) that require continuous payouts. Payment splitting simplifies this process by automating multi-party distributions while minimizing gas fees. Moreover, payment splits can be combined with streaming mechanisms (e.g. SolSplits), further enhancing capital efficiency and cash flow management.
SolSplits Dashboard (source: SolSplits)
This also brings value to the DePIN space, as professional deployers who manage physical resources often need to split revenues with multiple partners. Rather than relying on off-chain, manual agreements, platforms like SolSplits offer a programmable solution for automating revenue distribution. This fosters a more scalable and reliable ecosystem, which can lead to greater network value.
Looking ahead, what’s perhaps most exciting about the payment methods of streaming and splitting is their potential to enable new business models that were previously impractical due to the limitations of traditional payment infrastructure. By eliminating intermediaries in Web3, users can enjoy lower costs and faster payouts. At the same time, the added flexibility in new payment structures means developers can build more sophisticated financial models within their applications. Whether it's revenue sharing for digital assets, partnerships in businesses, or complex lending arrangements in DeFi, this enhanced tooling enables the development of unique, multi-layered financial relationships to enhance industry value.
The Cross-Border Payment Model
After examining some of the exciting developments in payment tooling over the last few years, we turn to one of the primary use cases for Web3 payment technology: reinventing the cross-border payment model.
Web3 payment solutions are revolutionizing cross-border payments by addressing the long-standing inefficiencies and challenges that plague traditional methods. Today’s cross-border payments are often slow, expensive, and fraught with friction due to a reliance on multiple intermediaries, inconsistent regulations, and fragmented banking systems. Web3 payment technology streamlines this. It enables quicker, more accessible, and cost-effective solutions that unlock significant value for businesses and consumers alike.
Stablecoins: Unmatched PMF
Stablecoins form the backbone of cross-border currency exchange. They excel in this area by offering immediate settlement and low transaction costs, addressing many of the inefficiencies seen in traditional banking systems. They enable seamless transfers across borders without the risk of currency fluctuations, making them particularly well-suited for international remittances and business transactions.
I would argue that stablecoins have found the greatest product-market fit (PMF) in the crypto space. More than any other crypto product, technology, or tool, stablecoins provide immediate and tangible use cases for businesses and individuals, acting as the most direct bridge from traditional Web2 finance to decentralized Web3 finance.
Stablecoin Transaction Volume (source: Bitwise)
In the first half of this year alone, stablecoins have generated more than $5.1 trillion worth of global transactions, and this metric continues to increase. Compare this to Visa’s $6.5 trillion in transactions over the same period and it’s clear stablecoins have achieved a market scale that can’t be ignored.
When it comes to cross-border payments, stablecoins solve many of the challenges that plague traditional systems—high fees, slow processing times, and currency fluctuations.
Transaction Fees
According to the World Bank, remittance fees globally average around 6.35% today, while stablecoin-powered remittances can reduce these friction costs significantly — in many cases to below 1%.
Global Remittance Cost Over Time (source: World Bank)
To conceptualize these high remittance fees we should understand the potential cost-saving that could be realized with more efficient methods. Looking solely at Ethereum in its scaling efforts to cut costs, we’re seeing tremendous cost-savings taking place with international payments. Compared to the $44 average cost to send USD via international wire transfer, Ethereum’s newest L2, Base, cuts this average fee down to less than 1 cent. For those doing the math, this equates to around a 99.99% decrease in cost.
International Payment Costs (source: a16z Research)
From World Bank estimates, cutting remittance prices by at least 5 percentage points could save up to $16 billion per year. Regardless of the exact figures or margins, the use of stablecoins in cross-border payments means cost-savings on a tremendous scale.
Transaction Speed
Using Web3 payment technology, the speed of both executing and settling cross-border transactions is increased dramatically. Traditional international payments tend to take several days for full settlement of funds to be realized. Stablecoin transfers take only minutes.
There are a multitude of reasons why traditional methods of cross-border payments fall victim to slow processing times. These can include delays due to time zone differences, banking holidays, and intermediary processing. In the realm of Web3, transactions are processed 24/7 and without any reliance on traditional operating hours. The dramatic reduction in latency for international payments creates huge value for businesses and individuals alike. Certain business models in particular stand to benefit dramatically from decreased latency times in transactions — telecom, retail, e-commerce, and supply chain management are strong examples, as transaction delays stand to cause significant disruptions to their business.
Capital Efficiency
Due to their lower fees and lower latency in transactions, stablecoin payment rails improve capital efficiency for businesses and strengthen their cash flow models. Transacting in stablecoins allows enterprises to optimize their working capital, reduce overheads, and streamline many financial operations. As a result, these payment solutions are transforming modern commerce.
The combination of reduced friction costs and faster transaction times enhances capital efficiency in several ways, a few of which include:
Optimized working capital
With stablecoin payments settling almost instantly and at a fraction of the cost, businesses no longer have to hold as much working capital in reserve to cover payment delays and transaction fees. This optimization frees up capital that can be used to generate returns or be redeployed for growth initiatives. Businesses could simultaneously reduce their reliance on costly short-term financing, which is often used to bridge cash flow gaps.
Increased capital utilization
The rapid settlement and low-cost nature of Web3 payments mean that businesses can increase the turnover of their capital. Instead of waiting days for payments to clear, they can access their funds in real time, allowing them to reinvest that capital or make payments to suppliers and partners more frequently. The time value of money concept dictates that this immediate access to funds is far more valuable, as this capital could be utilized right away for revenue-generating operations.
Increasing the velocity of capital circulation also enhances both the agility and adaptability of businesses, making them more responsive to market demands and better positioning them to take advantage of further investment opportunities.
Global market access
For businesses operating in emerging markets or serving underbanked populations, stablecoins offer a way to interact with global financial systems without needing access to traditional banking infrastructure. With over 1.4 billion people globally unbanked, stablecoin payment solutions allow businesses to reach new markets and customer bases, thus expanding their value.
The B2B stablecoin platform Bridge has already proven this market value. Bridge provides a platform (via API) allowing businesses to seamlessly on/off-ramp from fiat to stablecoins and to transact across currencies. This allows businesses to conduct cross-border transactions around the world in real time. At the time of this writing, Bridge was recently acquired by payment giant Stripe in a record deal valued at $1.1 billion. Bridge helps many companies (like SpaceX’s Starlink) to conduct their business in globally underserved markets (e.g. the Global South). Using stablecoin technology, SpaceX saves a tremendous amount in costs and latency time in this region for its satellite ISP business, vastly improving margins. Many other businesses are beginning to follow suite.
Modernizing Financial Systems
With a myriad of benefits, stablecoin payment solutions allows businesses to scale internationally without many of the cost constraints typically associated with global operations. Areas like cross-border transactions easily stand to benefit the most from further innovations and improvements in Web3 payment technology.
As these solutions continue to evolve, they’ll play an increasingly valuable role in modernizing our financial systems and driving broader adoption of crypto-based payments in every industry. This shift will bring value on a global scale to institutions conducting business across foreign and domestic borders alike.