Web3 Payments: Catalyzing Crypto’s Next Wave of Application Innovation

Key Insights:

• The adoption of end-user crypto applications requires a strong focus on application infrastructure and tooling to meet evolving market needs.
• Payment tooling is one of the most apparent low-level building blocks that will enable novel Web3 application features. These tools can be segmented into payment streams, payment splits, and smart payments.
• Payments protocols can improve upon Web2 payment strategies while also introducing emergent payment options for end-user applications.
• Decentralized social applications and DeFi lending markets are poised to benefit the most if payments protocols are to reach their full potential.

End-user crypto applications can only be built once their underlying infrastructure layers are developed. However, infrastructure isn’t built in one fell swoop. Rather, it’s an iterative process in which infrastructure development efforts depend on the evolving needs of applications.

Crypto’s first generation of real applications gained mainstream attention during the 2020-21 bull market. When networks grew congested from DeFi services, NFT mints, and play-to-earn games, these applications demanded greater scalability from their underlying networks. This kicked off a roughly two year development focus on base layer infrastructure that resulted in ~90% cost reduction of EVM transactions via rollups. Additionally, chains like Solana have built monolithic ecosystems with a focus on low transaction costs at the base layer.