Solana Pay could solve the crypto payments puzzle
Good morning, and welcome to Protocol Fintech. This Tuesday: Solana Pay shows crypto payments promise, Diem is done, and Nayib Bukele does some strange bitcoin math.
Off the chain
Diem’s done. It’s probably the most visible casualty of crypto regulation in 2022, but it won’t be the last. After poking the fiat bear for years, crypto is hearing regulators roar. But it won’t be an endless battle: There’s just too much to be gained by merging the crypto and fiat financial systems. Payments is one example, as Tomio relates in his latest look at the progress being made in leveraging the blockchain for transactions.— Owen Thomas (email | twitter)
Making crypto pay
A new way for people to pay with crypto, Solana Pay, is launching today. It’s one of many efforts to solve the crypto payments puzzle, from bitcoin’s Lightning Network to stablecoins. But Solana believes it has solved some of the problems that have held crypto payments back.
Solana Pay is an open protocol for developers with standardized payment specifications to build on and customize, meaning merchants can connect directly or use software built by ecommerce providers, point-of-sale software makers or payments companies.
Crypto payments haven’t lived up to their promise. Bitcoin and Ethereum suffer from slow speeds and high costs, and can only do a fraction of the transactions Visa and Mastercard’s centralized networks process.
- While the Solana network is not as big as the bitcoin blockchain or Ethereum’s network, Solana has fast transactions (65,000 per second) and a low cost (fractions of a cent per transaction).
- Solana Pay also has consumer-friendly features: Users can pay in person using a QR code or online using a browser plug-in. The technology works with any Solana-compatible token: Currently, that includes its own SOL token as well as others like the USDC stablecoin.
- And it’s got key partners lined up: Solana Labs, which initiated the project; Checkout.com; Circle; Citcon; and digital wallets from crypto exchange FTX and Solana wallets Phantom and Slope. Solana Pay’s backers are also working on an integration with Shopify that is expected to be released soon.
Cash is king — and Solana Pay is more cash-like. It’s not quite equivalent to a credit-card payment, by design. Solana Pay is meant to be a digital version of a cash payment.
- That’s attractive for merchants, who can avoid the costs of intermediaries such as Visa/Mastercard or the costs of chargebacks. Solana Pay transactions aren’t reversible, said Sheraz Shere, head of Payments at Solana Labs.
- Still, some merchants and consumers may want protections. Smart contracts offer the potential for holding funds in escrow, particularly for big-ticket items like a cruise ticket — a feature which could be built in an upcoming hackathon, Shere said.
- Solana Pay includes rich data specifications that aren’t available when just sending a token on the network. This includes a standardized destination, currency, amount, transaction identifiers and descriptive text fields so the merchant can confirm that a transaction was completed. The actual details of the transactions, such as who paid and what was purchased, are not public on chain.
Stablecoins play a key role. Shere, who has worked for AmEx and Google, sees Solana Pay as different from other crypto offerings because of its strong stablecoin integration.
- He argues that Ethereum is too slow to settle and too costly, and Lightning is focused more on paying with cryptocurrency versus exploiting blockchain technology. “We believe the lion's share of opportunity is thinking about this not as crypto payments, but as a new set of payment rails ... but paying in U.S. dollars, U.S. digital dollars," Shere said.
- Currently there is $4 billion of USDC on the Solana blockchain. That’s a distant second to the $44 billion on Ethereum, but it’s still substantial.
- Circle, the primary developer of USDC, worked on developing the Solana Pay standards, and has integrated Solana Pay with payments software it offers merchants as well as its treasury management product.
Will consumers open their wallets? The direct wallet connections Solana Pay has could lead to new kinds of transactions that merge the physical and digital, Shere said. One example is someone buying shoes with Solana Pay and receiving a matching NFT. Smart contracts could also create offers or rewards that sit in a crypto wallet. That means merchants and consumers will have more incentives to take the plunge in crypto payments.
A version of this story first appeared on Protocol.com. Read it here.
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On the money
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Bradley Tusk, co-founder of Tusk Venture Partners, thinks that policymakers should get on top of understanding and regulating the metaverse early. “We can avoid making the same mistakes we did with Facebook, Instagram, Twitter and social media generally if we can develop an intellectual framework for regulating the metaverse now,” he wrote in a blog post published on the blockchain.
U.K. tech companies doubled the amount raised through IPOs in 2021. The London Stock Exchange showed that tech companies raised $8.8 billion through listings on the market, twice 2020’s haul. British government officials are optimistic about tech offerings in 2022.
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Colizeum raised $8.4 million. The latest funding round for the maker of blockchain developer tools for mobile gaming and esports was led by Deribit, with participating investors SevenX Ventures, Axia8, LD Capital and Genblock Capital.
Thanks for reading — see you tomorrow!