IOSG: x402 - New Standard for Encrypted Payments of Digital Agents

2025-10-27 23:18:43

Collection

Regardless of whether the final payment standard in the future remains x402, it has already set an irreversible direction— the internet is evolving from "providing information for humanity" to a network that "drives economic activities through software."

Author: Figo, IOSG

1. The Underlying Architecture of the Internet Was Never Designed for "Payments"

The original design goal of the Internet was to transmit information, not value. Protocols like HTTP and DNS allow data to be transmitted instantaneously across the globe, but they do not have a built-in native charging mechanism. HTTP reserved a status code 402 Payment Required for handling paid access scenarios, but due to the lack of a machine-programmable and verifiable payment method at the time, this status code has been shelved for over thirty years and has never been truly activated. Result: A "patchwork" of workaround solutions has formed To monetize content, developers have had to layer various external systems on top of the protocol layer:

Subscription accounts linked to credit cards
Monthly billing API Key models
Advertising-based business models, where users indirectly pay with "attention or data"

These systems all assume "users are human." They rely on registration, login, forms, and intermediaries, and are not suitable for autonomously operating software or machines. The Internet is entering the "software as user" phase We are entering a new usage paradigm: the initiator of requests is not a person, but the software itself.

AI agents are independently requesting data, invoking models, and executing tasks
Digital services are shifting from subscription models to "pay-per-call," charging for each API call, each inference, or each millisecond of computing power

In this scenario, traditional payment methods (credit cards, account top-ups) become completely ineffective. Machines require a "payment mechanism embedded in the protocol" to achieve automatic settlement without human intervention.

The Internet already has the bandwidth for machine-to-machine communication; now it needs the native capability for machine-to-machine transactions.

2. The Emergence of x402: Activating the Native Payment Layer of the Internet

x402 is an open payment standard launched in 2025, aimed at officially activating the HTTP 402 status code and transforming it into a native payment mechanism for the Internet. Unlike traditional models that require creating accounts, linking credit cards, or pre-funding, x402 embeds payment requests directly into HTTP responses, allowing clients (whether human, robot, or AI agent) to automatically recognize payment information and complete settlements.

In short, x402 enables an HTTP request to simultaneously possess the attributes of "data transmission" and "value transmission." Once payment is completed, access rights can be opened instantly, without the need for accounts or manual operations. The Standardized Interaction Model of x402 x402 defines three types of participants:

Client: The user, application, or AI agent initiating the request
Server: The entity providing data or services (API, website, etc.)
Facilitator: Responsible for verifying whether the payment has been completed. Most current implementations are based on blockchain, but theoretically, any system with verifiable settlement capabilities can be integrated.

Basic Process

The client requests a resource (e.g., GET /premium-data)
The server returns HTTP 402, along with payment conditions (payment asset, amount, receiving address, etc.)
The client initiates payment using stablecoins (e.g., USDC)
The facilitator verifies that the payment is complete
The client re-initiates the request, attaching proof of payment
The server returns the data

This entire process is programmable and requires no human involvement or account systems. x402 Payment Process

(Source: x402 White Paper https://www.x402.org/x402-whitepaper.pdf) Core Differences Between x402 and Traditional Models By analogy: HTTPS did not create new websites, but it made "secure communication" a native capability of the Internet; similarly, x402 is not a new application, but rather brings "payments" down to the Internet protocol layer, making the flow of value a fundamental function of the Internet, just like the flow of data.

3. Why Now, and What Transformations Will It Bring

The underlying assumption of the Internet has always been "users are human"—they will open browsers, log into accounts, and manually complete payments. However, this premise is becoming invalid. AI agents and automated systems are gradually becoming proactive participants in the Internet, autonomously requesting data, invoking services, executing operations, and no longer requiring human approval for every interaction. If these intelligent agents are to truly participate in economic activities, they must not only be able to make requests but also possess the ability to complete payments instantly and programmatically. Why This Moment is a Turning Point Several key technological trends are converging to create conditions for the implementation of x402:

Stablecoins have become the native currency of the Internet, providing machines with a globally accepted, programmable, and instant settlement payment asset.
The emergence of low-cost Rollups and high-performance settlement chains makes the "pay-per-request" micropayment model economically viable, with transaction costs as low as one-thousandth of a cent.
AI agents are transitioning from passive tools to proactive economic entities, capable of autonomously initiating transactions, purchasing services, and creating value.
Standards like ERC-8004 for agent identities, and protocols like Google AP2 provide agents with verifiable identities and transaction histories, enabling the network to recognize "who is paying and why."

These trends collectively form the foundation for x402 to become the native payment transmission layer for machines. The New Model Opened by x402 x402 allows value to flow freely across the Internet like data. This means that payments no longer rely on human interactions or subscription models but are oriented towards real-time machine-to-machine economic activities. # On-Demand Transactions Between AI and APIs Agents can pay per call to access data or model services, without needing API Keys or pre-funding:

AI agents pay in real-time for market data
Research models unlock proprietary information based on retrieval

# Autonomous Infrastructure Consumption Computing power and storage are billed based on usage:

AI agents pay per GPU inference
Decentralized models charge based on the number of calls, rather than a subscription model

# Autonomous Commercial Activities Between Machines Digital agents can transact directly with each other:

In-game AI agents automatically purchase resources
IoT devices automatically pay for bandwidth or sensor data as needed

This transformation is upgrading the Internet from an "information network" to a "machine economy network"—a market system composed of agents that can natively complete payments, purchases, and coordinate services at the protocol layer.

4. Ecological Momentum is Forming

x402 is no longer limited to the crypto-native field but is being adopted by institutions operating on the Internet and payment infrastructure layers. This indicates that x402 is on a path toward standardization and is expected to become a foundational component for native transactions by machines on the Internet. Mainstream industry research, including that from a16z, has also reported that x402 is one of the important solutions to address the challenges of AI payments and settlements. Crypto Solutions Addressing AI Challenges

(Source: a16z "State of Crypto 2025" report https://a16zcrypto.com/posts/article/state-of-crypto-report-2025/) Key Forces Driving Adoption # Cloudflare: Integration of Internet Infrastructure Cloudflare is directly integrating x402 payment processing into its global edge network, executing payment logic at the infrastructure layer rather than as application layer code. At the same time, Cloudflare has launched NET Dollar, a dollar stablecoin for machine automatic settlements, enabling instant confirmation and global coverage. Cloudflare has explicitly stated that the next generation of business models on the Internet will be based on micropayment interactions between agents. # Google: Agent Payments Protocol (AP2) Google has launched the Agent Payments Protocol (AP2) to enable AI agents to initiate authentication, payment, and settlement operations in both Web2 and Web3 environments. AP2 itself is payment-neutral but natively supports extensions for encrypted payments based on x402, making x402 likely to become the default settlement layer for agent economies in Google Cloud, consumer applications, and enterprise services. # Visa: Trusted Agent Protocol Visa has introduced the Trusted Agent Protocol, aimed at ensuring that AI agents initiating payments can be verified, authorized, and associated with real user intent. This protocol is built in collaboration with Cloudflare and aligns with x402, providing identity and trust infrastructure for mainstream compliance scenarios. Rapid Growth in Usage In the past month, as more services integrate this standard and autonomous agents prepare to initiate payments through x402 endpoints, the usage of x402 has accelerated.

Last 30 Days (Data from x402scan):

Number of transactions: 1.35 million
Total payment amount: $1.48 million
Active paying agents: 72,150
Valid payment endpoints: 960

Notably, most of this growth occurred in the last 7 days, indicating that the adoption curve has entered an acceleration phase. ▲ x402 Global Statistics

(Last 7 Days, Source: x402scan https://www.x402scan.com/) This wave of growth is primarily driven by speculative experiments based on x402 (e.g., minting tokens through x402 endpoints). Although these activities have speculative attributes, they serve as stress tests while significantly increasing developers' attention to x402 as a payment primitive. Ecological Landscape ▲ x402 Ecological Market Map

(Source: @henloitsjoyce https://x.com/henloitsjoyce/status/1980654010249167279) The predictive market is expected to focus on binary settlements in the long term, leading to extreme information dimensionality reduction in prediction markets. Future socially aware oracles will need to access more data sources and adopt dynamic models for different data to comprehensively evaluate. In discussions with DeFi projects related to Polymarket, it became clear that there is significant design space for dynamic settlement data in ongoing market activities. Supporting more continuous prediction markets, such as real-time dynamic in-game trading for sports events, presents substantial opportunities in continuous price markets or combinatorial markets like parlays, but current oracles do not support this. The x402 ecosystem is rapidly expanding, encompassing settlement service providers, infrastructure providers, agent platforms, and application services. This trend indicates that x402 is gradually becoming the foundational layer for other machine protocols.

5. Outlook

x402 is still in its early stages, and there is indeed some speculative sentiment in the market's attention towards it. However, this short-term sentiment cannot obscure the underlying structural transformation it represents: payments can now be realized at the same protocol layer as data transmission, enabling autonomous intelligent agents to complete transactions natively on the Internet without account systems, intermediaries, or manual authorization.

The long-term value of x402 lies not in the standard itself, but in the entire new infrastructure it activates: including agent identity standards, programmable wallets, low-latency settlement networks, and coordination protocols between machines. Regardless of whether the final payment standard remains x402, it has opened an irreversible direction—the Internet is evolving from "providing information for humans" to "driving economic activities by software."