Analysis: Coinbase unlocks HTTP 402 to beat Stripe at AI & Crypto Payments
The long-dormant HTTP 402 status becomes a crypto-native payment gateway.
Gm Fintech Architects —
Today we are diving into the following topics:
Summary: We explore how the x402 protocol, developed by Coinbase, repurposes the long-unused HTTP 402 "Payment Required" status to enable autonomous machine-to-machine payments using stablecoins like USDC. This innovation is a key step toward integrating AI agents into digital commerce, allowing them to pay for API access and services without human interaction or traditional financial infrastructure. x402 represents a broader shift from human-centered Web2 payment systems (like Stripe) to robot-native protocols for Web3 and beyond. Coupled with emerging intent-based transaction frameworks (e.g., CoWSwap, Near), this points to a future where AI agents not only execute trades but also fulfill real-world services like food delivery.
Topics: Coinbase, Stripe, PayPal, Peter Thiel, Elon Musk, Marc Andreessen, x402, USDC, BASE, Near, CoWSwap, Outlier Ventures, Fidelity, Infura, Alchemy, Uber Eats, MCP (Model Context Protocol)
To support this writing and access our full archive of newsletters, analyses, and guides to building in the Fintech & DeFi industries, see subscription options below.
Market Note
The Fintech / Crypto IPO window is now open, and capital is finding liquidity. Not enough time to cover everything going on in detail, but the following are important.
Robinhood acquires WondefFi, a Canadian public crypto exchange, for $180MM. It has $1.5B of assets, so a 12% of assets ratio. Crypto is more commercial than traditional asset classes, and for Robinhood it is strategic to get here.
Coinbase joining S&P 500. Every single asset allocation with the broad index is now buying crypto.
eToro Group announced the pricing of its IPO at offering price of $52.00 per share. This is going ahead despite recent macro volatility, others to follow. See our detailed primer ➡️ here.
Galaxy Announces Intent to List on Nasdaq on May 16. Galaxy Digital is the largest crypto investment bank and trades at a $10B marketcap on the Canadian exchange today.
Chime Files Registration Statement for Proposed Initial Public Offering. Chime, the US neobank, is coming to market. We’ll do a primer on this soon.
Long Take
Surfin’ The Web
In the good old times of surfing the Web, we made a distinction between the Internet and the Web.
The Internet is a global network infrastructure — physical connections, protocols, and systems that enable computers to communicate with each other. It includes physical infrastructure (cables, routers, servers), various protocols (TCP/IP, UDP, SMTP, FTP), and all the network services (email, file transfers, messaging).
Some of you may remember using FTP (File Transfer Protocol) to transfer files, and those of you working in bank back offices still use it daily.
The Web is just one of the services that run on the Internet. It's a system of interlinked hypertext documents accessed via the Internet, primarily using HTTP (Hypertext Transfer Protocol). Downloading a file using FTP is different from using a browser that sends out HTTP requests to render websites.
Above is a program that lets you move files around using FTP.
Below is a program that lets you render websites using HTTP. It does so by communicating with servers on your behalf in the form of requests.
The above diagram shows you how a webpage may be broken up into multiple components from multiple servers. The browser coordinates all of this to give you a coherent experience in real time. There is more going on behind the scenes, but for our purposes, let’s pause here.
The browser can get different kinds of responses to the requests it sends. For example, if you type in a URL of a website that doesn’t exist, the browser will try to go fetch it and come back with an error message like this.
These error messages are customizable, but are anchored to their underlying number. The 404 status is reserved for pages that are not found (see the documentation). When the browser receives this error, it can build a user experience around it, like that nice Google Chrome picture above.
For those of you with sharp eyes, you might have skimmed the list of errors on the left and paused on the one that says “402 Payment Required”. The technologists of the 1990s and early 2000s were prescient and had enough science fiction around to know that digital payments should be embedded into the Internet as one of the core protocols.
Just read Neal Stephenson’s Cryptonomicon, which predicts a Bitcoin-like currency backed by gold in 1999.
Or look at the original vision for PayPal from Peter Thiel, who wanted to create a digital wallet and payment standard across the Internet.
It is no surprise that Marc Andreessen, the co-founder of Mosaic Netscape, and Elon Musk / Peter Thiel, both of PayPal mafia, are now aligned on politically reforming the United States into a crypto-first fintech leader. This has been the vision since the beginning.
However, this technology was not ready when the attention economy Internet was growing, and so we got a placeholder in the form of the 402 message instead.
Beautiful, isn’t it?
Simple and beautiful.
Building a New Payment Standard
Coinbase has been building out APIs and services for developers and agentic commerce for a long time. We think that Stripe and Coinbase are the main bets on these themes in Fintech, and the two will inevitably bump against each other as the sector grows.
Most recently, Coinbase has found a new packaging for its combination of USDC stablecoin, BASE Ethereum Layer 2 chain, and crypto payments processing and orchestration. That package is the open-source x402 project.