Article Summary
- Overview of the x402 protocol and its objectives.
- Detailed analysis of current architecture problems, including relay economic model, two-phase settlement mechanism, and token restriction.
- Proposal of alternative architectural solutions to achieve scalability and sustainability.
- Evaluation of proposed updates in v2 and their limited impact.
- Identification of essential conditions for a widely adopted internet-level payment protocol.
Introduction
In 1994, Marc Andreessen made a critical mistake, one he later acknowledged: Netscape failed to embed payment functionality into the browser. Due to regulatory risks and the conservative attitudes of financial institutions, Netscape's collaboration with Visa, Microsoft, and MasterCard ultimately fell through. This led to the internet's default business model being dominated by an advertising surveillance regime for three decades—a trillion-dollar industry built on comprehensive behavioral tracking rather than direct value exchange. Today, AI agents are disrupting this balance. Autonomous systems don't watch ads, can't be psychographically profiled, and have no monetizable attention. Content publishers face a binary choice: either allow the parasitic crawling that destroys the incentive to create, or establish a direct payment mechanism. The x402 protocol is the most reliable attempt to activate the "402 Payment Required" status code buried in the HTTP standard, by combining blockchain settlement and cryptographic authorization, to reshape the value exchange paradigm in the age of AI. The timing seems ripe. Blockchain infrastructure is complete: Layer2 networks achieve graded transaction costs and sub-second finality, and stablecoins exceed $42 billion in circulation across 20+ chains. Google's A2A protocol more explicitly plans for an intelligent agent ecosystem of “services to pay and be paid.” But after a deep dive into the v1 specification, v2 revision proposals, and early ecosystem progress, we find its architecture has fundamental limitations, and large-scale application may be difficult without significant adjustments. Based on distributed systems principles, payment protocol economics, and actual deployment cases, this article provides a systematic critique and then proposes an architecture reconstruction plan that supports internet-level deployment.
Understanding the x402 Architecture
The protocol leverages the EIP-3009 transferWithAuthorization() mechanism to achieve gas-free stablecoin transfers. The client creates a cryptographically signed authorization credential, allowing a third party (i.e., the relayer) to execute the transfer on their behalf.
Key Observations
This design achieves cryptographic payment verification without requiring merchants to handle private keys or directly manage blockchain infrastructure. Settlement occurs on networks like Base (Ethereum L2), with finality around 200ms and gas costs under $0.0001. The protocol seems simple and elegant, yet this surface simplicity masks several profound architectural issues that only become apparent upon closer scrutiny.
The Hidden Architectural Problems
Problem One: The Relayer Economic Model is Flawed
The relayer undertakes three functions: EIP-3009 signature verification, blockchain transaction broadcasting, and API infrastructure provisioning. But the protocol layer provides no economic compensation mechanism. Let's precisely account for the costs:
Coinbase's CDP relayer currently implements fee-free USDC transactions on the Base chain. Each transaction consumes approximately $0.0006 in relayer gas fees. When processing 1 million transactions per month, the gas cost alone reaches $600 (excluding servers, RPC nodes, monitoring systems, compliance overhead, and engineering maintenance costs). The relayer lacks a cost recovery pathway at the protocol level.
Key Findings
Compared to all successful payment protocols in internet history, Stripe charges 2.9% + $0.3 per transaction, PayPal extracts approximately 3% in merchant fees, and credit card networks earn 2-3% through merchant discount rates. These protocols can capture value because they create value and build sustainable business models that scale with transaction volume. The x402 relayer provides real value, but receives no value return.
Problem Two: The Two-Phase Settlement Mechanism Leads to Latency and Atomicity Failures
The current architecture requires two independent blockchain interactions: a verification phase (checking signature validity and nonce status) and a settlement phase (executing the actual transfer). This design causes both performance degradation and correctness issues.
A latency of 500-1100ms per request may be acceptable, but real-world application scenarios will produce exponential compounding effects: Autonomous research agents retrieve data from 100 x402-protected APIs: payment overhead accumulates 50-110 seconds; trading bots update positions through 50 real-time data feeds: latency accumulates 25-55 seconds; AI assistants help call 20 tools in a conversation: interaction latency increases 10-22 seconds. Violation of distributed systems core principles: This is not a hypothetical concern, but an inevitable result of splitting an atomic operation (payment) into a two-phase protocol. Since the 1970s, distributed systems research has made it clear: when an atomic scheme exists, a two-phase protocol has inherent vulnerabilities. The two-phase commit (2PC) in the database field has fully demonstrated its susceptibility to coordinator failure. x402 must avoid repeating mistakes.
Problem Three: EIP-3009's Exclusivity Segments the Token Ecosystem
The protocol mandates the use of the EIP-3009 transferWithAuthorization() method for payment settlement. In principle, this allows any token that conforms to the EIP-3009 standard to be x402-compatible. However, the reality is that the number of tokens that conform to this standard is far less than economically relevant stablecoins.
This means that the x402 v1 version has compatibility issues with 40% of its main target token varieties. The situation is even more severe for other stablecoins: Tether (USDT), as the largest stablecoin in circulation with over $140 billion, has never supported the EIP-3009 standard and has no related plans. The DAI stablecoin adopts the EIP-2612 authorization standard, and although the functions are similar, interface differences lead to protocol-level incompatibility.
Problem Four: Multi-Chain Support is Misleading
The protocol specification claims that x402 supports “Base, Solana, and any EVM network through self-hosted relay,” appearing to have chain-agnostic flexibility. But delving into the implementation details reveals that its multi-chain support capability is far less than advertised. The subset of networks supported by each relayer varies, and there are configuration requirements, token lists, and operational maturity differences. The protocol lacks a discovery mechanism for clients to query “which chains does the merchant support,” and the service provider can only specify a single network in the 402 response, forcing the client to either have funds on a particular chain or abandon the transaction.
Problem Five: The Relayer is an Unnecessary Intermediary Layer
We need to examine the basic premise of this architecture: why must there be a relayer in the design? Traditional reasons for explanation are questionable.
This alternative design has multiple advantages: Atomicity: verification and settlement are completed in a single on-chain transaction; latency reduction: reducing one network round trip (200-500ms vs 500-1100ms); reliability: no need to rely on the relayer's online status or API availability; economic sustainability: directly deduct protocol fees on-chain (1% platform fee); transparency: all settlement logic is auditable on-chain.
v2 Proposal: Improvements and Legacy Problems
The x402 team has released a v2 specification branch, attempting to solve some v1 limitations through a “transport layer-agnostic redesign.” After reviewing the v2 update log, roadmap, and specification documents, I believe that although v2 has achieved incremental improvements, it has failed to solve the fundamental architectural problems mentioned above.
Key Updates in v2
* Transport Layer Abstraction: dividing the protocol into types (data structures), logic (schemes), and representation layer (HTTP, MCP, A2A);
* Scheme Extensibility: specifying a “precise billing” scheme to support new modes (usage, commercial authorization, etc.);
* Service Discovery Mechanism: adding a Bazaar API to retrieve resources that support x402.
Major Legacy Problems Not Improved in v2
* Continuing to use the relayer architecture (client → relayer/verification → relayer/settlement → merchant);
* Maintaining a zero-fee economic model (relayer still receives no revenue);
* Retaining the two-phase settlement mode;
* Insisting on EIP-3009 exclusivity (token support delayed to Q2 2026);
* Continuing explicit network matching (no cross-chain abstraction layer);
* Still mandating relayer intervention.
Conditions Required to Achieve Internet-Level Scale Adoption
Based on thirty years of research on distributed systems and payment protocols, I summarized the following architectural principles:
* Protocol Fee-Driven Economic Sustainability: deduct 1% settlement fee on-chain to generate continuous revenue;
* Achieve Atomic Settlement Through Smart Contracts: eliminate race conditions with a single on-chain transaction;
* Token Flexibility: simultaneously support EIP-3009, EIP-2612 authorization, and standard ERC-20;
* Chain Abstraction: achieve intent-based routing through Circle CCTP, Across protocol;
* Minimize Trust Dependence: direct settlement mechanism that does not require mandatory relayer intervention.
Conclusion
x402 v1 has made a real breakthrough in solving this problem that has plagued the industry for thirty years. Thanks to the maturity of the blockchain infrastructure, micropayments have become economically feasible. The rise of the intelligent agent economy has created an urgent need for a machine-native payment protocol. Coinbase's endorsement and integration with Google A2A provide institutional credibility for the protocol. Its underlying technological path (HTTP 402 status code + blockchain settlement + cryptographic authorization) has strong design rationality. However, good intentions and corporate endorsement do not guarantee the success of the protocol. The relayer model has created an unsustainable economic system - critical infrastructure must permanently bear operating losses. The latency and atomicity failure caused by the two-phase settlement structure can be avoided through an atomic scheme. EIP-3009's exclusivity segments the token ecosystem, not only excluding 40% of USDC circulation, but also almost rejecting all competing stablecoins. Multi-chain support is limited to the surface, instead directly exposing the problem of blockchain fragmentation to end users. In a scenario where smart contract direct settlement can provide better features, the relayer actually plays an unnecessary intermediary role. Although the v2 proposal has made improvements in transport abstraction, service discovery mechanism, and scheme extensibility, it has not touched on core issues such as the relayer economic model, two-phase settlement, token limitations, and cross-chain fragmentation. The roadmap postpones key fixes until Q2 2026. The autonomous internet needs an autonomous payment system - x402 v1 has demonstrated technical feasibility, and v2 has achieved incremental improvements, but it is still far from truly meeting the needs.
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