Why Traditional Payment Processors Are Building Walled Crypto Gardens

Defensive moat building is the primary motive. Companies like Stripe and PayPal see on-chain settlement as an existential threat to their centralized payment rails. Their crypto products are designed to keep users and liquidity within their proprietary systems.

Revenue model preservation drives the walled garden approach. Open, permissionless networks like Ethereum or Solana enable direct peer-to-peer value transfer, which bypasses the interchange fee structure that generates their core profits.

User experience as a weapon is the tactical play. By abstracting away private keys and gas fees, these services offer a familiar Web2 experience. This convenience creates a captive audience that never interacts with a self-custody wallet like MetaMask or Phantom.

Evidence: PayPal's stablecoin launch on Ethereum is a canonical example. It is issued by Paxos but is only natively usable within PayPal's ecosystem, deliberately avoiding integration with DeFi protocols like Uniswap or Aave.

The integration is defensive, not disruptive. Visa and Mastercard are not building open rails; they are constructing walled crypto gardens that keep settlement and custody within their proprietary networks. This preserves their interchange fee model and prevents protocols like Solana Pay or Stripe's fiat-to-crypto onramps from bypassing them entirely.

They monetize the bridge, not the destination. Their value capture occurs at the fiat-to-crypto gateway, where they control KYC, compliance, and the initial user onboarding. Once assets move to a public chain like Ethereum, their ability to extract fees diminishes, which is why they resist true interoperability.

Evidence: Mastercard's Multi-Token Network and Visa's USDC settlement pilot on Solana are interoperability theater. They use public blockchains as back-end settlement layers while maintaining front-end control, ensuring the user never directly interacts with a non-custodial wallet like MetaMask unless it's through their managed interface.

The strategy is control, not interoperability. Payment processors like PayPal and Stripe integrate crypto as a backend settlement layer, not as a user-facing protocol. This preserves their custodial wallet model, ensuring they own the user relationship and collect fees on every transaction, mirroring their fiat business.

Technical lock-in defeats permissionless access. Their systems use proprietary APIs and whitelisted addresses, preventing direct interaction with public chains like Ethereum or Solana. This creates a walled garden where users cannot export private keys or interact with DeFi protocols like Uniswap or Aave.

The economic moat is regulatory capture. By operating as licensed money transmitters, they leverage compliance as a barrier. This contrasts with permissionless bridges like Across or LayerZero, which enable asset movement without a central gatekeeper, a feature intentionally omitted from their products.

Evidence: PayPal's PYUSD is an ERC-20 token, but its on-chain utility is gated by PayPal's terms of service. Users cannot use it in a Compound lending pool without first converting it through PayPal's sanctioned channels, demonstrating the intentional fragmentation.

This is ecosystem capture. Traditional processors like PayPal and Stripe are not providing neutral on-ramps to the open internet of value. Their implementations create walled gardens where assets and transactions are siloed within their own controlled environments, preventing seamless outflow to public chains like Ethereum or Solana.

The moat is user experience. By abstracting away private keys and gas fees, they offer a frictionless facade that sacrifices user sovereignty. This trade-off is intentional, creating a captive audience whose assets are easier to tax and whose activity generates predictable fee revenue, unlike permissionless DeFi protocols.

Compare the architectures. A true onboarding ramp like Coinbase's Base L2 or a Circle CCTP-enabled bridge deposits native assets into user-controlled wallets. A PayPal stablecoin transaction, however, settles on a private ledger, requiring a complex, custodial bridge for exit—a strategic friction point that discourages migration.

Evidence: PayPal USD (PYUSD) initially launched exclusively on Ethereum but with mandatory issuer-level controls. Its adoption is a metric of enclosure, not liberation, as its utility is gated by PayPal's compliance policies, not smart contract code.