PayPal Bets on Kite: Crypto Payment Infrastructure + AI Agent Economy

Author: Haotian Source: X, @tmel0211

It's been a long time since there has been such exciting news in the Crypto + AI sector: KiteAI has secured $18M in Series A funding from global payment giant PayPal Ventures and top VC General Catalyst. Many people are posting about this but are confused, so let me break it down for you:

1) Why is PayPal betting on KiteAI for payment Layer 1?

Previously, Stripe announced its direct entry into the layer1 space with Tempo, while Circle has been planning its layer1 project Arc after years of laying the groundwork for USDC. Now, PayPal has also made its move by investing in Kite AI. The underlying logic can be summed up in one sentence: Competing for control over the next generation of payment infrastructure.

The essence reveals that these traditional payment giants are experiencing anxiety over a "pipeline crisis." Their original business model relied on earning fees through spreads and interest from fund deposits. As stablecoins, a new cross-border entity, become widespread, they must adapt to the new trend by establishing a compatible payment system.

The difference is that Stripe and Circle chose to build their own solutions, while PayPal has bet on KiteAI.

2) Why is PayPal entering the AI + payment sector?

PayPal has not simply locked in on micro payments, but has instead bound the new scenario of the AI Agent through KiteAI. This is because the pain points of micro payments are not technical; relying on traditional mobile payments is sufficient to support the demand for high-frequency micro transactions. However, if the automation of the AI Agent is to take on the payment needs of users, the logic becomes vastly different.

An AI Agent may call dozens of APIs every second, and each call incurs a fee. This will inevitably create a 7*24 hours continuous, fully automated, logic-based rather than emotion-based micropayment network. Traditional payment giants understand one thing: when AI Agents start to engage in large-scale autonomous trading, the existing payment rails simply cannot support it.

Just think about it, a shopping agent needs to complete price comparison, inventory confirmation, and order payment in milliseconds, with each link involving micropayments and trust verification. How could the current centralized clearing systems of Visa and Mastercard possibly handle that?

So PayPal is betting on KiteAI, which is actually a double bet: not only on the next generation of Crypto payment infrastructure but also on the AI Agent economy, a trillion-dollar new market.

3) Why is it necessary to create an AI layer 1, what are the advantages of KiteAI?

The current public chain fee models are designed for "high-value transactions," whereas the microtransactions of AI Agents completely change the rules, generating a continuous, high-frequency, low-value stream of transactions. It may call dozens of APIs per second, execute hundreds of decisions per minute, and easily complete tens of thousands of microtransactions in a day.

This creates a deadlock; if the transaction value cannot cover the transaction fee costs, then the economic concept of the AI Agent cannot operate at all. Even with the cheapest layer 2 solutions available now, handling the massive concurrent microtransactions of the AI Agent army can easily lead to network paralysis.

In response to this, KiteAI has anchored its identity, wallet, and rules in the AI Agent track in three major directions, mainly to achieve an AI Agent that is both autonomous and controllable.

For example, an AI Agent tasked with procurement will have its "Agent Passport" that limits the scope and budget for purchases, while the "Wallet System" will support native batch micro-payments, and the "Rule Engine" will support anomaly risk control detection and real-time interception.

In simple terms, it has redefined the infrastructure standards for AI Agents, but having components alone is not enough; it also requires a specialized consensus mechanism tailored for AI: KiteAI's solution adopts a state channel system + PoAI consensus.

On one hand, a massive amount of microtransactions are processed off-chain, with settlement only on key nodes, ensuring both efficiency and maintaining decentralization; on the other hand, an economic incentive mechanism is built into the protocol layer, where those who improve the model's performance with their data, and those who complete the tasks with their services, are rewarded.

4) Why is Wall Street willing to invest heavily in KiteAI?

Actually, the team configuration of KiteAI is just too appealing to PayPal; Wall Street invests more in team configurations.

Chi Zhang, an AI PhD from Berkeley, is responsible for the product line at Databricks, and Scott Shi from Einstein works on AI infrastructure, having built a secure analytics platform from scratch at Uber. Additionally, key personnel from NASDAQ, PayPal, Ripple, and OpenAI can also be seen in the angel investor lineup.

These people are not idealists who are purely Crypto Native, but rather pragmatic individuals who truly understand business needs, compliance, and how to productize technology. Under the current narrative window to Wall Street, this configuration is simply tailor-made for telling stories to Wall Street.

Think about it, the top VC General Catalyst managing 33 billion dollars can invest in two rounds consecutively, which shows they are interested in KiteAI's rare combination of "understanding both AI and payments."