Blockchain Interoperability Hits the Right Note for Crypto Payments

As the news Thursday (Jan. 9) that FV Bank is expanding its stablecoin capabilities via a partnership with PayPal underscores, businesses need a blockchain strategy.

The problem? At a technical and business level, certain blockchain applications remain cramped by interoperability.

At their core, blockchain payments like stablecoins are built on intricate systems composed of various layers, from the underlying distributed ledger technologies to smart contracts, APIs and user-facing applications.

Each component has specific dependencies, and ensuring they work together smoothly can pose a challenge. Complicating matters, blockchains themselves often operate in silos, adhering to protocols that are unique to a particular network, such as Ethereum, Bitcoin, or Solana. While these silos have driven innovation within their ecosystems, they’ve also created potential barriers to broader adoption, particularly for enterprise and financial operations.

Going forward, observers believe two key things may need to happen for blockchain to move from buzzword to widely embraced integration: first, usability needs to be prioritized; and second, interoperability must be found.

Read more: Stablecoin Sandwiches? Here’s What CFOs Need to Know About Crypto Jargon

Navigating Blockchain

Blockchain interoperability is about more than just linking disparate parts via native interfaces. It’s about building an infrastructure where multiple blockchains, applications and payment networks can interact effortlessly. This can require addressing compatibility at both the technical and organizational levels.

For instance, consider a multinational corporation paying supply chain partners with stablecoins operating across different blockchain platforms, while using an entirely separate blockchain solution for logistics and tracking. Without interoperability, the corporation faces inefficiencies, such as having to develop costly middleware solutions or manually reconcile data between systems.

But technology alone isn’t enough. Businesses must adopt a mindset shift, viewing interoperability as a collaborative effort rather than a competitive advantage. This means participating in consortia, aligning with industry standards, and embracing governance models that prioritize transparency and inclusivity. Without this level of cooperation, even the most advanced technical solutions will struggle to gain traction.

Blockchain initiatives like Project Agora from the Bank for International Settlements (BIS) highlight the impact of collaborative efforts on interoperable systems. Forty-one private sector financial firms have joined the project, including Citi, JPMorgan Chase, Deutsche Bank, UBS, Visa and Mastercard, exploring new blockchain solutions using smart contracts and programmability in partnership with seven central banks: the Bank of France (representing the Eurosystem), Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England and the Federal Reserve Bank of New York.

“The largest financial institutions are eager to explore tokenized assets,” Nikola Plecas, head of commercialization, Visa Crypto, told PYMNTS, but noted that they require regulatory certainty to do so at scale.

Read more: Why Banks Might Want to Have a Blockchain Strategy

Business Case for Interoperability

Consider the financial services sector, where payment networks and settlement systems are critical components. In this space, blockchain’s fragmentation can be a bottleneck. A bank might use one blockchain for cross-border payments and another for smart contracts, but without interoperability, these systems remain isolated, requiring additional middleware or manual reconciliation.

The PYMNTS Intelligence report “Can Blockchain Solve the Cross-Border Payments Puzzle?” examined how blockchain could transform cross-border payments, while also assessing its current adoption and exploring the future implications for financial institutions and businesses.

As blockchain payments gain traction, interoperability will likely become a defining factor in the technology’s success. The winners won’t be those who build the most sophisticated silos but those who build the strongest bridges.

For example, the USDC stablecoin is natively supported for 16 blockchain networks: Algorand, Arbitrum, Avalanche, Base, Celo, Ethereum, Hedera, NEAR, Noble, OP Mainnet, Polkadot, Polygon PoS, Solana, Stellar, Sui and ZKsync

Data shared by PYMNTS Intelligence indicates that permissioned decentralized finance (DeFi) could reduce transaction costs by up to 80% compared to traditional methods, while features such as automated recordkeeping and smart contracts improve transparency and efficiency, and stablecoins, pegged to fiat currencies, offset volatility concerns.

“Blockchain technology, and public blockchains in particular, are opening up a number of new use cases one of which is to transfer value — such as remittances — from one country to another,” Raj Dhamodharan, EVP blockchain and digital assets at Mastercard, told PYMNTS.