The stablecoin sandwich has a problem, it’s called FIAT. It is both absurd and completely believable that the most fundamental problem in payments is simply that as humans, we cannot trust each other. Unlike a hive mind of bees, or uniformly coordinated AI with self-protective understanding, humans can be selfish and do prioritize our own self interest. This leads us to create enormous and elaborate structures to solve the core problem of our own greed. So we fight trust problems by creating more complex trust systems, spawning an enormous industry worth trillions that masks rather than solves the fundamental problem of trust in payments.

The Fundamental Trust Problem

While risk management encompasses multiple dimensions including regulatory compliance, identity verification, and technical reliability, at its core, many payment infrastructure challenges stem from the fundamental problem of trust between participants. The payment industry has spent decades building increasingly complex systems to force trust where it doesn't naturally exist:

• We don't trust the payer, so we KYC them, run them through visible and invisible fraud detections, often accidentally blocking the good ones while letting through the bad ones.

• Hackers steal and resell credit card numbers online like cheap gift cards.

• Scammers issue charge backs through their cards on payments they very well intended to make, but felt like they could use a break for some extra cash because, the option exists with hardly any repercussions.

The problem of trust in payments is so prevalent and deep. It's a common part of a PSP stack to fraud check payers and merchants. Merchants need to trust the PSP will not keep their money away, PSPs must trust that the payer will legitimately pay, the liquidity provider for the PSP must trust that the PSP will not default and be able to pay them what they're due for providing the liquidity.

In each step of the payment flow, there are always counterparties who are taking a risk. It's a risk because when one of the parties decides to act in a selfish manner, their greed comes at the cost of someone else in the chain and someone has to pay the cost in the end. Chug it under 'cost of doing business'.

Risk Management: Capital as the Substitute for Trust

Enter risk management. The industry's long way of saying we don’t really know if this is going to work, but we’re going to give it a shot. Some of the many long-winded risk management practices are:

• Payer / Merchant level fraud checks

• PSP Regulations and licensing

• Pre-funding accounts to ensure participant solvency and that capital exists before settlements

• Liquidity compliance and regulations

More than $5T in capital sits locked away in nostro accounts, pre-funded balances and various mechanisms designed to reduce risk exposure. Entire operations, departments, and people work to keep things from going wrong, all because of a lack of trust. After all, a bankrupt company or bank like Herstatt has nothing left and that is the cost of risk.

From a fundamental infrastructure standpoint, we've created massive inefficiency by substituting capital for trust. We're not solving the problem – we're just forcing it into submission through capital lockups, creating an entire industry out of what is essentially a workaround.

Blockchain's Promise and Reality: Same Trust, Different Wrapper

The question that begs itself is: what if we didn't have to trust each other anymore?

This is perhaps the most exciting aspect of blockchain infrastructures and stablecoins. Blockchains introduced the concept and capability of allowing complete strangers to trust each other without having to trust a 3rd party intermediary. A payer can pay a merchant without needing to trust a PSP or an LP, beyond having to trust the underlying mechanism of the network.

And yet, that's not what happened in practice. While peer-to-peer transactions benefited, institutional and business applications simply attached themselves to the surface layer of stablecoins. The players changed names, but intermediary trust remains the cornerstone of how payments are done.

Stablecoins aren't a magic bullet that eliminates all trust issues by touching it and gives you instant self-custody; they're simply a vehicle. Right now, over $5T of stablecoin volumes operate through the same trust-based mechanisms we've always used.

The Stablecoin Sandwich: When Two Systems Collide

Let's see how trust manifests in two different payment scenarios:

Full onchain experience:

• Payer connects self-custodial wallet on a PSP app

• Pays $10 worth of stablecoins

• Merchant receives $10 in their wallet

• Trust is minimized, inherently by blockchain design

The stablecoin sandwich:

• Payer pays $10 in stablecoins

• PSP holds the $10 in a smart contract

• PSP requests their LP to issue $10 in fiat

• LP fronts the $10 in fiat, tracking the PSP's positions

• PSP records the $10 stablecoin in their internal ledger

• PSP later rebalances accounts with the LP

This second scenario happens because fiat rails are completely disconnected from blockchain rails, with no way for the two to communicate and orchestrate payment flows. We're redoing exactly the same operational model we always did in FIAT, but now with a stablecoin sandwiched in between – at the cost of nearly all the benefits that a fully onchain experience brings.

Clearing: The Missing Link in Payment Infrastructure

To understand how to solve this problem, we need to look at the role of clearing in payment systems. Clearing is the process of reconciling transactions between parties, ensuring that payment obligations are met, and managing the flow of funds efficiently.

Traditional clearing systems like SEPA, FedNow and RTP exist precisely because individual bilateral relationships don't scale. Imagine if every bank had to maintain pre-funded accounts with every other bank domestically – the capital inefficiency would be astronomical. This is precisely why domestic clearing systems like SEPA and FedNow exist, while cross-border payments still rely on the less efficient correspondent banking model. Clearing houses solve this by:

1. Matching and coordination of payment obligations between multiple parties

2. Netting payments to reduce actual liquidity movements

3. Optimizing settlement timing and pathways

4. Reducing systemic risk through standardized processes

Even traditional clearing mechanisms recognize that different payment types need different optimization strategies. SEPA, for example, created specialized systems for different payment needs:

• EURO1: For high-value, time-critical bank-to-bank transfers

• STEP2-T: For predictable flows like salaries and scheduled payments

• RT1: For instant retail needs like POS payments

• R2P: For request-to-pay workflows between parties

Yet current blockchain infrastructure largely ignores these lessons. Each PSP independently manages relationships with LPs, duplicating effort, locking capital, and recreating the exact inefficiencies that clearing networks were designed to solve.

The true innovation isn't in replacing trust with blockchain – it's in reimagining clearing for a CLOPEN world that bridges traditional and blockchain finance. Truth exists not in opposing positions but in the integration of apparent contradictions and facing reality.

Paygrid: An Open Clearing Network

The most profound innovations often come not from building new things, but from removing unnecessary complexity. The space between components often creates more value than the components themselves.

Instead of building ever more complex systems to force trust and mitigate risk, Paygrid engineers away the need for trust entirely through a new clearing infrastructure that combines:

Trust-Eliminating Technology:

• Advanced cryptographic mechanisms instead of pre-funding requirements

• Cryptographic verification systems for cross-system validation

• Programmatic guarantees replacing trust assumptions

• Automated settlement conditions

Specialized Clearing Mechanisms:

• MEV-focused clearing for pure crypto/stablecoin transactions

• PvP settlement for fiat-stablecoin flows (similar to CLS for FX)

• Batch processing for high-volume, low-value payments

• Coincidence of Wants (CoW) for finding matching obligations

• Netting cycles for recurring relationship settlements

This unified approach eliminates counterparty risk while enabling efficient coordination of value flows across the entire payment ecosystem.

CLOPEN: Beyond the False Dichotomy

The infrastructure challenge isn't choosing between closed and open systems, but transcending this false dichotomy entirely. The CLOPEN model combines the best aspects of closed, permissioned systems (fiat) and open, permissionless networks (blockchain):

From Closed Systems (Fiat):

• Established user base and market

• Regulatory frameworks

• Institutional participation

• Familiar user experience

From Open Systems (Blockchain):

• Self-custody and asset control

• Removal of intermediaries

• Programmable settlements

• Value capture and redistribution

Instead of forcing these worlds together, CLOPEN creates infrastructure that enables natural interoperability through specialized clearing mechanisms.

How CLOPEN Clearing Works: Trust & Verification

Here's how Paygrid transforms the stablecoin sandwich without requiring trust, using specialized clearing mechanisms:

On-ramping (Fiat → Crypto):

1. PSP receives fiat from customer via their existing channels

2. Cryptographic verification confirms the transaction occurred

3. This verification triggers release of crypto from LP to customer

Off-ramping (Crypto → Fiat):

1. Customer crypto is secured in a resource lock mechanism

2. LP sees secured funds and delivers fiat to recipient

3. Transaction verification triggers release of secured crypto to LP

In both flows, counterparty risk is eliminated through cryptographic verification rather than intermediary trust and pre-funded accounts.

Cross-Chain Clearing:

1. Customer funds are secured in a resource lock mechanism

2. LP sees secured funds and delivers crypto to recipient on destination chain

3. Transaction verification triggers release of secured funds to LP

This clearing approach doesn't force trust – it makes trust unnecessary. The value flows naturally between parties and systems because the infrastructure creates certainty rather than requiring risk mitigation confidence.

Adam Levine, SVP of Fireblocks, articulated this exact pain point when he said:

"Pre-funding is awful if you're the one that's trying to do the trading right, you don't want to use your collateral that way, you want to use it in the most efficient way possible."

Network Effects: The Clearing Multiplier

The true power of clearing networks comes from their network effects. In Paygrid's CLOPEN model:

• More PSPs = More payment volume = Better clearing opportunities

• More LPs = Enhanced liquidity options = More competitive rates

• More Volume = Greater MEV capture = Higher participant revenue

• More Participants = Better netting possibilities = Increased capital efficiency

This creates a self-reinforcing cycle where each new participant strengthens the network by:

1. Adding new clearing pathways

2. Increasing netting possibilities

3. Enhancing MEV value capture

4. Reducing capital requirements

The clearing network becomes more valuable to everyone as it grows, creating a sustainable competitive moat that compounds over time.

Infrastructure That Enables Rather Than Controls

The most elegant infrastructure isn't noticed - it simply enables natural processes to flow efficiently. CLOPEN clearing infrastructure doesn't force behavior but instead creates conditions where value can move naturally without friction.

By removing counterparty risk through technology rather than trust, we can unlock that $5T in trapped capital, eliminate the operational overhead of risk management, and create a payment system that aligns with reality rather than constantly fighting against it.

Clearing becomes the connective tissue that turns individual bilateral relationships into a coordinated, efficient network – without requiring centralized trust or control.

The Path Forward: The Natural 'desire path'

While the ultimate end-game might be that we all operate on blockchain networks, that transition will take time. Networks will be tested, weak ones will fade while fundamentally strong ones grow. For now, fiat remains dominant.

Good infrastructure doesn't force this transition but enables its natural evolution. Paygrid doesn't demand revolution – it creates the foundation that allows value to flow efficiently between systems today while building toward a more integrated future.

The most profound infrastructure innovations aren't about controlling how systems work, but about creating space for them to work naturally. By replacing trust with verification, and bilateral relationships with network clearing, we're not building a bigger dam – we're creating a more efficient river.

Because at the end of the day, payments shouldn't be about trusting others – they should just work. Truth exists not in opposing positions but in the integration of apparent contradictions of closed and open networks.

This CLOPEN infrastructure vision isn't just incremental improvement. It's fundamentally transforming how value moves by replacing trust with certainty and capital lockups with technological guarantees, reducing friction by helping counterparts to work in the most natural path between each other.

The market is ready for this transformation. PSPs are seeking better infrastructure, LPs want capital efficiency, and users deserve a payment system where trust is verified, not required. By reimagining clearing for a CLOPEN world, we can create the infrastructure foundation for the next generation of global payments.