Could This Catalyst Send Cardano Soaring?

Key Points

Cardano just got an upgrade that could position it to capture value from AI-to-AI payments on the web. There's still a lot of work to do before the upgrade's value is proven. It will also need third parties to adopt a new standard before it can benefit.10 stocks we like better than Cardano ›

Cardano's (CRYPTO: ADA) co-founder Charles Hoskinson said on Oct. 28 that something "very big" is on the way to the chain. If the pieces come together as he envisions, it could hand the chain a real use case tied to AI-to-AI commerce.

But what exactly was Hoskinson referring to, and could it be enough of a catalyst to send Cardano's price skyrocketing?

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This new upgrade could be big

The internet runs on a couple of business models that everyone knows well, specifically subscriptions and ads. If artificial intelligence (AI) agents could pay a few cents for data each time they use resources on the internet, a new class of micro-transactions might appear, and the web's economics could shift in surprising ways, opening the door for new business models. Hold this thought for a moment, as we'll be getting right back to it after a very quick history lesson.

For decades, the internet's HTTP standard listed a "402 Payment Required" code. In theory, when a user visits a protected URL, the server can respond with the 402 code and a payment request. The client then pays, retries with proof, and the server serves them the content. But how to use the code appropriately was never standardized, and so it wasn't implemented much -- at least not until now.

That's the idea behind x402, a new crypto protocol that revives the web's dormant 402 Payment Required status by defining how a page can ask for payment, and how an agent can prove it paid. Cardano just pushed an upgrade that allows the response to those 402 requests to settle in its coin, and in stablecoins, too. The point is to create a framework for AI agents to transact with websites in a way that generates traffic for Cardano.

The networks' developers have released proofs of concept that show a website returning the 402 code, a crypto wallet submitting a Cardano transaction, and a facilitator verifying on-chain settlement before releasing content. The demos use Cardano for fees and USDM, a fiat-backed USD stablecoin native to Cardano, for precise pricing per request. These are early-stage examples rather than production deployments, but they show the intended workflow.

So, this is indeed a big upgrade for Cardano, even if it's presently unclear whether the new capability will lead it to be more utilized.

Will this move the needle?

The most important near-term question for investors here regards adoption.

If websites begin to use the 402 code and accept x402-mediated payments denominated in Cardano in response, a new economy of AI agents could emerge, paying to fetch data, call large language models, or access premium results on demand. In this scenario, Cardano would likely be one payment rail among many, but it'd still be a significant improvement of its investment thesis. If it could become the default platform for creating agents that utilize x402, and if the code breaks through into widespread use, the upside could be enormous.

For now, investors should track two sets of signals to determine how impactful the rollout is.

The most important are examples of working integrations where real products list Cardano settlement for x402 as an option. The second set of signals to watch relate to measures of on-chain activity that are tied to pay-per-request flows, such as growth in USDM and ADA payments to known facilitators, more unique payer wallet addresses, and a rising count of small-value settlements. Don't buy this coin until there's some clear traction on these fronts.

There are a couple of risks that could rain on the parade. Card-based and bank-based payment routes may remain easier for many developers to implement rather than using Cardano. Furthermore, Cardano's x402 work is still early-stage, and centered on community demos rather than broad commercial rollouts, and the chain may not have the throughput to fully realize the benefits on the table. Moreover, adoption of the 402 code could take years, assuming it happens at all, and it might stall if developers choose other chains with better developer tooling or if the stablecoin depth on Cardano continues to lag its larger competitors.

On the other hand, assuming that agent-to-agent commerce on the open web grows, a steady ramp-up in x402 settlement on Cardano would strengthen ADA's investment thesis substantially. So, keep an eye on this coin, as things could potentially improve quickly from here.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.