On-chain payments in real world: Are we there yet? - Georgy Sokolov

Transcript

[Music] I hope you've uh had some lunch. I I I just grabbed some now. Uh was busy the whole morning. Um was was busy the whole morning selecting a location for a side event which is a workout which we're running on Thursday. So if anyone of you are interested in doing a workout in the park, come up to me later. I'll tell you how to register. Um so here we we um we're going to talk about a boring subject of payments.

Um it it's not as exciting as memecoins as pumpf fun as all those things but uh if we really go back to the to the vision that was what crypto was about from the very beginning if if we look at Satoshi's white paper right um and the question is are we there yet and if not why why not and when we'll get there uh enabling real onchain payments in in in the real world. So uh the vision is and was uh and will be quite quite ambitious. So crypto as a technology, blockchain as a technology allows for instant cheap borderless transparent payments um with potential to disrupt

various industries from finance to to gaming to e-commerce and so far it's only been used mainly for trading. So what's um what's standing in the way of mass adoption? Uh it has been a bumpy road since uh crypto appeared, right? Uh mainly speculative use cases. Not not much application in the real world. Tech has historically been lagging behind the hype. Uh a lot of talk about it. A lot of fundraisers uh a lot of companies trying to work on something. Some some of them not even trying, just raising money and and running away with it. Even with the uh more established and well-intentioned products, there's been

quite a lot of controversies, right? Most people remember how Tether was being accused of not having enough backing for for collateral and TerraUSD collapsed and USDC even had an issue a few years ago when it depected and the list goes on. uh what arguably changed the picture was the combination of uh increasing interest rates and uh the technological advancement uh that in in in in my view that was kind of the the game changer.

So on the one hand uh when interest rates started going up it gave uh stable coin projects a proper business model not just a product market fit but an actual business model when they could u keep themselves alive and and and make a lot of money like many of the projects and then technological advancements allowed to enable this technology in um in the real world. uh when we I I I'll give quite a few examples of WX because that's what we know best what I know best u a lot of other companies are building in the space we were one of the first ones if not the first ones to to decide that crypto needs to be spendable

in the real world and that was in 2015 so there was no crypto almost no crypto except Bitcoin so the idea was Bitcoin needs to be a spendable currency you need to be able to buy coffee with If you cannot, then it's not a currency, right? Because being a means of exchange is one of the fundamental features of money. But realistically, no one buys coffee with Bitcoin. So, we we learned kind of the easy way, the hard way. Uh people either pay with fiat or with stable coins because the reason for someone to hold Bitcoin as an asset is because you expect it to go up in value.

If you expect it to go up in value, why would you why would you spend it? uh so lately uh over the last two three years uh we've seen massive developments in in in the space both from regulatory perspective and from technological perspective. So what back when we started it was not not not possible not not only to mention that we're working with Visa it was impossible to have any mention of it right we we when we launched the first card we literally had to remove um every single mention of Bitcoin from the website when we knew that Visa would be going looking at it to approve or not

approve the co-branded card program and now not only Visa Mastercard have their own crypto divisions major requirers are starting to process stable coins directly. Uh the the biggest news uh over the last few months was the acquisition of bridge a 2-year-old company dealing with stable coin uh infrastructure got acquired for overload billion dollars uh and that that make a big big news and and everyone is now looking into and talking about stable coins and their applications in the real world. Uh technology has advanced so it's it's a lot faster now. Now it's a lot cheaper to run those transactions whereas in the early days it would be impossible or or impractical to try and

process payments in the real world waiting for 10 minutes for a transaction to confirm and paying uh a few dollars if not tens of dollars for small transaction to happen. That's not the case anymore with fast L2s and L1's. Uh regulatory momentum has been catching up. This year is being called the year of stable coins. Uh and just from a broader perspective, more and more crypto companies are acquiring traditional companies and traditional companies are acquiring crypto companies and the likes of Coinbase, Circle, Paxus, um BGO are talking about becoming banks, not not just public companies but banks and uh the there's finally is a surge in real world use cases and

adoption. So this number uh 27 over 27 trillion uh transacted in 2024 uh in in stable coin volumes that's not coming from tether that's not coming from coin market cap that's from a Visa report. So Visa themselves are acknowledging that stable coin volumes is starting to exceed uh volumes of Visa and Mastercard themselves which were were and still are the undisputed leaders in the payment space. um what are the real world use cases? So, so far uh it's mainly been around um hedging and exchange at best, right? So, you you hold a stable coin because it's a faster way to go in and out of Bitcoin or Salana, Ethereum, whatever, you just

hold it on an exchange and that has been 90 plus% of all the use cases. But now with the combination of uh improving technology and um improving regulatory environment, you can use uh stable coins for crossber payments, remittances, treasury management, payroll, especially for companies that have distributed workforce where it's either impossible or impractical to to pay in dollars, people waiting days uh and paying high fees along the way. Um and of course uh financial inclusion uh it's all good us in the first world to be talking about what is good what is not so good but uh people who are deprived of the basic uh

necessities of access to u financial services in the real world uh they tend to adopt stable coins much faster uh very fast indeed like an example we we could see uh recently when the war broke out in between Russia Ukraine a lot of people had to leave their countries and got deprived of of access to banking systems wherever they go. So everyone including like not not technically um savy people but anyone like a a blogger on Instagram very quickly learned how to use USDT USDC whatever to to exchange P2P and then exchange it into a local currency wherever they are.

So um in uh uh less privileged societies uh stable uh sorry the use cases are finding themselves faster than um elsewhere. Um but it's still not ideal. Still uh the UIUX is quite complex. So you you can expect someone who doesn't have access to banking to learn how to use P2P transactions and and deal with stable coins and with exchanges, but you can't expect an average person to be motivated enough to do so um until and unless the uh UIUX improves and becomes very uh easy. Uh transaction fees can still be sometimes quite high.

Regulatory uncertainty is still there. Um some countries are more advanced, some are less. uh in many places it's still in a grade zone. Uh real world usability is still quite limited. So whereas it's very easy to transfer stable coins from one location to another, you don't even have to think about location, right? It happens in the cloud. But then uh going into stable coins or out of them into into or from u real money is still not obvious in in many cases. And last but not least, trust concerns. Too too many uh ill-minded players in this space. And how do you know who you can trust and who you cannot trust?

Um what we need to bridge that gap and to solve those problems. So firstly uh the integration with traditional financial systems and services need to be seamless. It needs to be easy, fast and and and cheap. You don't have to pay uh percentages or sometimes tens of percentage points uh to be able to move your funds between crypto and fiat. Transactions need to be gasless because otherwise why would you pay someone with a card or via bank transfer when on top of that amount you need to pay something extra? There's just unless you're real advocate of the technology you're unlikely to do so.

Um, ideally it needs to be linked to existing world payment rails and u products. So a card like in case of wx for example that that was the idea from the beginning give people something familiar rather than go and con try and convince every single merchant to start accepting uh cryptocurrency directly. That's starting to happen 10 years uh from then but still it's it's not very easy. Not by far not everyone will accept u stable coins or cryptocurrency directly.

Um ideally it needs to be self-custodial. We still see that 95 maybe more percent of people don't care about self- custody despite all the bad events that happened in the industry just because it's more convenience to work with u uh custodial applications and uh it's easier for companies offering custodial type of service to monetize such uh customers. So that the the majority of usage is still there but uh it now can be fully self-custodial and it probably should be and then uh yeah it needs to be easy and appealing enough to to use. So not just the UIUX need to improve but also uh it's it's about incentives you need to give to

people because to to to unless you are really really motivated and you have no other means of making a payment you will probably not be very likely to move unless you give some you uh you get some bonuses. People are spoiled by by bonuses these days. So uh what a few companies have been building lately uh Gnosis Pay is one of the examples uh Kipo is another example. Wy uh is u arguably the most advanced one out of them is uh payment infrastructure in the real world that's linked to the onchain world. So we we we backing it with 10 years of experience. The first card we

issued as I mentioned was a bitcoin card not even crypto card because u ethereum didn't yet exist. Uh it can now be fully self-custodial linked to uh account obstruction wallet. Uh so you you as a user you connect your external wallet on one side and on the other side it's linked to your card to your iband to your other real world payment instruments. Um in our case uh it's running on um Polygon ZK rollup with some other propositions out there. Um people want you to use their own chains sometimes of their own stable coins. We try to maintain it as open as possible. Transactions are guestless. So as soon as once your funds are on this

uh uh roll up there's no more guest to pay. So when you tap a card, uh you you get charged that amount. You don't have to pay gas on top of it. And then moving funds back to uh another chain is is gasless as well. Um and it's obviously accepted everywhere. Visa is accepted and uh you can also get rewarded for for making these payments. So the way it works, let's say I I I have some stable coins or crypto. Now the way it works now I have to uh and and let's say I'm a very advanced user I know how to use a self-custodial wallet right so I need to um execute a transaction to send my send my funds to

u a crypto exchange uh to a centralized exchange in most cases because uh decentralized exchanges don't have uh real um cheap fast on and off ramps yet then I off so I exchange there then I offramp which is implies sending it to a bank and a bank in many cases will ask questions where is it coming from? Most banks don't know how to deal with source of funds in crypto. So they um in the best case it can be delayed. In the worst case, it can lead to your account being closed and only then uh once your money is there after you've paid some fees and waited for a few days and were kept in the black through this whole time because swift for example well sea faster payments other picss in Brazil those are all instant settlement systems

but uh swift the crossber ones still can take up to 5 days and there's zero transparency throughout the process. Um and then you're able to spend it in the real world. The way it can and already works uh in case of u wx pay solution or a few others your wallet and you spend it. That's it. You tap the card and onchain transaction happens at the same time. Your funds get uh debited from your wallet. Uh uh the card provider uh ourselves in this case we don't ever touch your funds. We never take custody of it. So it's a fully non-custodial offering. It's not even subject to uh regulations like Mika because there is no custody and even the settlement

itself with visa happens in USDC afterwards. So that's a relatively new thing. Visa is piloting this technology with like 10 companies around the world. Works being one of them. So the difference is uh quite stark. Uh how it works. So um a user has a wallet which they connect to uh to the DAP and there they they get an account obstruction a smart contract wallet created. So the user controls the keys at at all times. Uh the user grants the smart contract the permission to spend let's say €500 a day or a certain amount per transaction and that's it. Once that permission is granted, the tapping or

swiping of the card leads to an event, an onchain event happening where funds are being deposited and then uh through that account abstraction, it's linked to all the real world payment rails, Visa, Mastercard, um uh banking rails, etc. Uh so the slow and costly off-ramp problem is solved by uh instant uh real world uh card payment and settlement globally. Custody risks are removed because you as a user remain in full control of the funds. So let's say something goes wrong. Let's say I I I went out and bought some weapons or drugs online and and my account needs to be blocked. My card can be blocked. I I

I mean I I will be prevented from making further cut transactions but my funds remain in my wallet because I I keep the keys. So the the uh card issuer has no access to the funds and uh it it so uh stable coins in this case can be instantly spent directly anywhere. There's no problem making Ethereum or or other EVM assets spendable. But uh it's arguably not a very appealing case because people don't tend to spend uh volatile cryptocurrency. Uh they tend to spend either stable coins or fiat. Who can benefit from this technologies? So apart from end users obviously uh any web three wallet can

integrate this technology and offer it to their own users and it doesn't have to be a licensed financial institution because it's fully non-custodial. There's uh pretty much well no no one knows what will happen 3 five years from now but for now this is outside the scope of um regulation uh neo banks so existing fiat providers they can start offering crypto functionality to their users pretty easily businesses can set up uh corporate accounts and uh issue corporate cards to their employees especially if it's a web three business it's still very difficult for uh crypto companies to get bank accounts And even if they can uh all those um uh

steps from the one of the previous slide are there. But here you can as a business you can issue corporate cards to your employees, receive payments from your um uh clients for example in crypto and they pay pay salaries in euros or vice versa, right? Um anything is possible. The move of funds between onchain crypto wallet and uh bank accounts or cards or real world payments is instant. Uh Dows can pay contributors in crypto and the actual DAO treasury wallet can be linked to those cards and each cards can have individual limits and uh yeah various kinds of developers can u produce any functionality that there is. You can uh enable an onchain

credit card for example, link it to a protocol. Um the card itself doesn't care where the stable coin is coming from, right? It can be coming from uh interest from your uh collateralized position for example. Card can be branded to uh the wallet or Dexis's Dub's own um interface. Um and going back to the question, are we there yet with real world onchain payments? It's still not web two type of experience. It's getting there, but it's very very close to being there. So, uh, WX Pay is one of those uh, solutions as as well as a number of other companies that are working on

similar projects. So, we're not there 100% yet, but it's it's underway and it's happening now. Um, and last uh, not least, this is sending you back to the uh, original white paper. Um it's easy to forget working in this industry what it was and is about right it's not about um yet another memecoin like when people say that pumpf fun is good because it brings um users on chain is it really you you were brought on chain and you lost all your money um I I would argue not uh but when you can start making payments in the real world so find like real world utility for your uh crypto assets I think that's what is hopefully going to

drive adoption in the right direction. Um that's it for the talk. Uh open for questions. [Applause] Hi. Okay. I am the architect of the national stable coin over here. So I'd like to further discuss some details with you. But first question here when most of the people are mentioning stable coin they typically uh think about USDT USDC basically uh we can also see it in your presentation right now and then you mentioned the case of I don't know Ukraine or something that people were

you know it was easier to on board the people because there was like the emergent need to to step into the crypto space basically but uh did they adopted the the door based stable coins or they adopted the local stable coins like in this case I think that would be I guess right in Ukraine um I think if talking about Ukraine I think there's a project with digital I'm not entirely aware but the regional stable coins is a growing trend dollar still dominates with 95 maybe 99% uh market share but we see uh the likes of Singapore dollar, Brazilian

realale, Turkish lera. Um, yeah, those are the first ones that come to mind, but there are more. Uh, well, Euro stable coins are also catching up despite being pulled back by uh regulation. Uh, it it it will be growing and in our case, we we're not limited to USDC, USDT. So right now we've got USDC, USDT, and DI, which covers arguably 97% of cases, but nothing stops us from adding other stable coins as well. And we already are, and we we'll keep doing that.

[Music]