"Payments Grade" Onchain Rails

Transcript

[applause] >> Hello. Uh yeah, as mentioned, I'm going to talk a little bit about payments, and particularly on-chain payments, and what it takes to have them succeed and compete with traditional money rails. Why are on-chain payments interesting? You know, what is what is the goal here? So, the first big piece is making them permissionless, global access. We have pretty nice uh uh services in the West, but uh you know, that is not equally distributed.

The fact that you have instant settlement means you're not dealing with delays, you're not dealing with reconciliation between different uh ledgers. You can have a single shared ledger, and that allows kind of things to move quicker uh and compound. And then, of course, the programmability that comes with open rails, that people can build on top, put pieces together. And it's really about making money as open as the internet. And so, that's kind of why we're here, that's the goal. And but how do we get there? Because the bar is actually quite high for payments, you know?

We like to complain about things, but credit cards are pretty nice. They they kind of work every time. Uh it's simple, it's fast. And similarly, there are, you know, across different countries, these smart rails emerging that allow instant transfers between people. And so, when we talk about payments grade, this is what we're talking about. We're talking about the UX where it's extremely simple. I can just tap, I don't have to think about it, it's not complicated, it's fast, right? The I think the the expectation for a payment is a few seconds at most. I'm I'm it's a synchronous experience where I want to see if it's worked or not. And it really has to work every time. And that means a

few things. That means the reliability of, you know, services going down. It just needs to work every time. But also the fact that I can go to any store. I don't have to care kind of what bank that merchant uses. I can go overseas and just continue to use my credit card. So you really just want it to work every time and not have to think about it. And so kind of where are we at? I think on-chain rails is a lot of talk and they and they really have come a long way, right? We have We now have fast low low-cost blockchains. We have global stablecoins like a mix of regulated, yield-bearing non-USD.

Um a lot of competition there. And even on-ramps uh you know, much improved. So are we ready for on-chain payments? Um Almost. And I think what I'm going to talk to you about is that interop is kind of one of the biggest barriers to adoption because there isn't just one chain. Uh there isn't just one stablecoin. So even within a single currency USD, you have a number of different uh kind of prominent stablecoins.

Uh you know, like it or not, a lot of people using Tron USDT and that is a reality that if you're a US business that wants to pay someone, they might want to get paid in USDT on Tron. We, you know, it's it's early days, but we're starting to see other uh kind of foreign foreign currencies uh start to gain adoption. It makes sense, you know? People going to want to be paid in their local currency. They're not going to want to use uh kind of US USD stablecoins. People have crypto. they're looking to pay with those. Uh Uh but then even within the same stable coin, USDC exists on about 50 different chains.

Uh and even if you think that, okay, there's a few major chains, these are the only ones that that are going to matter, different businesses are going to choose different ones. We have payment native chains coming online that are going to trying to build payment specific features, but still a a number of applications across different chains that that each kind of have something special. And then you have geographies around kind of Tron and, you know, Binance Smart Chain. I think Celo is kind of uh popular in different places. So, anyway, one way or the other, we're not going to be in a world where there is a single chain and a single stable coin. That is easy mode. You know, you can do on-chain payments on base and, you know, transfer

to someone if they want the exact same currency. Uh but the the messy reality of the world is that there will be many different chains and many currencies. And as soon as you introduce exchange, things get hard. Um and so, you know, what we saw earlier around make it simple, make it fast, and make it work every time gets a lot harder once you introduce exchange into the picture. Um and we really, I think, need a completely new liquidity layer, think, you know, for payments.

So, you know, bridges aren't really designed for payments. They're often slow, they're often expensive. Uh they might not, you know, cover every path. Uh you know, it's usually a single currency that you're moving between. And bridges should be slow. Uh you know, as we've seen recently, you don't want the kind of core underlying layer that allows an asset to move between chains, you don't want to take risk there. You don't want to go too fast because it can have very bad, uh, repercussions. And similarly, you know, traditional DEXs and AMMs are more built around trading. And so, even something like slippage is something that maybe we, uh, are kind of used to, but isn't going to fly in a in a payment

scenario where there's an exact amount that you need. Um, and, you know, most DEX aggregators, for example, don't support things like exact output. And so, there's a few things you need. You know, first of all, like I mentioned, broad asset support. So, not just supporting every asset, but the fact that there's 50 versions of USDC. Uh, and so, how can you ensure that someone who rolls up with any one of these currencies and and wants any variation on the other side can actually serve that. So, a traditional DEX uh, kind of recreates liquidity on every chain. So, there's a ETH-USDC pool on every single chain.

And that fragments liquidity. It's also most DEXs work off pairs. So, you know, in order to create an AMM pool, you have to put in both currencies. And so, if you want USDC and USDT, uh, but and also USDC and DAI, uh, you're creating pools and you're fragmenting the the USDC. So, in order to solve this problem of how can you support so many of these assets that are coming online, you really need to think of new models and how can you solve some of these capital efficiency problems.

You also need to figure out how to move across chains instantly. So, like I mentioned before, that doesn't mean just like, you know, reducing the number of validators and and kind of increasing the speed at which you pass messages. I think it comes from adding a layer on top, a fast layer on top of the underlying slow, secure layer, where you have things like liquidity pools or you have solvers that are willing to take some finality risk and go faster than the origin chain finality in order to deliver this payments experience on top of the kind of core slow layer.

And then lastly, just thinking about how can you achieve high success. So, you know, another example is an emerging kind of liquidity primitive is these proper AMMs. And so, you have market makers that can quote extremely competitive prices. Great for trading, but if there's any you know, stress in the market, they're mercenaries. They can remove liquidity immediately. And again, that might lead to payments failing. So, thinking about how can you design liquidity that is always available. Maybe the spread is a little bit wider, but what you get in exchange is that it works every time.

So, really I think rethinking on-chain liquidity for payments use cases and full broad asset support. Oops. But but liquidity alone is not enough, right? So, we need better [snorts] liquidity, but it to really reach that payments grade level, we also need to kind of build this orchestration layer on top. So, thinking about how you can route between, you know, different liquidity sources. Sometimes it does make sense to send something over the officials kind of circle CC CCTP route. Thinking about how to execute transactions and have them land every time. Things like

picking the optimal gas and dealing with nonces, it's probably not something that users are going to deal with themselves. So, how can you do that at scale and make it work on every chain and all the nuances between them, all the different VMs. Even the UX of how you make payments. You know, most of us used to connecting a wallet, it's a pretty weird experience. That's not how payments work. Like, you know, when you roll up to a shop, you're not kind of connecting your bank account and allowing the shop to see your total balance and they are kind of deciding how to pull money out. So, this is really rethinking what the UX is going to be like and and I don't know if anyone's used kind of wallet connection uh experiences on mobile, but it it's

not the most reliable thing. So, really thinking about things like deposit addresses where can you give someone an address and they just need to transfer funds and how can you make that deposit address kind of work on any chain uh in any currency and all these nuances like it's a it's a ZK chain and so the the address is going to be different. We need to solve these pieces in order to make it magic and in order to make it work every time. I think another interesting piece is around pricing guarantees where people expect stablecoins to be worth a dollar, but they're not worth a dollar. Uh you know, very recently USDT has been trading at 10 bps less than USDC and that is just like these are different

assets with different trust assumptions and they trade on a market, but a user doesn't care. And so, how do we solve that? I think the way we'll see it is that long-term users will get one-to-one stablecoin experiences. But under the hood, they will be floating on on kind of a market and it's the applications that will subsidize that on top and find ways to abstract that from their users and so, they need to you know, have ways to kind of sponsor that in the same way that a credit card actually costs money, but when you use it at a store, it feels free to you, but the merchant is subsidizing that because it increases conversion. And so, I think you'll see

similar things where stablecoins can allow merchants and applications to maybe make money off balances and that allows them to subsidize the kind of floating rates between these currencies. And so, it's a combination of how can you get liquidity as efficient and always available as possible and then layering on a kind of sweet you know the the last mile of how you put all of that together. And so I think in summary we are close.

You know a lot of the building blocks in place the the kind of the chain rails the stable coin rails the on and off ramps but I think the point just to make today is that interop and exchange is one of the kind of biggest pieces if we're actually going to get there and actually have on chain payments kind of compete and compare with traditional money rails and we're also making a progress on that too. So Surprise this is what we're working on and so if you're kind of looking to make on chain payments happen come talk to us. We are in the trenches kind of solving the exchange and interop pieces and thinking a lot about these problems.

Thank you. >> [applause]