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

Hi guys. Yeah, as um was announced, my name is Georgie. I'm a co-founder at Wrex. I'm going to use do we need I'm going to use uh some examples from Yrex because that's what I know best in relation to the topic of onchain payments but I want to also give uh a broader overview of of payments in the crypto space specifically focusing on onchain payments in real world. Uh yeah as as Conor mentioned we'll have enough time for questions hopefully.

Let's get started. So we will get started with a very famous quote. Uh just as a reminder why we're all here not necessarily here include but in this industry. Um there are a lot of use cases for cryptocurrency. uh some of them more focused on on users on bringing value to the world, others more focused on extracting value.

Um in our view, payments is one of those cases that's crucially and critically important because that's where it can actually change lives. Some people may argue that bringing in people through the likes of pumpf fun into crypto is is a great strategy. Well, it's it's kind of debatable because uh on the one hand, yes, it brings uh everyday people who haven't touched crypto before, but if the way of bringing you into crypto is making you lose all your money first, then it's kind of questionable, right? Whereas when it comes to payments, that's the real world use case where actually lives can be changed for the better and user experiences can be improved at the very least. So u onchain payments firstly h how do we where where's the line between onchain payments and and just a general payment.

So at wirex for example we've been doing crypto cards since 2015 wasn't even a crypto card back then it was a bitcoin card because ethereum didn't yet exist. uh and yes it allowed you to spend your cryptocurrency and being able to spend your cryptocurrency is is one of the features of money in general. A currency cannot be called a currency if you cannot exchange it for goods or services. That's one of the fundamental features of money. So what we enabled back in 2015 was being able to spend bitcoin at the time.

Then later on other cryptocurrencies, stable coins, fiat currencies as well, but it was never truly onchain. So yes, it was cryptocurrency. Yes, it was cryptocurrency that you hold in your own wallet. And in the beginning, you used to have to convert it first into fiat and then be able to spend it with the card. Then it became possible to spend cryptocurrency directly from your wallet.

But historically, for technological reasons, it has always been um uh custodial setup, right? So you first have to deposit your cryptocurrency with a bank. Well, not a bank, a financial institution and e- money institutions like in our case in some cases it's not even necessarily a licensed entity less so these days because these days you have to get regulated if you're taking user funds whether it's crypto yet but long story short it was always uh the funds are already sitting in your custodial wallet and it's not necessarily an actual onchain transaction happening whereas what we're going to focus on now is when funds move directly from your onchain wallet into the uh traditional financial system whether it's Visa or Mastercard network or or SEPA uh system of bank transfers within Europe or whatever else. So there's a lot of potential for it. Uh let's look at uh why we're not there yet.

So it's it's been a bumpy road for crypto in general and for stable coins in particular. Mainly uh speculative use cases as we just mentioned with pump fun. Tech has historically been lagging behind hype. So actual onchain payments beca in in real world became technologically possible relatively recently and we'll we'll talk about it more. There's been a lot of controversies uh up until very recently or relatively recently people were questioning oh is Tether really backed right and even u more more kind of perceived uh reliable currencies like USDC had their DPEGs and and other uh not so fortunate adventures not to mention the likes of Terra USD and like big big big big time collapses.

Um the turning point for stable coins was probably this combination of tech catching up with the hype as well as low interest rates environment ending. That's when they found not just the product market fit but actual an actual business model when they started making money. And these days less and less people if anyone would accuse Tether of not having enough u backing for the stable coin simply for the for the reason that they're making so much money that you know it's quite easy to u to have it backed. Um and one thing that's u that wasn't obvious to us back in 2015 is uh we wanted people to be able to to uh buy coffee with Bitcoin and no one does it really. So because those currencies are volatile, if you hold Bitcoin or ETH or Solana or whatever uh cryptocurrency ecosystem project you believe in, you most probably hold it because you believe it will go up in value.

And then why would you spend such a thing that goes up in value, right? So people tend to spend either fear or stable coins. So uh in in the payment context, it's it's all about stable coins. uh and latest developments that we see in in the industry in in the regulatory environments they uh underline that. So not only Visa, Mastercard and major requirers are starting to look into this sorry and back in the days it was impossible to even get through the door of Visa or Mastercard to talk to them about uh having a crypto card that would spend cryptocurrency.

uh it would have to be done via intermediaries and only that and even then it was very hard to find an intermediary that would be uh risky enough to to to even consider this. So back in the days uh there was barely one company that we managed to get to agree to run this experiment and then as they learned that it actually is a developing market. They started doing it for many companies and now you probably see those cryptocard companies popping up like mushrooms after rain every bull run. Unfortunately every bare market most of them don't survive. I think there's a handful that survived uh two bare markets.

Wix I believe is the only one that survived three. So, we've been getting suggestions at some of the conference to have actually a t-shirt with like scars, you know, one scar per each u crypto winter and it actually does leave as car forever. Um, but yeah, now it's finally possible not only to talk directly to them, but Pyrex, for example, is a direct member of both and Mastercard. So, it actually issues cards directly like a bank does. And uh I think the turning moment when everyone and their dog started talking about stable coins was the acquisition of Bridge, a two-year-old company by Stripe.

They got acquired beginning of this year for more more than a billion dollars. That was kind of the turning point when people learned, oh actually even players like uh Starlink are using stable coins already, which no one was talking about or was aware about. So technological advancement played a big role in it. these uh faster L2s and faster layer one chains uh and gasless transactions that made those uh thing possible. Regulatory momentum is catching up.

Not only companies like Coinbase went public, a lot of other companies are considering about considering going public or getting their own bank charters which would have been unheard of a few years ago. And this number is actually from um Visa own website not from coin market cap that stable coin volume transactions are actually already exceeding uh the volume of transactions on visa and mastercard network which is not to say that this is payment volumes. Most of it is still speculation and just uh you know stable coins enabling trades on exchanges but payment use cases are are picking up as well. So why are we not there yet? why why it's still not uh necessarily payment use cases but still quite a lot of speculation UIUX is still complex all this connecting your wallet and and knowing how to manage your private keys or or or passwords or this or that it's still it's probably not as complex for us here living in our small crypto bubble as for for people out there but for the general crowd it's still quite difficult in most cases transactions fees are still quite high so as as good as stable coins are for enabling crosswater payments, money remittances and all that.

How do you actually get them? Uh and how do you get out of them, right? How do you use them in in in real world in the end? So this first and last mile question is still uh there are solutions but it's still not not not at mass scale. uh from regulatory perspective thankfully luckily it's it's getting u better and better especially with the Genius Act as you probably heard um finally approved in the US recently which will hopefully expand to to uh other jurisdictions as well them following um the example of the US uh real world uh usability that's to do with those local on and off ramps the first and last mile as everywhere as in in logistics in money movement.

Uh the first and last mile problem is usually the most unressed and unresolved and trust concerns. We've seen all those epic fails of of big and small companies. Uh as as as good as it is to be able to uh transact in crypto, uh if one of those intermediaries in the line fails, then u u the end user uh could could potentially suffer. uh what we need to close this gap and to actually enable those payments. So integration with uh traditional financial systems needs to be seamless.

Like a user doesn't need to worry about converting into a stable coin, converting out of it. Like if you want to make a payment, you just want to make a payment, right? You don't need to worry about everything else. You definitely don't want to know what gas is, right? Uh to cover for especially when it comes to small and microp payments.

Why would you pay anything on top of what your coffee already costs you? And it should be fast, of course. Um One of the tools to enable this is is cards which we for example have been doing for 10 years now but historically it was always custodial. Now it's we're finally getting to the stage where it's possible in a true web 3 onchain fashion. Uh self- custody uh should and can solve the trust issue and also regulatory compliance because if you don't touch the user funds technically you're not even subject to regulation.

Uh we often get uh questions asked for by by um users partners. Oh, what are you guys going to do with USDT now that Mika comes into force on the main custodial app where we take custody of user funds? That's a question and we're already having to limit usage of USDT because it's not planning to get compliant. But in this self-custodial setup when we don't really touch the user funds when the flow goes directly from your own chain wallet and ends up in the merchant with us without us taking uh custody of the funds even for a for a second uh that's outside of scope of Mika or any other crypto regulation because it's non-custodial which is not to say that it will remain like this forever. You you you never know what will happen 10 10 years from now.

This space is this uh space is moving so fast and regulators might want to um to to have more control even of cell custodial solutions but as we stand now this is outside of the scope of most regulations. So it also enables easier uh geographical expansion for a lot of businesses. Um and yeah we we we really need to make it usable and and easy to use and potentially also incentivize people because everyone especially in the first world spoiled by choice and people need incentives. uh even even in our example uh we we come to our users and tell them guys okay there's there's no reason not to trust us you've been using this platform for for many years a lot of you but if you want full self custody now back to the true vision of of Satoshi of you know of the crypto philosophy that you are your own bank u and you can now have a fully self-custodial card and they listen to the whole pitch and etc and then they ask oh yeah that's cool self-custodial card how is it better is it better cash It's not about cash back, right? Cashback is actually better on the custodial lab because there's more ways to monetize this type of customers, but um yeah, you still need incentives.

People um rarely care about self- custody and privacy and all those things. Uh as strange as it may seem for us in this industry, but it's still the case in the mass market. So um this new self-custodial card and and generally web3 banking infrastructure what does it involve? So uh uh it uses the concept of account obstruction. So you as a user you connect your external wallet and you can um link it on on the on the other on one side this account obstruction the smart contract wallet is linked to your external wallet on the other side it's linked to the card to your IBAN in Europe to your USD bank account later on and uh as we move forward to other real world payment rails it's enabled on um Polygon ZK rollup but not limited to it in our case it's polygon ZK rollup I think as we speak it's been released on base as well and it can be released on on other chains as long as they are fast enough.

Transactions are guest list so people don't have to worry about it. Uh you can spend pretty much any stable coin accepted anywhere and it's possible to earn rewards along the way as well. So this is how it uh at the top one it's how it still works now and how it used to work. Uh let's say you've got your stable coins in your self-custodial wallet. you are pretty aware of what's going on.

You know what a private key is. You know how important it is to maintain privacy. Uh uh to maintain self- custody. Uh what you need to do to be able to spend those stable coins is send it from your wallet to a centralized exchange, exchange it into fiat, spend send that fiat to a bank, wait potentially a few days for especially if it's a swift to arrive. Maybe the bank will ask you questions along the way.

u maybe it will take a bit longer and then you're finally able to spend it with your uh traditional bank card. The way it can happen with a self-custodial crypto card your wallet real world economist straight away just like this what you need to do to do so uh you don't have to approve every single transaction. You grant the smart contract the permission once and you can set a certain limit and you can recall it anytime, you can cancel it anytime. So basically what what's different is it's not like you coming to a bank and uh giving them your your money and then them uh deciding whether they want to offer you the service or not. You give the bank the opportunity to access your funds if you're happy with their services.

You can recall that uh permission any time and you are able to keep full custody of your funds without being deprived of being able to use them in the real world. And if you don't like this bank, you just move to another one and your funds are still remaining in your custody. You don't have to like trust it to anyone and then take it back and then move it elsewhere. You just grant permissions as as as you want. So this is true uh web free banking finally possible.

Uh so uh slow and costly offramps. It's global instant settlement via card or or uh banking banking rails as well. custody risks are removed because you maintain full control. If an issuer like Wyx or whoever else needs to uh limit your card functionality or freeze your account because you've been buying drugs online or whatever or you haven't simply provided your KYC documents, they can block your card. They cannot touch your funds.

Your funds are in your own wallet. Um, and yeah, you can spend pretty much any uh stable coin without worrying about exchange rates, without worrying about exchanging it into local currency and all that. It all happens automatically. Obviously, users can benefit not just end users. It can also be any wallet.

If you're a self-custodial wallet, you can add this offering into your uh existing wallet without having to be a financial institution, without having to get all those licenses. uh a provider like WX can can cover all that in the back or alternatively a neo bank that's not in crypto that wants to start offering crypto services can also benefit from this technology. Businesses can um issue corporate cards linked to their treasury wallets and bank accounts linked to the treasury wallets as well and use stable coins for global payments without waiting for days to settle and uh uh for slow swift uh transfers to move. Dows can use it by uh spending directly from the treasury wallet to to cover their real world expenses for servers, for salaries, whatever. And pretty much any developer can build on top of this, integrate it into a game or whatever application.

Cuts can be branded uh to to to the specific application. Um so we're very close. the the user experience is still I would say couple of steps away from it is in the u custodial banking applications like uh revolute or wirex or whatever but it's it's very close and uh it's up to developers to take this existing infrastructure and technology and uh make it usable in in their own apps. So a lot of things can be built on it. Uh because the the complex part this regulatory setup is is already in there.

You just take the APIs and integrate it into whatever product you may have. Um yeah and we have plenty of time for questions. Thank you very much Georgie. Um now are there questions that have come up through the app Rish or no questions? Yeah.

Okay. Awesome. Um if you do have a question do feel free to put your hand up and or ask organically like in traditional conferences. But I've got a question. Um what would you say is the biggest misconception people have about crypto payments?

What prevents them from wanting to use it that you found over the last 10 years of doing this work? Um, if we're talking about mainstream users, it's just the general people hear crypto and think it's it's a scam. It's for buying drugs online. It's not as bad now as it was when we were starting 10 years ago, but still that perception is there uh when you go a little bit outside of our bubble of crypto industry or slightly wider bubble of fintech industry. So just general lack of trust which again is solved by by in in two major ways.

One is becoming a regulated financial institution like we are uh we are holder of UK e-money license since 2018 which was uh e-oney license number three for crypto companies after circle and coinbase. Still not very many companies are there. So that's one way become a regulated financial institution just like a normal uh neo bank is and that enables a lot of trust and then the second way is just removing the trust element altogether by allowing people to hold their crypto themselves and only trust you to execute transactions on their behalf and being able to recall that any time. But when it comes to already existing crypto users, why they're still not using it? Uh especially in the onchain um uh in in the onchain fashion people still even even cryptos people still don't care much about self- custody.

Not not that many. It may seem strange and it may seem counterintuitive to us moving from conference to conference and talking to Ethereum people and who are very concerned and and and very uh careful about who they trust with with their funds and their identity and their whatever. But the wide majority, I would say 95% of even crypto users still don't care. But I think it's it's on the trend to on the trend to change. uh all those massive uh fails of sales, FTXs, BlockFi uh they contribute to this um and also yeah generally the space is maturing the bigger names entering it like Visa, Mastercard having huge crypto functions now and and and not just trying to ride on this bandwagon but actually uh trying to lead this uh this uh not revolution but evolution and uh players like Stripe going into the space.

So I think this will be only accelerating now.

So on par with um stripe's acquisition of bridge, do you feel like the future of crypto payments on chain is one where the big uh the big banks and financial players fully integrate crypto payments or do you think crypto payments will always kind of be on parallel rails that work alongside these institutions?

Um I think there will be more and more merge between the two. So uh it well fortunately or unfortunately depending on on your perspective of the world it's not going to revolutionize the world and kill the banks right uh that's probably the aspiration of quite a lot of early adopters in the space but I don't see this happening uh on on a wide scale uh so I think it's it's rather evolution and existing financial institutions adopting new technology crypto players finding more ways to integrated ever more seamlessly, cheaper and u better in terms of UIUX so that everyone can benefit not just the uh narrow crypto community.

Awesome. Thanks. Has anybody else got any questions from Georgie from the crowd? Oh, this man over there.

Uh yeah, let's give you the mic. One second. You pass this to the gentleman over there. Hey, Georgie Titus from Civic here. Uh, question about the account extraction part.

Where do you see like people kind of going into into that space, brand new, kind of new to crypto? Like how do how do you guys handle that piece of self custody today? Like where do you see that part going? Because I think like we've reached almost like a saturation where people like that want to learn what a private key is have joined crypto and then everybody else is like what is that? And I don't know.

I don't understand. Well, firstly they like your average user doesn't need to know the term account abstraction. U even even myself I would not be able to completely deeply technically decipher it and there's no need to right. All the person needs to know is I can now link my card to my onchain wallet or my uh European IBAN in my own name to my onchain wallet. All I have to do for that is you know pass KYC and tick tick a couple boxes.

Um, in terms of managing the private keys, uh, yes, that's still the the complex part. There's a way to connect the wallet and manage your seed phrases as you would in in that on wallet, but in in this case, it's more of a function of the wallet itself. So, if you're connecting a wallet where you have MPC or whatever other technology where uh again from user perspective, without going into much detail to you, your face ID is your private key, right? Of course, it's not as simple as that, but from a user perspective, you scan your face and you can uh recover your wallet in case you had lost your phone where your previous wallet was. So, that's already getting there.

And also uh in addition to uh allowing or enabling user to connect their external wallet, of course it makes sense to to create the wallet for them in the background and they just worry about their um login password to fa whatever normal uh real world more familiar mechanisms they there exist to enable um secure connecting to your account, right? They don't need to. They can export their private key if they want to, but they don't have to because there are other ways to handle it. And again, it's still somewhat complex, right? For some people, even setting up a a a Revolute account is complex because they prefer going to a bank, but slowly but gradually it will improve, I think.

Thanks. I have one one more quick question. When talking to merchants, do you see them opening up to like having almost like a crypto POSOS uh where you can actually like have the transaction directly wallet to wallet as opposed to going through a Visa network. So that was a great question 10 years ago and it remains a great question today because the answer is probably still the same uh or or similar. So 10 years ago when we were thought okay how do we enable people to spend bitcoin at the time not even cryptocurrency right and there are two major ways go and uh convince every single merchant to start accepting cryptocurrency and very good question so good luck with it even today u but back then the answer was obvious that's not the way there's no way you can try and convince your Starbucks or your local pub to accept cryptocurrency which everyone thinks is just used to buy drugs online Uh so instead the way we took was to give an existing crypto user a familiar tool that they would spend with the merchant without the merchant even needing to know what's what's being spent.

The merchant receives their local currency. But I think going forward uh this border will will blur especially with the likes of Stripe um uh having the distribution they have going allin stable coins and and and payments onchain payments included with the likes of I think Shopify announced uh integration of of USDC by the end of the year with the distribution they have it's going to uh uh increase the speed of adoption and for merchants it makes a lot of sense not just from the point of view of uh the cost of of the transaction that they don't have to spend those two, three, five, sometimes 7% or whatever including all the currency exchanges to save on money. Even more importantly, especially for smaller places, it's the speed of the transaction, right? Because when you receive a cut transaction, yes, for the user, it's instant. You get your coffee or whatever you're buying, but the merchant in the end receives this actually sees these funds in their account three, five, seven days later because of the whole settlement cycle.

And for small mom and pop shops, this operational liquidity uh time I time time taking uh to to get their money is probably even more important than those three to five or whatever percent they uh spent on um on acquiring the transaction. So I think it it will it will be accelerating.