Evolution of payments on the intersection of web3 and traditional finance​ - Georgy Sokolov | Wirex

So we not going to focus too much hopefully on just WX itself. Uh rather more on the um industry trends in general and what's possible, what's not possible in um payments.

Yeah, sure. Okay. Uh, and yeah, I I didn't realize there would be another talk just before this one about stable coins. So, we should have probably just had a panel together. And it just shows how um how hot the topic is getting.

Anyway, uh once again, I'm uh Georgioorgi, uh one of the co-founders at Yrex. Um let's start with a quick reminder of why we're here. not not here necessarily just in Belgrade but in this industry and we probably need less of a reminder uh at an Ethereum conference because a lot of people are actually focused on on building um it would be a different case at a I don't know at a pumpf fun conference where uh it's less about the real life use cases and building and more about various kinds of speculation but yeah basically the whole idea of cryptocurrency back in the day started uh with a uh premise of people being able to pay each other uh in a u trustless manner and sometimes in this industry we deviate from from this original vision uh but now I think is the time when it's finally coming to fruition in in more uh in in real world and at and at certain scale. Um so what what's what's the vision why why it is cool uh the payments on onchain payments can be instant cheap they allow for a lot of u for a lot of things to happen in in a different way from um traditional finance and they've got quite some disruptive potential uh yet we don't see mass adoption yet and um we may want to look and think into Why it has been a bumpy road and the previous talk dives deeper into into the history into the details. So we won't focus too much on that probably.

Uh mainly crypto has been used for speculative use cases rather than anything else. So originally stable coins in particular were were used for u hedging and other cryptos mainly for for speculation and just to gain. Uh hype has always been ahead of tech in most cases and um in the context of stable coins specifically uh there was a lot of controversy. So there were DPEGs, there were complete failures, there were questions around viability and sufficient reserves um which kind of changed. Uh so in in my view the moment when it changed was a combination of uh improving technology, improving tech, so blockchains themselves getting faster and transactions becoming cheaper and uh the end of the zero interest rates environment uh until which point stable coins they did have a use case.

They did have a product market fit but they didn't have a viable business model. But when interest rates started going up a few years later everyone stopped asking questions. Oh, is Tether actually backed up or not? Because they started making so much money that it kind of the question became irrelevant. So that was a kind of perfect timing, perfect combination.

Um, and last not least, we've been in this space for 10 years now. And uh, although Wrex started originally with the idea of you should be able to buy your coffee with Bitcoin because Bitcoin is a currency if if we read the original white paper, but what we realize is people don't buy coffee with Bitcoin. So uh on the one hand uh one of the fundamental features of a currency is being a means of exchange. So if you can't buy goods and services uh then uh one of the three main features is missing uh and that means it's not money but in case of bitcoin the narrative has really changed. It's more become a kind of a digital gold narrative rather than a payment instrument.

And that payment uh use case is mostly being taken uh over and has been taken over by stable coins. So let's look at the most recent developments. So um over the last one two years uh most major payment institutions started actively looking into it. I think the the kind of uh awakening moment was Stripe buying bridge, a two-year-old company got acquired by for over a billion dollars and everyone started talking about stable coins because people suddenly realized that it's not just uh USDT or whatever that crypto traders used out there to hedge their positions or just to move uh funds between exchanges that actually players like uh uh Starlink and and other major companies are using them to accept payments in in different parts of the world. Visa and Mastercard themselves uh have big crypto divisions and specifically people and and projects focused on stable coins.

And uh looking back when for example in the case of Wyx when we were starting when we issued our first I can't even remember whether it was Visa or Mastercard back in 2015 but the key message is that it of course wasn't a direct relationship with Visa and Mastercard. They wouldn't even let you through the door. Uh it was impossible to even have a chat and even through one or two intermediaries that that was the kind of um architecture we were using. So you couldn't issue yourselves directly because we were not yet a licensed company. But even talking through an intermediary who uh served as a card issuer for us when we knew that when they told us that oh guys this week Visa is going to review uh your application for the co-branded card program so you know what to do and we knew what to do.

We removed every mention of Bitcoin from from the website. It was that bad. So and now not only we're direct principal member of both Visa and Mastercard not only Visa and Mastercard have uh their own head of crypto division each one of them they bet big time on on cryptocurrency and stable coin technology in particular uh already mentioned the technological advancement so uh Ethereum got faster L2s came up uh Salana and other networks became uh a lot more usable in the real world and it all that caused uh adoption and and and use cases and um this is the number nearly like over 25 trillion transacted in u 2024 in stable coins that's not data from June or or even coin market cap that's the data from visa on website which shows that uh stable coin transaction volume exceeded volume of transactions on Visa or Mastercard network so that's uh quite a fundamental change uh in what's happening and then we see all a lot of crypto companies becoming uh public companies and the likes of Coinbase, Circle, Paxos, BitGo considering getting banking charters that's uh quite an achievement quite quite a long way since uh since we started in this industry. Uh what can be the possible uh use cases? Uh I think the the the biggest one is crossber transactions because that's where the most frictions exist and that's where Swift still takes 5 days and can cost up to 50 bucks to send $5.

Not sustainable. Uh not not not really workable. Uh B2B payments and treasure management as well especially after this news about bridge came out. Um a lot of people realize that uh traditional companies are already using crypto uh to manage their treasuries and um do uh payments with suppliers and customers. Uh payroll and contractor payments.

Uh a lot of people in this industry work remotely. A lot of people in this industry get paid in stable coins. Uh but even outside of that uh the world is keeps globalizing remote work. Although that trend has been a little bit on the decline uh recently after COVID but still a lot of people work from different places and especially if it's a small and medium business uh pay 50 different people in 20 different countries in different currencies is a is a pain. Uh stable coins can fix this.

Uh and then less uh obvious but also important cases just uh e-commerce and retail payments. uh it contributes to inclusion. These payments are a lot more transparent when you send a swift uh for 3, four, 5 days. You don't know where the money is. There's a good example.

There's a company called Mighty here and um we just met last year and uh uh actually yeah, I can't show Mighty enough. It's it's it's a great business. Uh a great help. Uh so we ended up partnering and we needed to make a payment and we are a UK based company and they are a Serbian based business. So uh quite naturally we send them a bank payment via via the bank that we use via Swift.

Uh two weeks later I'm getting a question from our turn the CEO. We haven't received the money. Can you can you possibly check? So we go to our bank. We find this uh proof of payment.

We send it to them. They take it to their bank. they their bank realizes they didn't receive it. They didn't activate the bank details. Long story short, a month later, they haven't found the money.

So, eventually uh they sent the money back. Uh we finally traced it that yes, we received it. We tried it again um 10 days ago. The money is still not there. So it's probably a a bit of an outlier example, but it still shows how inefficient the the whole system is and how how many movements you need to make to even just trace it and still even even then you cannot really know where the funds are.

They are somewhere stuck in between one or another intermediary bank. Whereas on a blockchain, you could see it there. Not only it will probably arrive before you even start checking, but if it ever got lost, you could easily find it. So transparency is uh and auditability are are great features as well that we may not necessarily always think about. And yet uh how many people here are using stable coins or any other cryptocurrencies in their daily life and payments?

Anyone? One, two, three. Well, that's a very very savvy audience, but still by far not everyone. And as soon as we walk out of the SA center and and check with the local uh coffee shop, they probably won't have heard about it. So what's what's in the way?

It's still relatively complex. UIUX is uh we working in this industry living in this uh uh increasing in size but still a bubble. We think it's a lot there but it's still very difficult for for an average Joe. Um transaction fees can still be high. It's very easy to send stable coins crosser and you don't even think about it as crossber because it all happens somewhere there in the cloud, right?

It doesn't matter whether it's from Serbia to Montenegro or whether it's sent from Australia to um to Canada, right? Uh but this first and last mile is still not not ideal. Uh you need to get those stable coins or or other crypto and then get out of it uh to be able to transact in the real world and and there are still some friction points there. Um from regulatory perspective, it's still quite uncertain. In some countries, there's uh existing legislation.

in some countries and it's in the process of forming. Uh us being a regulated business. Uh it's it's a double-edged sword. On the one hand, it adds credibility. It it it enables more people to start using it.

On the other hand, it's it's a constant pain and it's usually quite a one-way abusive relationship with regulators. But we know that's the price to pay for this to go mainstream. Uh but we do need more clarity. Is it legal? Is it not legal?

Is it gray? white um or completely black in some countries. Um and uh trust concerns is an important one as well especially after the events in the industry a few years ago. uh there's more and more uh movement towards uh self-custody because trust in uh centralized financial institutions has not been growing. And if we look at u balances on um centralized exchanges despite the activity relatively high at the moment and and the uh we're arguably still in a bull run uh and probably some way to go but uh balances on centralized exchanges have been going uh down.

So what do we need to finally bridge that gap with the technology already being there with everything being there but still no no no no mass adoption. Um uh this new means of payment money transfer whatever uh we call it needs to be seamlessly integrated into existing financial system not just be uh stand alone separately from it. uh transactions need to become even faster and and gasless because you when you make a payment uh for your coffee, you don't want to worry about paying an additional gas fee. That that would be uh I mean we would probably accept it in in in this audience. But uh for an average person, why would they if they can do without uh again this is to to uh adding on to to the point about seamless integration to existing systems.

uh they need to be familiar tools that allow people to spend uh stable coins or to use stable coins without having to learn too much. We kind of adopted this concept back in 2015 by issuing the first card that allowed people to spend bitcoin. It wasn't a crypto card or a stable coin card. It was a bitcoin card because uh neither stable coins nor uh ethereum uh nor EVM did exist yet. Uh but still when when you give a customer something for they're already familiar with and add a little bit of new technology on top that's more easy uh to digest rather than jump into something completely new.

Uh self-custody and regulatory compliance they go kind of hand in hand. uh it's um the the less uh c so if if you don't take as as as a business if you don't take the user funds into custody same way if um some people don't understand it actually so let me maybe paraphrase so uh historically to be able to spend your crypto uh with most card providers you needed to deposit your cryptocurrency or stable coins with them so same way as you bring your euros or dinars to to a bank and give the bank your money and then you're able to spend it. Uh historically that's what you needed to do to uh to to be able to spend your crypto in the real world. Uh and that setup requires uh it automatically makes you a regulated financial institution because you're taking people's money. Uh there's a way now with the technology developing with and with layer twos and some layer ones becoming a lot faster to enable seamless onchain transactions without the uh payment provider ever taking custody of the user funds and that's a safer for the user and b that can keep the payment provider outside of the regul regulatory scope to a degree.

Uh and yeah, basically it it it it needs UI UX and and global infrastructure that people are actually happy to use because people don't like change and uh especially when it comes to a relatively um conservative uh matter like money is. No one wants to play with their money that much except pump fun users of course. Um, so what we've been building for for quite a while and what's what's what's changed relatively recently. So Wyx has been in this space and a few other companies um for for quite a while. So the first crypto cards uh started popping up about 10 years ago.

By now some of those companies are uh direct members like actual issuers uh whereas before that wasn't the case. and Mastercard were not willing to work directly with crypto companies. Now they finally are. Um on the self-custodial side uh the account obstruction technology uh became quite a bit quite a big enabler. So the the um the way it works now uh you can actually tap your card and an onchain transaction happens and the funds go directly from the user's wallet into uh Visa Mastercard network and the merchant receives their final currency.

Uh ZK technology enables uh these transactions to be fast, private and secure. So in the case of this particular self-custodial card, it's a uh funds need to be on a Polygon ZK rollup because it's fast enough for those transactions to happen. In some cases u for other providers like Gnosis pay for example, they enable this on their own Gnosis chain. Uh in our case, we're trying to be chain agnostic, not to force anyone to use any specific chain. Uh there's some other card providers like Argent wallet for example, they use it on Starkware.

So hopefully this will uh merge uh better and and there won't be a need for users to keep in mind and remember oh which chain do I actually to need need to bridge my assets to we're hoping this will also become more streamlined and in our case when uh unlike quite a few um similar companies we're not pushing you to to use uh any specific chain we want to be chain agnostic and deploying on base as we speak and we'll add more chains uh transactions need to guessless uh because the user doesn't have to worry about it. Otherwise, uh it it it's a big uh disabler of adoption. Uh ideally, you would want to be able to spend any stable coin, not uh just a limited number of them like with some um providers out there. And yeah, last but not least, people want to get rewarded. So when we talk to our uh 6 million registered customers, we tell them, "Look guys, uh you've been using the custodial cut product for a while.

It's convenient, it's fast, you can earn a yield, you can earn like cash back. There's a lot of different features, but and and there's no reason not to trust us, right? We've been around for 10 years. We're a regulated business. We're direct member of Visa and Mastercard.

So as as many different uh achievements as um one can have in the space. But if you value self- custody, if you're true to this uh you know philosophy of cryptocurrency, here's a self-custodial card, you can now spend it uh directly from your own chain wallet. And people, a lot of them go, "Oh, oh, self-custodial car, that's cool. Uh how's it different uh from the normal one? Is it better cash back?"

And you're like, "Come on. Uh that's not the idea, right?" Um but so yeah, long story short, people still care about rewards much more than they care about self- custody and we just have to accept it and live with it somehow. Um so how it works uh quite quite different. So typically if you are a uh very advanced web 3 user today and you you you know what a wallet is and um and you keep your funds in your self- custody wallet uh you don't want to risk having it on a centralized exchange.

So the journey from your self-custodial wallet to you buying a coffee or I don't know rakia here uh you need to uh execute and sign transaction in your self-custodial wallet. Send it to centralized exchange offramp into whatever local currency you're using. Uh send it to your bank account. Uh that's quite a friction point that some of you probably know because it can take time. It can cause fees and it can cause questions from the bank all the way to the account being restricted or blocked because not all the banks are still comfortable with cryptocurrency.

And then you finally happily buying your coffee, right? Uh in the current uh set like what's possible now is you tap your card and funds go directly from your wallets and the merchant receives um their dollars, euros, dinars, whatever and and you made the payment. So all those extra steps are removed. How it works? Um yeah, I know I think there's a bit of a uh misformatting here, but hopefully it should still be clear.

So basically within the uh decentralized app, um a user gets a a smart contract wallet enabled by account obstruction technology. They connect their external wallet. They sign the transaction to give the smart contract the permission to spend with the card. So the tap or swipe of the card uh triggers that onchain transaction and funds go directly from the user's wallets into Visa network and later on uh there will be other uh I think we already have SEO as well and we'll be adding uh additional um real world payment rails. uh the only thing that the user needs to do is is bridge their assets from Ethereum to whatever uh fast enough L2 or or another or another chain is to be used because Ethereum is still nowhere near fast enough to uh to match the speed of transaction of Visa and Mastercard networks and this makes it fully self-custodial because some some cards are actually linked to non-custodial wallet.

There's a 1 in card, there's a Koka card, there's um a few others. They linked to your non-custodial wallet, but it's not really like a truly self-custodial card because to make uh uh to have to make funds spendable with that card, you need to convert it into fiat. You need to convert your crypto from self-custodial wallet into fiat and the fiat on the card becomes e-oney and that's already regulated business and that's already you trusting your money to someone. Whereas in this setup, there's no moment in time where wirex or orgnosis pay or other other providers take custody of your funds. they go directly from your wallet um and uh execute the payment.

So this way the problem of uh slow and costly offramps is uh solved by uh real-time card settlement globally. Uh custody risks are completely removed because there is there is no custody of funds.

Uh yeah, crypto can be used uh dayto-day. Uh who can who can benefit from this apart from of course the end users? wallets. Any wallet can integrate this technology and they don't have to be a regulated business because a uh providers like ourselves and some others will uh allow them to um to issue cards. Uh neo banks who want to go into crypto and businesses can set up corporate cards accounts measure uh manage their treasuries in a self-custodial manner and still be able to pay their suppliers in euros or whatever currency they're using.

uh a DAO can link um such a card or set of cards to their treasury and allow contributors to pay for uh real world expenses uh whilst managing the access and and limits. And pretty much any developer can can use the technology to um to add this functionality to their D like if if you want to have a card in your onchain game, it's uh fairly easy to do so now. Uh so are we there yet for for the onchain payments in real world? Uh never been closer. Still need to to work together on it.

But yeah, I think one two years from now payments will become a lot smoother than they are. I I I won't pretend that I know what's going to happen in 3 to 5 years. Probably no one knows with the pace this industry is moving. Uh but yeah uh I think we're on the on the edge of um probably not revolution but uh very important evolution in in uh in in real world payments and yeah we're open for questions.

Okay let's give a big applause. Uh we'll have time to squeeze one question. So please raise your hands if you have any in the first row.

Thank you Gorgi. Uh you mentioned there is no any point in time when uh the money is custody by like your party or like intermediate banks. But how actually this conversation conversion from like USDT to like Visa as a as a like a the payment processor happening like how from your layer 2 network money going through everything else to the traditional finance.

Mhm. Well, with with Visa it's themselves even now when it's custodial setup when we already have the user's balance the uh actual settlement of the transaction with Visa of course doesn't happen for every transaction we we would settle with Visa at the end of the day for the whole amount of of um that has been transacted over the previous day or previous uh weekend or whatever. uh in case of this self-custodial product uh not everyone is there yet but Wyx uh as an example is part of uh I think 10 um pilot use cases with Visa that are actually testing settlements in USDC. So I think on the acquiring side quite a few providers already do this. I think checkout.

com or world pay a few others already allow merchants to settle in stable coins which shortens the settlement cycle which is probably even more important than than the fee that they pay. So I think at the moment this uh the fee they charge for settlement of stable coins is actually higher than the settlement fee for traditional currencies because it saves so much time and especially for small medium businesses it's very important because it helps them uh not lock uh substantial amount of their liquidity like daily volume of of their operational liquidity and it it happens instantly rather than taking a day or two days in case they're using swift to settle. Um and yeah so uh we we almost don't care what currency is used. We could enable pretty much any currency to be used there but we just see that uh USDC USDT and die would cover at the moment would cover 97 99% of all cases but going forward we will be adding additional like euro stable coins and other regional stable coins. So from from your perspective as a user it doesn't matter.

So uh it it the exchange happens in the background. A lot of complex stuff happens in the background. But the main point for the user is uh we we we don't take custody uh well we might be taking custody for like whatever number of milliseconds, right? But that that's not really custody.

Thank you.

Okay. Thank you. Let's give a big applause to Gorgi. [Applause]