Original author: Will Awang, Diane Cheung

Original source:Web3 small rules

The emergence of blockchain and cryptocurrency technology not only allows people to purchase NFT digital artworks, interact with players in the Metaverse, and make money in GameFi gameplay, it also provides the most essential decentralized peer-to-peer payment solution. These fast , convenient Web3 payment solutions are changing our current payment methods, and even the entire financial market.

Since Paypal launched the stablecoin PayPal USD in August, we have seen many industry giants make official announcements to expand their business scope to Web3 payment, or to access Web3 payment channels, which seems to be an all-out attack on the Web3 payment business. a feeling of. We can see the actions of a series of industry giants in the industry chain such as MetaMasks deposit and withdrawal aggregation plan; X (formerly Twitter)s payment license application; VISA USDC settlement blockchain payment network.

Since Web3 payment covers almost all infrastructure in the industry, including payments, stablecoins, wallets, custody, transactions, etc., understanding the wide range of use cases and potential advantages of Web3 payment is crucial for all Web3 ecosystem participants.

This article will briefly describe the concept and path of Web3 payment, and then from the business level and legal compliance supervision level, why Web3 payment is expected to reshape the encryption market structure. I hope this article can be helpful in this regard, and welcome exchanges and discussions. The full text is about 16,000 words, and the estimated reading time is 30 minutes.

TL; DR

• Traditional payment and Web3 payment are not separated, but are running in both directions. Legal currency and cryptocurrency continue to interact, and are gradually integrated into practical use cases such as stable coins and central bank digital currencies;

• Bitcoin was designed to implement a decentralized peer-to-peer electronic cash payment system, and Web3 payment was born out of this. At present, Web3 payments can be roughly divided into two categories: deposit and withdrawal payments, and cryptocurrency payments (on-chain and off-chain);

• Industry giants such as Paypal, Coinbase, and MetaMask are gradually opening/accessing Web3 payment services and scenarios, including wallets, custody, payments, transactions, and stablecoins, and will eventually gradually cover their entire ecosystem and form their own ecological closed loops;

• Web3 payment infrastructure is gradually taking shape, linking wallets, custody, and stable coins. More important than this is how to build payment scenarios. Just imagine how X (Twitter), Telegram, MetaMask, and Paypal will form their own huge encryption ecosystems. Against this background, the existing structure of the encryption market will inevitably change;

• Compliance is the foundation of the payment business. The complex cross-regional and cross-scenario nature of Web3 payment business brings huge challenges to regulatory compliance. However, with further clarity on encryption regulation, it is expected to further increase the adoption of cryptocurrency and promote the rapid development of the Web3 payment industry;

• From the perspective of the monetary system, BIS believes that the key to the development of currency after digitization is tokenization. Tokenization can significantly enhance the capabilities of the monetary and financial systems. The future monetary system is expected to be released through tokenization. New driving force for economic growth.

• The biggest opportunity for cryptocurrencies may not be seen as a cryptocurrency, but as a new set of payment methods. Some people think that Web3s killer app is yet to come, but it may have quietly arrived: its payments!

1. Overview of Web3 Payment

Simply put, Web3 payment refers to a payment method based on blockchain and cryptocurrency technology. However, due to the characteristics of blockchain and cryptocurrency, Web3 payment does not only include payment.

The properties of a cryptocurrency like Bitcoin are multi-dimensional. It is not only a form of payment, but also an innovative technology, a store of value and a financial infrastructure. (a distributed ledger), and can also be used as a currency unit of account (a unit of account) to mark value in transactions.

Traditional payment and Web3 payment are not separated, but are running in both directions. Legal currency and cryptocurrency continue to interact, and are gradually integrated into practical use cases such as stable coins and central bank digital currencies. Web3 payments are redefining the way we pay and our financial systems.

1.1 Traditional payment

Let’s look at traditional payments first. Payment is the act of transferring money (currency equivalent) or claims from the payee to the payee. It is a process in which information flow and capital flow are matched to complete the delivery of money. The essence of payment is the transfer of funds.

Broadly speaking, payment includes cash banknotes and electronic money. There are roughly four ways to transfer funds: cash payment; bank account transfer; debit card transfer; and credit card payment. Among them, payment in the latter three forms of electronic money requires the transfer of funds through a centralized financial system such as a bank. If the bank cannot complete the payment directly, it also requires the participation of a third-party payment institution.

According to different payment currencies, it is divided into domestic payment and cross-border payment. Since Web3 payment currently conducts transactions on the blockchain and can achieve the dual functions of cross-currency (fiat currency v. cryptocurrency) and cross-region, it can be classified as a type of cross-border payment.

There are many participants in the cross-border payment industry chain, including customers, commercial banks, third-party account/acquirer payment institutions, clearing institutions, merchants, etc. The entire industry chain can basically be divided into three levels: the first level is users and merchants, which are the source and terminal of payment respectively; the second level is payment service institutions, such as banks, third-party payment, etc.; the third level is cross-border Payment network is the lowest level support for cross-border payments, such as SWIFT and SEPA.

The figure below shows the structure of cross-border payment:

(Source: How new entrants are redefining cross-border payments)

According to the type of cross-border payment service providers, they can be divided into bank wire transfers, professional remittance companies, bank card transfer and clearing institutions, and third-party payment institutions. The following uses examples to compare Web3 payments based on blockchain settlement.

• 1.1.1 Inter-bank cross-border payment

(Source: SWIFT gpi- Future of Cross Border payments)

Early cross-border payments were mainly conducted through banks. For example, the earliest appearance of bank wire transfer was mainly used for cross-border payments between banks, import and export trade, etc. This payment method requires going through a complex banking network and can take days or even weeks to complete. This process may involve the exchange of multiple currencies, and the fees are relatively high.

Traditional bank cross-border payments mainly rely on the SWIFT network. SWIFT does not hold funds or manage accounts for users, but provides a communication information network and exchanges standardized financial messages. SWIFT can be understood as a network that connects almost all major banks in the world, and banks use the same language to complete foreign exchange transactions. However, the disadvantage of SWIFT is that if a payment passes through multiple intermediary banks and encounters anti-money laundering spot checks, it is easy for the time limit to be extended or even the remittance to fail, and there are also problems such as exchange losses.

As shown in the figure above, when a commercial account relationship is established between the beneficiary bank and the paying bank, the payment made by the user will be directly transferred through the banks commercial account to complete the payment, and the bank will charge corresponding fees; when the beneficiary bank and the paying bank When there is no commercial account relationship between the paying banks, it needs to be completed through an intermediary bank. The intermediary bank will charge additional fees, and the time for payment to arrive will also be extended due to the increase in transaction parties.

Bank cross-border payment is a highly regulated business. The regulatory policies in various countries and regions are different, which also imposes certain limitations on cross-border payments. In addition, most bank cross-border payments have strict KYC/AML requirements, which require users to open an account before they can be completed, so the cost is relatively high.

• 1.1.2 International Card Organization

Similar to SWIFT, international card organizations are also the main network for traditional cross-border payments, but they focus more on the merchant collection scenario (the merchant deducts money from the buyers account). There are various collection methods, and it is completed directly during the payment process. The exchange process settles local currency for merchants.

Card organizations are international regional payment information processing networks. There are currently six major card organization networks in the world: VISA, Mastercard, China UnionPay, American Express, JCB, and Discover. Cross-border payments processed by international card organizations usually take T+ 1 day or longer to complete, that is, it takes at least T+ 1 day to reach the merchant account. Payment by international card organizations also requires a license to operate and is subject to different regulatory policies in various countries.

• 1.1.3 Third-party cross-border payment

With the development of e-commerce and network technology, electronic transfer has become a popular cross-border payment method. This cross-border payment method generally uses non-bank institutions (such as Alipay, Paypal, etc.) as a third-party payment institution to provide all or part of the fund transfer service. These third-party payment institutions play an important role in cross-border e-commerce retail, remittance, import and export business, and overseas mobile payments.

Third-party cross-border payments require access to international card organizations or banks for clearing and settlement to complete the payment. The exchange process in cross-border payments is mainly completed through banks. Third-party payments usually have a custody function, that is, the payment funds can be deposited in the third-party payment account and transferred to the sellers account after the transaction is confirmed.

(Source: Acquiring Banks vs Issuing Banks in Credit Card Processing)

As shown in the figure above, in a cross-border e-commerce scenario, the user side is the starting point for fund transfer, and the third-party payment institution connects the users bank account with the credit card/debit card of the issuing bank. After the user consumes, the users funds are transferred to the payment channel and connected with the card organization for settlement. After settlement, the third-party payment institution transfers the funds to the merchant. When there is an offline shopping scenario, an acquiring agent is required to connect the merchant and the third-party payment institution.

Traditional payment has been developed for a long time and can currently cover most application scenarios with a wide range of functions. However, cross-border payments face practical problems such as high costs, slow speeds, limited access and lack of transparency. According to a survey by the Federal Reserve, the pain points of users are mainly concentrated in the following two points. First, the payment speed needs to be improved. The current payment period cannot meet user needs. They hope to achieve 7*24*365 payment services. The second is cyclical. There is strong demand for real-time payment scenarios.

1.2 Web3 payment

Although current payment methods are rapidly being digitized, the cost is high due to the large number of participants, the cumbersome process of transferring funds, and the huge friction costs. The improvement of payment experience has always been restricted by intermediaries, banks, technology companies, etc.

Bitcoin was originally designed to implement a decentralized peer-to-peer electronic cash payment system. In 2008, Satoshi Nakamoto released the Bitcoin white paper against the backdrop of the global financial crisis, hoping to change the financial system with traditional banks as its core and achieve decentralization of the entire finance. Since the birth of Bitcoin on January 9, 2009, the large-scale application of cryptocurrency has begun.

Bitcoin payment allows direct transfers between users without going through third-party institutions such as banks, clearing centers and electronic payment platforms, thus avoiding high fees and cumbersome transmission processes. Any user with a device connected to the Internet can do so without any hassle. Use it with permission.

(Source: How Crypto Payment Solutions Have Changed the Market)

Similar to the Bitcoin payment network, cryptocurrency payments rely on the blockchain network as the backbone infrastructure, allowing cryptocurrency to be transferred directly between the sender and receiver without any third party, quickly, conveniently and at extremely low cost.

As cryptocurrency acceptance continues to grow, it is inevitable that cryptocurrencies will interact with real-world fiat currencies. Here, institutions that provide deposit and withdrawal services act as banks that provide foreign exchange settlement and sales services in cross-border payments, providing exchanges between cryptocurrency and legal currency.

Therefore, the current Web3 payment can be mainly divided into two payment methods: (1) Deposit and withdrawal payment (On Ramp Off Ramp), that is, payment when cryptocurrency and legal currency are exchanged; (2) Cryptocurrency payment, including ( 2.1) Payment of native assets on the cryptocurrency chain, between two addresses on the blockchain, or interaction between cryptocurrency and on-chain assets (such as purchasing NFTs with cryptocurrency, Swap between different cryptocurrencies); and (2.2 ) Payment by traditional entities under the cryptocurrency chain, that is, payment when purchasing other goods/services as currency equivalents;

Web3 payment connects legal currency and cryptocurrency through deposit and withdrawal payments, and enables the circulation of crypto assets through cryptocurrency payments, thus forming a complete payment closed loop.

Since cryptocurrency payments are carried out on the chain, cryptocurrency payments are basically not subject to geographical restrictions, and their supervision in various jurisdictions is gradually improving. However, deposit and withdrawal payments themselves involve legal currency payments, so they will be subject to existing financial supervision. limits.

1.3 Compared with traditional payment, the advantages of Web3 payment

(Source: Technology giants are betting on whether Web3 wallets can become a fulcrum to leverage the industry?)

Traditional payment is a set of payment methods based on an account system, and the transfer of value is recorded in the accounts of intermediaries (such as banks, third-party payment companies). Due to the large number of participants, the fund transfer process is very cumbersome and the friction costs are also huge, so the cost is high.

In contrast, Web3 payment is a payment system based on a value-based or token-based system, and the transfer of value is stored in the distributed ledger of the blockchain by the user himself. Web3 payment is based on the blockchain network as the backbone infrastructure, allowing cryptocurrency to be transferred between senders and receivers, and can solve the problems of high fees, inefficient cross-border transfers, and high costs in traditional payments.

(Source: Blockchain & Crypto in Payments: Transforming the Way Money Moves)

Compared with traditional payment, what are the advantages of Web3 payment?

First of all, relying on blockchain technology can effectively reduce the trust cost between transaction parties and make payments more direct, faster and safer. The smart contract function can realize programmable payment and automated execution, improving the efficiency and credibility of payment.

Secondly, the current timeliness of cryptocurrency payments has great advantages over traditional payments, especially in cross-border payments. This feature will be an important driver of the development of cryptocurrency payments, and will also be an important factor in promoting traditional cross-border payments. The main force for upgrading payment technology.

In addition, based on the characteristics of decentralization, Web3 payment simplifies the process based on centralized clearing institutions, reduces friction costs, especially greatly improves the efficiency of cross-border payments and speeds up settlement.

There are various signs that traditional cross-border payment and Web3 payment are not completely separated. The two are forming a two-way situation from all aspects. On the one hand, this is reflected in the fact that the application of blockchain technology in the traditional payment industry is accelerating. In addition to CBDC, which is being practiced in many countries, major participants in traditional payments such as SWIFT, VISA and PayPal are exploring web3 payment solutions; on the other hand, On the other hand, it is reflected in the fact that the Web3 payment project team is also actively in-depth cooperation with traditional financial institutions and third-party payment institutions, and exploring the accelerated application of compliant stable coins.

Although Web3 payment still faces challenges in technology, user acceptance, security compliance, etc., Web3 payment is still of great significance to the encryption industry and even traditional finance as a whole.

2. Main paths of Web3 payment

At present, Web3 payment can be mainly divided into two payment methods: (1) Deposit and withdrawal payment (On Ramp Off Ramp); (2) Cryptocurrency payment (including payment in native scenarios on the chain, and payments with traditional entities off the chain). payment).

Web3 payment connects legal currency and cryptocurrency through deposit and withdrawal payments, and enables the circulation of crypto assets through cryptocurrency payments, thus forming a complete payment closed loop.

Due to the small volume of native assets in the current crypto market and the limited payment scenarios, most of the payments currently discussed in the Web3 industry are related to the exchange of deposits and withdrawals between legal currency and cryptocurrency.

2.1 Deposit and withdrawal payment

Deposits and withdrawals (On Ramp Off Ramp) are an important bridge connecting legal currency and cryptocurrency, and can form a complete closed payment loop. In addition to OTC/P2P deposits and withdrawals, other deposits and withdrawals processes require third-party payment institutions. participate.

• 2.1.1 Deposit and withdrawal payment process

Fund flow behind deposit and withdrawal payments: Users transfer legal currency through payment channels to the liquidity provider (Crypto Liquidity Provider) behind the third-party payment institution, and the liquidity provider is more like a merchant in a traditional third-party payment scenario. Transfer the commodity of cryptocurrency to the users address through the chain, while providing cryptocurrency liquidity for third-party payment institutions. Withdrawal and vice versa.

Such liquidity providers are typically centralized exchanges (such as Coinbase Prime, Binance, Kraken) or stablecoin issuers (such as Tether and Circle), or crypto-friendly banks (such as the failed Silvergate bank and Signature bank). Liquidity providers are crucial in the deposit and withdrawal process, and serve as a bridge between fiat currencies and cryptocurrencies.

• 2.1.2 Main deposit and withdrawal payment methods

A. Centralized Exchange

Since centralized exchanges also have the nature of currency transmission, their functions are partially consistent with those of payment institutions, and the relevant crypto-assets/payment licenses applied for are consistent with the licenses of payment institutions, so most centralized exchanges will also have relevant deposits and withdrawals. Payment function.

In addition, centralized exchanges themselves can also serve as liquidity providers, so we see that most centralized exchanges will have their own deposit and withdrawal payment business sections, and users can purchase directly through debit/credit cards or bank transfers. Cryptocurrencies such as Binance Pay, Coinbase Pay, XXX Pay, etc.

Centralized exchanges provide buyers and sellers with the payment interface of exchange-managed wallets. Both parties can choose to use different accounts in the same managed wallet or use a non-custodial wallet according to their needs. The cost of the former is lower because there is no gas involved.

In addition, in some jurisdictions with stricter supervision, centralized exchanges need to access independent deposit and withdrawal payment institutions as the underlying payment channel to complete the purpose of user deposits and withdrawals. This operation is also suitable for decentralized exchanges. For example, Uniswap has connected to independent deposit and withdrawal payment institutions such as Moonpay and Paypal to support users deposits and withdrawals.

B. Independent deposit and withdrawal payment institution

An independent deposit and withdrawal payment institution is a payment institution with the function of encrypted currency transmission (it can also include crypto-friendly banks) and needs to obtain relevant licenses for crypto assets/payments in the place of business operations.

Among them, MoonPay is currently the leading project for cryptocurrency deposits and withdrawals. It is positioned as PayPal for Web3 and has more than 5 million registered users. In terms of coverage, MoonPay supports crypto payments in more than 160+ countries and regions, supports the exchange of more than 80 cryptocurrencies and more than 30 legal currencies, and holds payment business licenses in most jurisdictions.

In terms of payment methods, MoonPay currently supports payment through credit card and debit card, mobile payment, account-to-account payment and other channels. The payment can be completed after entering the on-chain address and currency amount. Coinbase provides liquidity for it. Relying on the Matthew effect brought by complete deposit and withdrawal functions and first-mover advantage, it quickly occupied most of the European and American markets dominated by credit card use, supporting a valuation of US$3.5 billion.

In addition, we have recently seen that the traditional payment giant Paypal, based on its strong payment channels, jointly launched the PYUSD stable currency with the stablecoin issuer Paxos, aiming to enter the Web3 payment market. The previously hit Slivergate Bank and the forced closure of Signature Bank, these crypto-friendly banks are actually relatively important payment channels for deposits and withdrawals.

C. Other deposit and withdrawal payment methods

Other deposit and withdrawal payment methods are basically payment products that integrate the above two payment methods.

Aggregated payment products are products that integrate multiple independent deposit and withdrawal payments so that users can obtain rates and quotes for different independent deposit and withdrawal payments to make payments. MetaMask is the most typical aggregation payment, and other well-known head projects include TransitSwap and KyberSwap.

Cryptocurrency retail terminals ATM and POS. With the development of the cryptocurrency industry, in addition to online payments for cryptocurrency, physical retail terminals for cryptocurrency have also appeared. Cryptocurrency ATMs are used to purchase cryptocurrencies directly with cash offline, with the ATM provider purchasing liquidity from a third-party provider and paying the user. The characteristic of this type of payment is its anonymity. Users rarely need to provide identity verification or only require very little personal information to purchase cryptocurrencies. Its disadvantage is that the transaction fee is extremely high (5% - 20%). Bitcoin Depot is the head project of this track.

Cryptocurrency payment POS is another channel for offline payment of cryptocurrency. Users pay cryptocurrency through POS machines, and merchants receive legal currency directly, and users can withdraw money through POS payment. This type of payment also requires applying for a license, but the withdrawal rate is lower than that of ATMs. Pallapay is one of the projects that offers such a solution.

(Source: Crypto | Money is evolving)

Overall, there are currently many Web3 payment methods for users to choose from, but deposits and withdrawals involve the conversion of legal currency and cryptocurrency, and operators basically need to apply for operating licenses by region. The fees incurred for payment vary slightly depending on the payment method and business model.

In addition to deposit and withdrawal payments, debit cards and credit cards issued by some centralized exchanges and payment institutions in cooperation with card organizations such as Visa and Mastercard combine the attributes of deposit and withdrawal payments and cryptocurrency payments.

2.2 Cryptocurrency payments

As cryptocurrency acceptance continues to grow, Web3 payments are also entering traditional markets such as e-commerce (for online shopping), the gig economy (for contracts and freelancers), cross-border remittances, travel bookings, and online gaming (with In-game item exchange), etc. It uses cryptocurrencies for online spending and remittances, rather than relying on the outdated infrastructure of traditional banks or third-party payment institutions.

At present, cryptocurrency payments are mainly divided into two categories, one is payment with traditional entities off the chain, and the other is payment in native scenarios on the chain.

• 2.2.1 Cryptocurrency payment - off-chain traditional entity payment

According to a 2022 report from PYNMTS and BitPay, the report surveyed more than 2,330 online merchants with annual sales of more than $250 million. Approximately 85% of large retailers (with annual revenue exceeding $1 billion) currently offer cryptocurrencies as a payment method. Half of all merchants surveyed already accept cryptocurrency payments, and of those that do not yet, 42% are planning to. The report also found that most merchants use non-crypto-native wallets to support crypto payments, such as PayPal and Venmo.

To meet customers growing Web3 payment needs, leading payment giants such as Mastercard, Visa, PayPal, Stripe and Venmo have partnered with cryptocurrency companies to provide cryptocurrency as a means of payment to millions of users. Most major retailers, such as Overstock, Microsoft, Expedia, and Starbucks, have also integrated crypto payments, allowing their customers to purchase digital and physical goods directly using cryptocurrencies. Other major companies include popular streaming company Twitch, Norwegian Air, Etsy and Burger King.

(Source: How Crypto Payment Solutions Have Changed the Market)

As far as payments between traditional entities off the chain are concerned, we simulate a scenario where users consume cryptocurrency and merchants collect legal currency. The capital flow goes through a third-party payment institution to first exchange the cryptocurrency for legal currency through deposits and withdrawals, and then Make fiat currency payments to merchants.

The most common solution at present is the issuance of encrypted bank cards. Centralized exchanges or wallet companies usually cooperate with card organizations such as Visa and Mastercard to issue encrypted debit cards/credit cards. Users only need to hold cryptocurrency in the platform account. Use a debit card/credit card for online consumption or offline credit card swiping. When making the actual payment, the card issuing company will first convert the cryptocurrency into local legal currency through the withdrawal payment channel, and then pay the merchant. We have seen that the centralized exchange Crypto.com has issued the Crypto.com Visa Card debit card with Visa. In addition to the function of fiat currency payment, users are also provided with the function of on-chain cryptocurrency payment.

• 2.2.2 Cryptocurrency payment - payment in native scenarios on the chain

As far as payments in the native scenario on the chain are concerned, users pay in cryptocurrencies and merchants also accept cryptocurrencies. This method cannot just be understood as a simple point-to-point payment transfer based on blockchain technology. It also needs to take into account the trust issues encountered in real-life payment scenarios, which needs to be achieved through third-party payment.

Take an online shopping case as an example. In the case of solving the trust problem (chain of trust between friends), the transaction can be realized directly through point-to-point transfer on the blockchain, where the user pays + the merchant delivers + the user receives the goods. But when shopping on an online platform that has no basis of trust, who will guarantee that the merchant will deliver the goods after the transfer and that the goods received will be consistent with the actual situation?

Similarly, we can realize point-to-point transfers with relatives and friends through the blockchain network, but what should we do if the counterparty is a stranger? Therefore, an account system is also needed to be linked to the settlement system on the blockchain to realize offline goods circulation and on-chain payment settlement.

Therefore, third-party payment institutions that provide cryptocurrency payment products are needed to solve the above problems. It includes the encrypted payment protocol, payment core system, front-end product interaction and corresponding support modules shown in the figure above. We can see that Ripple and Stella Venture DAO are a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.Venture DAO is a multi-chain dApp ecosystem. Our internal products and incubation projects span chains and verticals to ensure sustainable value for ALPHA users and token holders. In May 2023, Alpha Venture DAO was renamed Stella and moved to the Arbitrum ecosystem. Stella strives to be the premier destination for leveragers and lenders to maximize their earning potential. Whatever on-chain strategy a leverager wants to use on leverage (and is secure enough to be backed), Stella will back it with 0% borrowing costs.exploration in this area.

Visa recently provided a settlement solution based on the stable currency USDC, which was applied in the case of Crypto.com. In the previous scenario where users consumed cryptocurrencies and merchants charged fiat currencies, Crypto.com needed to convert the cryptocurrencies paid by users into fiat currencies and then pay the merchants through traditional payment channels. Settlement via traditional payment channels means increased parties, transaction fees, costs and complexity, and limits Crypto.com from performing settlements during non-bank business hours.

Visas USDC settlement solution directly eliminates the currency exchange and traditional payment steps for deposits and withdrawals in transactions, and realizes 24/7/365 real-time, global settlement directly through the blockchain. This flexible settlement method that does not require deposits and withdrawals has opened up new business scenarios for Crypto.com, such as cryptocurrency payment entrances for merchants, cross-border payments based on blockchain, etc.

Visas USDC settlement solution can also be used for cross-border remittances. The cross-border remittance market, currently worth nearly $1 trillion, is plagued by high-cost traditional payment methods, which charge transfer parties fees of up to 8% of the total transaction value. Web3 cross-border remittance products like Strikes Send Globally use Bitcoins Lightning Network to provide an affordable alternative to traditional cross-border remittances, with fees ranging from only 0.01% to 0.1% of the transaction amount.

This settlement method, combined with the application of stable coins, can reduce 80% of the cost of traditional cross-border payments. This means that for a $500 remittance, the transaction cost of on-chain cryptocurrency payments and deposits and withdrawals is only $4.8, much lower than the average cost of cross-border remittances that hover around $20. In 2022, cross-border labor remittances will reach nearly $800 million, and remittances based on Web3 payments can save the industry $40 billion to $64 billion in annual costs.

3. Industry giants deploy Web3 payment

Focusing on their main businesses such as trading, payment, communication, and social networking, industry giants are gradually opening up/accessing Web3 payment services and scenarios, including wallets, custody, payment, transactions, and stablecoins. Eventually, they will gradually cover their entire ecosystem and form a logical closed loop. The following summarizes the layout of Paypal, Coinbase, and MetaMask in this regard.

3.1 Payment company Paypal’s Web3 payment layout – payment, wallet hosting and stable currency

In the previous Payment giant Paypal’s stablecoin is expected to lead the crypto industry to the mainstream》In the article, we introduced the PYUSD stablecoin launched by Paypal on August 7, 2023. As the only stablecoin supported in the PayPal ecosystem, it will be used to connect Paypal’s existing 431 million users and provide services to Web2 consumers and merchants. and developers to provide a seamless bridge between fiat currencies and cryptocurrencies.

• 3.1.1 Implementation path of deposit and withdrawal business

By looking at the user agreement of Paypal CryptoCurrency, we can see the important role of the PYUSD stablecoin in opening up Web23 payments, Paypal accounts, and crypto custody wallet accounts.

As shown in the image above, Paypal uses the PYUSD stablecoin as a bridge between fiat and cryptocurrency exchanges. Whether it is deposit business, withdrawal business, or encrypted payment business, it is all completed through the USD - PYUSD - Crypto Asset link, and vice versa. For example, in a scenario where cryptocurrency is used to pay for merchant services, the Crypto Asset is first sold into PYUSD/USD and then used to pay the merchant in PYUSD/USD.

The legal currency payment business uses a Paypal account, and for cryptocurrency, Paypal creates a Cryptocurrencies Hub encryption wallet under the Paypal account. The wallet will be hosted by Paxos, the issuer of PYUSD, meaning users hand over their assets (private keys). The Paypal user agreement clearly states: You will not hold the digital Crypto Assets themselves in your Crypto Asset balance / You do not own any specific, identifiable, Crypto Asset.

From this, we see that Paypal has completed the framework layout for Web3 payment by opening up the payment channel between legal currency and cryptocurrency, issuing stable coins as a transaction medium, and building a Paypal account wallet system, and can be used in its own ecosystem. Form a logical closed loop.

On this basis, Paypal can also combine its advantages in the payment industry to provide external support for deposit functions to crypto wallets such as MetaMask and Ledger, as well as external support for centralized exchanges such as Kraken. At the same time, the withdrawal function announced by Paypal on September 12 can also support wallets, DApps, and NFT market platforms.

With channels, tools, infrastructure, etc. all in place, how to guide Paypals existing 431 million users to enter Web3 and lead Web3 to truly move towards Mass Adoption is the key.

（Source: Buy and Sell Cryptocurrency | PayPal US）

• 3.1.2 Traditional payment companies are poised for growth

We see that Paypals path is more suitable for traditional payment companies to copy. Traditional payment companies like Stripe and Square are already engaged in the business of deposits, withdrawals, and transaction exchanges. For example, Stripe announced the provision of crypto deposit services in December 2022. In addition to realizing the basic functions of peer-to-peer payment, Cash App, owned by Block (the parent company of Square), also provides BTC transaction services.

Since traditional payment companies have basically implemented the compliance processes and qualification licenses for local payment businesses, when and how they will carry out Web3 payments is just a matter of time and rhythm. On the other hand, new entrants like

3.2 Exchange Coinbase’s Web3 payment layout – trading, custody and payment

As the worlds most compliant centralized exchange, Coinbases many compliance paths are worth learning from. We see that Coinbase can form a logical closed loop in its own ecosystem through the layout of Web3 payment, including deposit and withdrawal payment channels, Commerce merchant payment solutions, stable currency transaction media (USDC), encrypted asset custody wallets and non-custodial Wallet, as well as the core trading functionality of the exchange itself.

• 3.2.1 Transaction is the core, payment is the auxiliary

Although the purpose of centralized exchanges to obtain payment licenses is more for the compliance of their own trading businesses, the acquisition of these licenses also opens up deposit and withdrawal businesses and payment channels. Due to regulatory uncertainty, over-reliance on third-party deposit and withdrawal payment channels, such as Slivergate Bank, which has been hit by thunder, and Signature Bank, which was forced to go bankrupt by regulators, may bring instability to the business. Therefore, we see that many exchanges have their own payment business sections, such as Binance Pay, Coinbase Pay, XXX Pay, etc.

In Licenses Disclosures, we see that Coinbase has obtained money transmission licenses (MTLs) in most states in the United States. In particular, Coinbase obtained a Bitcoin license (BitLicense) from the New York State Department of Financial Services (NYDFS) in 2017, becoming the first Bitcoin exchange with a formal license in the United States, which can provide users with local buying, selling, and receiving services in New York State. and services for storing Bitcoins.

Outside the United States, Coinbase is actively developing overseas markets and has successively obtained the British EMI license, the Irish VASP license, the German VASP license, and the Singapore DPT license. As a result, Coinbase uses its trading business as an entry point, and its trading business and payment channels gradually cover many jurisdictions around the world.

(Source: Coinbase Commerce)  

In addition to obtaining a compliance license, Coinbase also launched Coinbase Commerce, an enterprise-level encrypted payment service. It is a merchant payment solution based on blockchain technology that helps online businesses accept cryptocurrency payments. The service allows merchants to accept payments in mainstream cryptocurrencies such as Bitcoin, Bitcoin Cash, DAI, and Ethereum. Coinbase Commerce is designed to help businesses quickly and flexibly do business with customers around the world.

According to reports on August 21, Coinbase is acquiring a partial stake in Circle Internet Financial, which means that Coinbase and Circle will have greater strategic and economic alignment in the development of future encrypted financial systems to compete with USDT and PYUSD. opponent. At the same time, Coinbase can also open up broader application scenarios for USDC, which is no longer limited to cryptocurrency trading business, but may also extend to foreign exchange and cross-border transfers through Web3 payments. From this, USDC = USD Coinbase.

• 3.2.2 Custody business and non-custodial wallet

Coinbase Custody Trust Company, LLC, regulated by the New York State Department of Financial Services, is the main company that provides custody services to Coinbase. We see that in the current Bitcoin spot ETF application competition, in addition to Blackrock and Coinbase confirming the partnership for Bitcoin spot ETF, Fidelity, VanEck, ArkInvest’s 21 Shares, Valkyrie and Invesco have all submitted revised application and designated Coinbase as its partner. Once the SEC approves the applications of these asset institutions in the future, the huge assets under the names of these asset management companies will be hosted on Coinbase.

In an analysis included in BlackRock’s ETF filing, Nasdaq estimated that 56% of the $129 billion in U.S. Bitcoin trading was conducted on Coinbase, according to CoinGecko data. In the future, as Bitcoin With the development of currency spot ETFs, this proportion is expected to further expand. Coinbase will also gain huge benefits from this and become the biggest winner in this competition.

For the non-custodial wallet Coinbase Wallet, since the user independently controls the assets (private keys) and interacts directly with the payment system, the Coinbase Wallet itself, similar to MetaMask, will not be defined as MSB by FinCEN.

From this, we see that based on the compliance advantages of its own trading business, Coinbase has opened up payment channels for deposits and withdrawals, stablecoin trading media (USDC), encrypted asset custody wallets and non-custodial wallets, as well as the trading functions of the core exchange itself, thereby achieving A logical closed loop in its own ecosystem.

Web3 payment service is the key to Coinbases exchanges main business and contribution to profits.

3.3 Web3 payment layout of wallet MetaMask - wallet and aggregation

We have seen that MetaMask has continuously launched new functions in the past year. The current MetaMask Portfolio DApp has aggregated functions such as Sell, Buy, Stake, Dashboard, Bridge and Swap to help users conveniently manage assets and realize unified on-chain asset operations. . At the same time, MetaMask recently launched a Snaps version to integrate third-party public chain plug-ins.

MetaMasks natural advantage lies in its nearly 30 million monthly active users. According to data disclosed by Consensys: MetaMasks total number of users has reached 100 million, it is associated with 17,000 DApps, and its daily interactions have reached 244,000 times. According to a CoinGecko report, as of August this year, MetaMask had been downloaded 22.66 million times.

In the foreseeable future, we can see that MetaMask will be aggregated into a super wallet traffic portal, allocating wallet traffic to distribute to various DApps, and there is a lot of room for operational business imagination.

• 3.3.1 The launch of Sell opens up deposit and withdrawal functions

MetaMask launched its latest feature Sell on September 5, allowing users to exchange cryptocurrencies into legal tender through MetaMask Portfolio and send funds to bank accounts. For compliance purposes, this feature is currently only available in the United States, the United Kingdom, and parts of Europe, and only supports the exchange of U.S. dollars, euros, and pounds. MetaMask stated that it will only support ETH on the Ethereum mainnet at the beginning of its launch, and plans to expand to other native tokens on the Layer 2 network in the short term.

(Source: MetaMask Portfolio) 

After selecting the region, the user enters the amount of ETH to be sold, selects a quote from multiple service providers, and connects a bank account. According to the official introduction, MetaMask has established partnerships with cryptocurrency withdrawal service providers such as MoonPay, Sardine, and Transak. However, this function is currently only provided by MoonPay and Transak and requires KYC verification.

The “Sell” withdrawal function was launched five months after MetaMask launched the “Buy” deposit function, which allows users to deposit funds using bank accounts, PayPal, debit cards, and credit cards.

Non-Hosted Wallets such as MetaMask, where users independently control assets (private keys) and directly interact with the payment system, and only provide communication or network access services to support currency transmission services, are not regulated by FinCEN. MSB. Moonpay, which provides the payment channel for MetaMask, belongs to MSB.

• 3.3.2 Independent third-party payment company Moonpay

MoonPay is currently the leading project for cryptocurrency deposits and withdrawals, with more than 5 million registered users. In terms of coverage, MoonPay supports crypto payments in more than 160 countries and regions, and supports the exchange of more than 80 cryptocurrencies and more than 30 legal currencies. In terms of payment methods, MoonPay currently supports payment through credit and debit cards, mobile payment, account-to-account payment and other channels. Uniswap has also previously used Moonpay as one of its deposit channels.

After integrating independent third-party payment companies such as Moonpay, MetaMask can realize deposit and withdrawal payment channels, non-custodial wallets, and a variety of transaction functions (Swap, Bridge, Stake, etc.) aggregated on its portfolio page, which basically formed the A logical closed loop.

• 3.3.3 Snaps version

On September 13, MetaMask released its Snaps version, which supports wallet integration for non-EVM (Ethereum Virtual Machine) chains including Solana, Sui, Aptos, Cosmos and Starknet. Currently, 34 Snaps are in private beta. To put it simply, MetaMask makes some functions open source so that third-party developers can expand the MetaMask wallet in the way they want, aiming to give users a more personalized or diverse trading experience.

In the past, when users wanted to interact with each public chain, they had to download the corresponding wallet plug-in. This not only resulted in a poor user experience, but also indirectly increased many security risks. Now MetaMask has opened up a set of Snaps API access specifications, allowing third-party public chain wallets to break through technical difficulties to access on their own. MetaMask is only responsible for the audit work of access, and other development work is completed by third-party developers.

As a result, users only need to download the MetaMask wallet and install the third-party public chain plug-in to freely shuttle between various public chain networks, and the security is greatly guaranteed. This is a very smart ecological integration move that once again consolidates its leading position in plug-in wallets.

MetaMask’s natural advantage lies in its nearly 30 million monthly active users. In the foreseeable future, it can be seen that MetaMask will be aggregated into a super wallet traffic portal, allocating wallet traffic to distribute to various DApps, creating an operational business imagination space Very big.

4. Regulatory Compliance of Web3 Payment

Due to the openness and innovative nature of crypto-assets, it is difficult to uniformly define their attributes. At present, most jurisdictions do not yet have a complete regulatory framework specifically for crypto-assets. In practice, the supervision of Web3 payments requires compliance not only with cross-border payment and currency transmission businesses, but also with crypto-asset businesses. Coupled with the natural global circulation attributes of encrypted assets, Web3 payment will face extremely complex compliance problems in multiple jurisdictions around the world. At the same time, this is also a huge challenge for supervision in various jurisdictions.

Despite this, we can still see some jurisdictions actively exploring Web3 payments. For example, Switzerland, a crypto-friendly country, has clearly defined “payment tokens”; Singapore also has a definition of “payment tokens” and recently released a regulatory framework for stablecoins; the EU’s MiCA bill also clearly defines “payment tokens”. Definition of E-Money Tokens. The continuous clarification of these regulatory definitions will give cryptocurrency a legal and effective status, thereby further promoting the development of the Web3 payment industry and leading the Web3 industry to truly move towards Mass Adoption.

Compliance is the foundation of traditional giants, so we see that when they develop Web3 payment business, they only limit their business to certain regions in the early stage. For example, MetaMasks Sell withdrawal business (supported by Moonpay) temporarily only covers the United States, Used in the UK and parts of Europe, Paypal’s stablecoin is also currently limited to US users. Although projects can only carry out Web3 payment business in compliance with standards after meeting compliance requirements such as licenses, qualifications, and permits, this is also the main barrier for parties participating in Web3 payment projects.

Because Web3 payment involves many aspects of legal compliance such as encrypted assets, payment, asset custody, stable currency, anti-money laundering/anti-terrorism financing, etc., it is extremely complex. The following will briefly review the laws and regulations related to Web3 payment in major jurisdictions to see how the giants build legal compliance barriers.

4.1 United States

The main regulatory agency related to Web3 payments in the United States is the Financial Crimes Enforcement Network (FinCEN) under the U.S. Department of the Treasury. On the one hand, FinCEN is mainly responsible for supervising and implementing work on anti-money laundering (AML), combating the financing of terrorism (CFT) and customer due diligence (KYC). On the other hand, FinCEN is responsible for collecting and analyzing financial transaction information. Mandatory disclosure of information and tracking of suspicious persons and activities.

FinCENs rights come from the U.S. Bank Secrecy Act (BSA), which treats cryptocurrencies as money. FinCEN issued guidance (Application of FinCENs Regulations to Certain Business Models Involving Convertible Virtual Currencies) in 2019, making regulations related to crypto-asset payments.

The 2019 Guidelines define “monetary transmission” as the act of receiving currency (or other substitute currency value) from one party and sending it, in whole or in part, to another party. “Currency substitutes” within this definition include money orders, stored value cards, and cryptocurrencies. In most cases, any company engaged in money transmission business will meet the definition of money service business (MSB) under the BSA and needs to comply with the relevant regulations of the BSA and FinCEN and perform compliance obligations.

A rough summary of the basis for determining whether it is MSB according to the 2019 Guidelines:

(1) Whether it has access to user assets (private keys): For example, centralized exchanges and wallet custodians that provide services to US users belong to MSB because they can control user assets (private keys). With non-hosted wallets like MetaMask, and DEXs that only provide transaction matching, users independently control assets (private keys) and directly interact with the payment system, or only provide communication or network access services. To support currency transmission services, it does not belong to MSB.

(2) The currency transmission nature of the business: For example, payment companies that provide services to US users, such as Moonpay, Paypal, Stripe, and Square, are themselves engaged in currency transmission business and all belong to MSB.

A company belonging to an MSB not only needs to comply with the relevant regulations of the BSA and FinCEN and perform compliance obligations, but also needs to obtain a money transmission license (MTL) from each state in accordance with the money transmission laws of each state. The US MSB license is relatively easy to obtain, but the application for an MTL license takes a long time. Obtaining an MTL license in each US state requires about two years and millions of dollars in lawyer consultation fees.

Among them, BitLicense is a crypto-asset license created by the New York Department of Financial Services in accordance with the New York State Financial Services Law. It is used to regulate crypto-asset institutions and related trust companies in the state (a New York State limited purpose trust company). The licensed entity must meet the BitLicense Compliance regulatory framework, including consumer protection, anti-money laundering compliance and cybersecurity guidance. Previous entities that have obtained Bitlicense include XRP II, Circle Internet Financial, Gemini Trust Company, itBit Trust Company, etc.

This is why we saw in the news that For payment companies that have obtained licenses from various states, this will be a core barrier for them to operate Web3 payment business in the United States.

4.2 United Kingdom

Companies that want to carry out Web3 payment business in the UK need to obtain an Electronic Money Institution (E-Money Institution, EMI) license issued by the Financial Conduct Authority (FCA). We have seen companies like Coinbase obtain an EMI license in 2018 and conduct encryption business in the EU.

Interestingly, Aave, a decentralized lending platform headquartered in London, also obtained an EMI license in 2020. It is reported that this move is a compliance guarantee made by Aave to attract more users into DeFi, and may also be due to the UKs strict consumer protection compliance requirements.

Before Brexit, UK EMI license holders were not restricted by time or area of ​​activity and could provide any form of service in the European Economic Area (EEA). After Brexit, more companies are turning their attention to Ireland, which is more neutral and friendly.

4.3 Ireland/EU

Ireland introduced a crypto asset service provider (VASP) registration system in 2021, with the Central Bank of Ireland reviewing companies to ensure they can meet AML/CTF requirements. Coinbase Ireland Limited obtained Irelands VASP license in 2022 after Coinbse obtained an EMI license authorized by the Central Bank of Ireland, which enables Coinbase to issue electronic currency, provide electronic payment services and process electronic payments for third parties.

Similarly, after obtaining the British EMI license, Moonpay obtained VASP registration from the Central Bank of Ireland in 2023. Its CEO said: “We believe that first registering a VASP in Ireland and finally applying for registration under the EU MiCA will provide a good foundation for the company’s cooperation. Regulated access to the EU market provides a huge competitive advantage.”

The EU’s Crypto-Asset Market Regulation Act (MiCA) has been passed by the European Parliament and is expected to enter into force in 2024. Generally speaking, MiCA applies to all entities involved in the issuance of crypto assets and providing crypto asset-related services in the EU: (1) Issuers of various crypto assets (Crypto-Assets), including E-Money Tokens, Asset-Referenced Tokens and other Tokens; (2) Various types of crypto-asset services (Crypto-Asset Services) and service providers (Service-Providers), including wallet custody services, deposit and withdrawal services, exchange services, asset management services, investment advisory services, etc. .

MiCA fills the gap in the current EU financial regulatory framework. Once implemented, it will form a unified crypto-asset regulatory framework within the EU, directly forming a large crypto-asset market that radiates to 27 countries and a EU population of 450 million. Since in an E.U.