Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
DeFi Payments | Nov 27, 2023
Image from Fireblocks and BCG Analytics
The challenges of both traditional and permissionless DeFi for payments: Traditional cross-border payment systems are often slow, expensive, and lack transparency. Permissionless DeFi, while offering advantages such as near-instant transfers and better traceability, falls short in terms of anti-money laundering (AML) and Know Your Customer (KYC) functions, making it vulnerable to fraud and erroneous payments. These shortcomings have hindered its widespread adoption by financial institutions.
Permissioned DeFi solves these concerns by integrating the best of both worlds: the efficiency of DeFi and the necessary compliance controls. This model involves several key steps and 8 key participants, ensuring a secure, compliant, and efficient process for cross-border transactions. Here's the step-by-step process below:
Step 1. KYC Process and Whitelisting: Institutions undergo a platform-level KYC process conducted by whitelisters, who approve users and add their digital wallets to the allowed list. Institutions can act as whitelisters or appoint third parties for this role.
Step 2. Initiating the Transaction: Once KYC-approved, a sender (individual, business, or institution) can initiate a cross-border fiat money transfer.
Step 3. On-Ramp Instruction to OOSP: The sender’s fiat balance is debited by an On- and Off-Ramp Service Provider (OOSP), and the sender’s digital wallet is credited with a token of equivalent value.
Step 4. Token Types: The model can use various tokens, like bank-issued stablecoins or central bank digital currencies (CBDCs), representing the transaction’s main payment format.
Step 5. Wrapping the Token: The token received in the digital wallet is wrapped by a service provider for interoperability across blockchains. The wrapping process involves locking the initial token in a smart contract and minting an equivalent amount of the wrapped token.
Step 6. Smart Contract and AMM: A smart contract deployed on the permissioned DeFi protocol handles the transfer of the wrapped token. An Automated Market Maker (AMM) provides a liquidity pool to facilitate trades and ensure near-instant settlement.
Step 7. Unwrapping and Off-Ramping: Receivers can unwrap the received token on another blockchain network.If fiat currency is preferred, an off-ramp step converts the token back to fiat, crediting it to the receiver’s bank account.
The use of permissioned decentralized finance (DeFi) with cross-border payments is estimated to be 80% cheaper than a traditional global payment transaction.
Let's compare the two payment methods by cost category in the table below which clearly illustrates the cost-effectiveness of permissioned DeFi in cross-border payments, highlighting the potential for significant savings for both payment service providers and end customers.
Cost Category | Traditional Payments | Permissioned DeFi-Based Payments |
---|---|---|
Operational & IT Costs | $6.40 (80% of total) | $0.05 to $0.09 |
Compliance Costs | $1.20 to $1.60 (15%-20% of total) | Assumed same as traditional: $1.20 to $1.60 |
Total Cost per Transaction | $8.00 | $1.25 to $1.69 |
Permissioned DeFi is poised to redefine the landscape of cross-border payments with an efficient, cost-effective and secure solution that is compliant with regulatory standards. By addressing the limitations of both traditional payment systems and permissionless DeFi, this innovative model opens up new possibilities for global financial transactions, making them more accessible, transparent, and efficient.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Blockchain and Payments | Nov 16, 2023
Image: Pixabay/raphaelsilva
As PayPal ventures into the realm of blockchain and stablecoins, it faces intense scrutiny from regulatory bodies like the SEC and the CFPB.
In the next two years, we anticipate PayPal to continue to progressively innovate in a couple of areas:
PayPal is reshaping the global payment landscape, marked by the launch of its stablecoin PYUSD and ventures into advanced blockchain initiatives and future applications. However, these innovations have been met head on with regulatory challenges from the SEC and CFPB. What an exciting time to be a global payments pioneer.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Regulatory Innovation | Nov 16, 2023
Image by macrovector on Freepik
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Stablecoins | Nov 14, 2023
Image: Unsplash/CoinWire Japan
In 2023, the cryptocurrency market has witnessed a significant number of depegging events among large-cap stablecoins. Depegging refers to the fluctuation of stablecoin prices by more than three percent in a day against their fiat pegs, highlighting the volatile nature of these digital assets.
Stablecoins play a crucial role in the cryptocurrency markets, accounting for about 10 percent of the crypto market and most on-chain activity. However, their instability, as evidenced by frequent depegging events, poses significant risks. These events can cause market panic, as seen in May 2022 when TerraUSD's peg against the USD shattered, leading to substantial losses in the crypto market.
In response to the growing need for risk assessment tools in the volatile stablecoin market, Moody's Analytics has launched the AI-enabled Digital Asset Monitor (DAM). This tool is designed to predict the probability of a stablecoin depegging from a fiat currency within a 24-hour time horizon. The launch version of DAM tracks 25 fiat-backed stablecoins, including Tether, USDC, and PayPal Coin, which represent over 92% of the total stablecoin market capitalization.
Moody's DAM provides real-time insights into various aspects of stablecoins, including market and liquidity dynamics, the stability of the issuer, the custodians holding the stablecoin's assets, and the quality of these reserves. The tool combines off-chain and on-chain risk factors, leveraging Moody's expertise in global integrated risk assessment.
Despite the challenges posed by depegging events, the stablecoin market continues to grow and evolve. With tools like Moody's DAM and increased transparency in the sector, there is potential for greater stability and reliability in stablecoins.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
Support NCFA by Following us on Twitter!Follow @NCFACanada |
Regulation | Nov 10, 2023
Image: DALL-E3
This development is a clear indication of the increasing efforts to integrate crypto trading platforms into the regulated financial world. These fees are designed to address and recover the higher onboarding costs associated with the registration of restricted dealers, which predominantly include crypto asset trading platforms. The OSC's initiative reflects its ongoing observation of the increased regulatory costs compared to most existing market participants.
The OSC has noted that novel businesses like crypto platforms require more resources to vet. These efforts include initiating compliance discussions, understanding novel business models, and imposing detailed obligations to mitigate investor protection risks. The proposed fees are part of the OSC's broader strategy to foster a fair, efficient, and competitive capital market while ensuring investor protection.
The OSC is seeking public comment on these proposals until February 7, 2024, with the new fees expected to take effect on July 2, 2024. This period of consultation offers an opportunity for stakeholders to engage with the regulator and shape the future of crypto regulation in Ontario.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
Support NCFA by Following us on Twitter!Follow @NCFACanada |
Web3 | Nov 9, 2023
Ninepoint Partners has just the ticket for you with their freshly launched Web3 Explained series, now available on YouTube, X, and LinkedIn. This 12-episode educational treasure trove is your gateway to understanding the revolutionary concepts shaping our digital future.
Hosted by the insightful Alex Tapscott, each episode delves into the key components of Web3, from the complexities of digital assets and the intricacies of decentralized finance (DeFi) to the creative explosion in non-fungible tokens (NFTs) and the boundless possibilities of the Metaverse.
Episode 1: The Internet is Entering a New Era
Episode 2: What is Web3?
Episode 3: What went wrong in Web2?
Episode 4: Four Principles for a Better Web
Episode 5: Tokens: The Native Asset Class of Web3
Episode 6: The Ninepoint Web3 Innovators Fund
Episode 7: Web3 and the Enterprise
Episode 8: Web3 and Financial Services
Episode 9: Entering a New Digital Age
Episode 10: Understanding Web3 in a Historical Context
Episode 11: Giving the Metaverse a ‘Second Life’
Episode 12: Web3 and the ‘Virtual You’
In a world where the digital landscape is constantly evolving, staying informed is a necessity. Here's the Trailer:
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
Support NCFA by Following us on Twitter!Follow @NCFACanada |
Decentralized Exchanges | Oct 25, 2023
Image: Unsplash/Behnam Norouzi
With a shift from Automated Market Makers (AMMs) to order book models, increased regulatory scrutiny, and continuous innovations aimed at enhancing user experience and security, here's a look at what's going on:
Decentralized Autonomous Organizations (DAOs) or community governance models are becoming increasingly popular for decentralized exchanges (DEXes) as they offer a way to democratize decision-making and ensure that the platform operates in the best interest of its users. Here’s how they are working, along with the challenges and opportunities they present:
While DAOs and community governance models present significant opportunities for DEXes to operate in a more decentralized and user-centric manner, they also come with challenges that need to be addressed.
As covered by Cointelegraph, decentralized exchanges (DEXes) have shifted from Automated Market Makers (AMMs) to traditional order book structures given the limitations of AMMs, such as impermanent loss and slippage, transparent price discovery, and strategic trading advantages offered by order book models. Let's look at some key insights of this transformation that promises an enriched and more secure user experience leading to broader adoption of DeFi platforms.
By embracing order book structures and leveraging the capabilities of UTXO-based blockchains, DEXes are poised to overcome the current limitations of AMMs, offering enhanced transparency, efficiency, and strategic trading options.
Image: Unsplash/Milad Fakurian
The future of decentralized exchanges (DEXes) is poised for significant evolution and growth, driven by ongoing innovations, regulatory developments, and shifts in user preferences. Here are some key trends and expectations for the future of DEXes:
The DEX ecosystem is resilient and poised for further innovation, adaptation, and growth, promising a more inclusive, secure, and user-centric trading environment within the decentralized finance space.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
Support NCFA by Following us on Twitter!Follow @NCFACanada |
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Craig Asano
CEO and Executive Director
casano@ncfacanada.org
ncfacanada.org