The Daily Fintech SmartExpert Service is an easy engagement model for our advisory services. Now you can start working with us by simply choosing your expert, paying for the hour and scheduling your call with the Expert.
In this post we unpick that simple phrase “paying for the hour” and explain why we decided to innovate on that front by partnering with one of the next generation of StableCoins for payments rather than simply using the credit card rails and what we learned from that experience. We like to write about payments innovation. With this partnership we are testing our theories in the laboratory of the real world and making that experience available to our readers.
In this post we will describe:
- Why we are using a cryptocurrency for payments, rather than relying on the legacy credit card rails.
- Why we use a StableCoin rather than Bitcoin or any other Tokenomics funded cryptocurrency.
- Why we chose the GLX StableCoin
- What we learned during this project.
For our big picture view on why StableCoins are so important (but also so hard to get right), please read this update to The Blockchain Economy digital book that was published on Saturday.
Why we are using a cryptocurrency for payments, rather than relying on the legacy credit card rails.
First, we do offer legacy credit card rails as an option. If you are not comfortable using cryptocurrency, just use Paypal.
Second, we like to test our theories in the laboratory of the real world. Back in April 2017 Daily Fintech articulated the thesis that Bitcoin Will Move From Darknet Early Adopter Niche To Clearnet Mainstream:
“This will happen first among free agent, knowledge workers who offer digital products/services cross border.“
“Free agent, knowledge workers who offer digital products/services cross border“ describes the Daily Fintech SmartExpert service. Now it is time to test that theory in the laboratory of the real world.
Third, it just makes practical sense in a borderless world for DailyFintech’s global subscribers and Experts. Once you really look at how cross border payments work using legacy bank and credit card rails, you see three big practical problems:
- Problem 1 = FX costs. Including spread, real FX costs are often over 10%. Consumers can see the fees quite easily, but the spread is pretty hidden. You don’t see the spread unless you look up the interbank rate at that precise moment in time that you get money from an ATM or pay via a credit card in a foreign currency. It is now possible to do this using mobile phones, Google and currency pairs. It is possible to stand in front of an ATM, Google a currency pair such as CHF GBP (if arriving in UK from Switzerland or vice versa) and compare the Interbank rate with what the machine gives you. I have done this, but unless you geek out on obscure Fintech subjects you probably won’t do this. Bank and credit card networks have been very good at isolating consumers from the problem, but if merchants have to pay they will pass on those costs to the consumer; it is a real albeit hidden cost.
- Problem 2 = Fraud is an existential threat for Merchants getting paid by Credit Card. Fraud can destroy a small-business owner with a momentary lack of attention. If Merchants accept payment from a stolen credit card, they will a) not get paid for the product they sold b) banks may look for additional reimbursement for permitting the transaction and c) payment processors may terminate their account and put them on a blacklist; the latter can be the death knell of a small business. In contrast, cryptocurrencies enable a simple irrevocable payment or can be done using smart contracts and the equivalent of an Escrow service; either way, it is not an existential threat to the merchant.
- Problem 3 = Returns. That is why our thesis is that change will come first from digital products/services where there is no physical product to deliver/return.
Our theory is that change will be driven by Merchants not Consumers, because Merchants have the motivation. We decided to test this theory by offering payment for the Daily Fintech SmartExpert Service using a StableCoin.
Why use a StableCoin rather than Bitcoin or any other Tokenomics funded cryptocurrency.
in a word – volatility. When we first started thinking about how to do this, we planned to use Bitcoin and we created a clever (but, in hindsight, overly complex) way to deal with the volatility problem. When we discovered StableCoins, we saw that we did not need a complex way to deal with the volatility problem. The complexity of explaining how we dealt with Bitcoin volatility would have created friction that would have impeded the chances of success for the Daily Fintech Expert Service.
So much for Bitcoin. What about all the Altcoins that offer quick, low cost payments? They solve the speed and fees problem very well, but they do NOT solve the volatility problem. Any cryptocurrency that is funded through Tokenomics has an inherent volatility problem. The venture and their early investors want the price of the coin to rise and some traders bet against it rising; the push and pull of these bulls and bears creates volatility.
What is needed is something that is a) a cryptocurrency b) non-volatile by design. In short we need a StableCoin. For more on Stablecoins, please see this chapter of The Blockchain Economy Book
The next question was – which StableCoin?
Why we chose the GLX StableCoin
GLX is a StableCoin issued by a company called Globcoin.
We chose the GLX StableCoin for 5 reasons:
- Basket not single Fiat. In the chapter on Stablecoins in The Blockchain Economy Book we describe the difference between Single Fiat and Basket. Single Fiat typically means US Dollar (but could be EUR or any relatively stable Fiat currency) but many big corporates and investors prefer a basket that is less volatile than a single currency. GLX is a basket of 15 currencies plus Gold that together account for more than 80% of the World Economy; this is less volatile than even the famously stable Swiss Franc.
- Fiat Collateralized The book also describes three forms of collateralization (ie what proves that the StableCoin really is worth what the promoters say it is). Those three forms are Fiat, Crypto and Issuer Collateralised. The book describes why Fiat Collateralised (sometimes called the tech lite/audit heavy model) is the most secure. GLX is Fiat Collateralised.
- Experienced team. A StableCoin that is a) Basket b) Fiat Collateralised is easy to say. It is much harder to achieve in practice. The team behind GLX Globcoin, led by Helie d’Hautefort, has decades of sophisticated currency management experience before the Blockchain era. Helie started his career as a currency option trader in New York. He joined the Peugeot Citroën group in Geneva, where he was in charge of currency hedging. In 1998 Helie founded Overlay Asset Management, the first european currency management business offering currency overlay services, managed accounts and pooled fund programmes. By 2012, in partnership with BNP Paribas, the business had grown to over USD 23b of assets under management, with a client base from 16 different countries. Since 2010 Helie has focused his research on the creation and management of the Global Reserve Currency Index, an innovative systematic virtual currency that mirrors the world global economy. In 2014 he created Globcoin to extend the scope of client users thanks to Blockchain technology. Helie has built an experienced team based in Switzerland and London that can manage a StableCoin that is a) Basket b) Fiat Collateralised.
- Globcoin card. If you get paid in a cryptocurrency, you want to be able to spend the money. You may decide to save some, but it is unlikely that you want to save 100%. If cryptocurrency remains in it’s pre-chasm phase, you might get paid 10% of your income in cryptocurrency and save it because a) 10% is a good saving rate b) you are a long term bull on cryptocurrency. On the other hand if cryptocurrency crosses the chasm to the mainstream and you get paid say 80% of your income in cryptocurrency you might choose to save 10% and spend 90%. One simple way to spend is via a PrePaid Debit Card and that is one of the services offered by Globcoin. For more on prepaid debit cards please see this post.
- Regulatory Framework in Switzerland. StableCoins attract the attention of regulators because a) they are sometimes deposit takers and b) they can facilitate the on/off ramps from/to Fiat/Crypto. The question is – which regulator in which jurisdiction? GLX is based in Switzerland which is interesting for two reasons:
- FINMA (the Swiss financial regulator), regulates Tokens depending on their use case and has a specific regulatory framework for payments.
- Switzerland is legally a multi-currency country. What? We all know Switzerland is multi-language, but we also know the famous Swiss Franc. It turns out that there is an alternative currency called WIR that was set up in 1934 that is quite legal. The WIR was set up by people wanting to create an alternative to a financial system that had failed so dramatically in 1929. This has echoes from 2008 and the Satoshi Nakamoto White Paper. WIR accounts for a tiny % of Swiss GDP but it is real and it is legal. So the idea of adding another legal currency was not too big a stretch. That is why you can pay taxes in Bitcoin in Switzerland and buy Bitcoin at any railway ticket machine. It is also why a StableCoin that plays by the rules can be a legal currency in Switzerland.
In fact, in full disclosure, I like Globcoin so much that I agreed to join their Board and help make things happen for them.
What we learned during this project.
- Don’t make it hard to do business with us. That is why we also offer a Paypal option if you are uncomfortable with cryptocurrencies. We think that many Daily Fintech readers will want to learn from the experience of using a StableCoin for payments, but not everybody.
- There is still friction in the on-ramp and off ramp due to regulators and AML/KYC. We filled in more forms than we wanted to, but that is life in crypto land today.
- The crypto world really is easier, once you get started. Gen Z and later will use cryptocurrencies and tokens without thinking, as easily as how we now use email. For those of us who grew up with Legacy Finance, we have a transition to go through. It is a bit like learning to ride a bike – a) easier to learn when you are young b) a lot more efficient once you are past the learning curve. Part of our mission at Daily Fintech is taking big complex subjects and making them understandable. Our written materials are always free, but if you want a more personal trainer type of service (where we explain just what you want to know in your context) please book an hour of our time using the Expert Service – and pay using a StableCoin.
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