After the disastrous events concerning cryptocurrency over the past few months, industry observers are wondering — does crypto have a future?
Dr. Yan Zhang, CEO of Web3 native payment aggregator Pelago/Airswift, said it does and that it all comes down to the blockchain-grounded assets’ original premise: payments.
Zhang told PYMNTS in an interview that “achieving decentralization of the payment process” will help make it more of a “worry-free” experience for the general public, the majority of whom may still be reeling from the public fallout of FTX’s collapse alongside other industry implosions.
“We need a decentralized protocol to prevent fraud because when human nature has temptations it cannot control itself,” Zhang said. “But if you measure everything through computer code, you can get rid of the impact of that impulse.”
As reported by PYMNTS, beyond just human-driven failures, crypto crime hit an all-time high of $20.6 billion last year — a number that represents a “lower bound” estimate.
The collapse of FTX, Zhang said, really gave the crypto industry a big alert that centralized exchanges can be incredibly risky and come with the threat of mismanagement.
“In payment situations, consumers don’t care too much, they just pay the merchant; but for merchants, the risk is huge,” he said, noting that taking crypto as payment is still challenging for regular merchants and that adding any additional risk on top of that doesn’t make for a very attractive proposition.
Zhang said the solution is a decentralized payment aggregator where merchants can withdraw funds from an aggregated, decentralized liquidity pool. That’s why he and his company are building one.
While most crypto payment gateways are centralized, exposing users to the same risks that a platform like FTX did, Zhang said decentralization has surged to the forefront of the payment domain due to vital technological advancements.
In a traditional, centralized crypto payment process, he said, “if this payment company defaults, all the money is gone. Payment companies have large transactional volumes but very thin profit margins — so if the money is gone, so is the company.”
PYMNTS own research in the report, “Shopping With Cryptocurrency: Tech-Driven Consumers Drive Market Acceptance,” found that 33% of the most tech-fluent consumers specifically purchase cryptocurrencies to use them for shopping with merchants, underscoring that while observers may increasingly look askance, there is still marketplace interest in accepting and using crypto as a payment method.
“Instead of using a centralized enterprise wallet, we’re using a liquidity pool to handle the transactional process,” Zhang said. “This removes the risk because the money is already there, and the basic concept is that the gas transaction fee is in some ways offset by the yield farmed by the liquidity pool.”
The customer pays, the merchant can withdraw, and the liquidity providers receive their yield from transaction fees, he said. Merchants’ transaction records will remain entirely encrypted.
“Privacy protection is the No. 1 requirement for this new protocol,” he said.
He added that the name of this liquidity pool token is “Pelago,” Italian for “ocean,” and noted that it will be launched with the participation of key merchants and industry partners in what he called “one big ocean,” with account reconciliation being done via smart contract.
Still, Zhang said that his experience working in crypto and safely managing billion-dollar transaction volumes has highlighted the importance of a positive user experience. After all, merchants won’t want to accept crypto as a payment method if it turns out to be a pain for them.
“People cannot wait 30 seconds to confirm a payment,” he said, using paying a restaurant bill as an example and noting that really the maximum is about “two seconds.”
As for what he is looking forward to most?
“Stepping in to fill the challenges of traditional payment processes and existing ones with this new decentralized protocol,” Zhang said. “We want to bring a really good product to market to increase the confidence of the consumer and the industry. We hope this will become a shining product in the decentralized finance domain and bring a lot of positive impact to the industry.”
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