While crypto’s future in the U.S. remains as shrouded as ever, it’s a different story elsewhere.
“The world is truly fragmented now, you hear a different story [everywhere],” Dr. Yan Zhang, co-founder of Web3-native payment aggregator Pelago, told PYMNTS.
But what remains the same, no matter the geography, is the need to effectively manage regulatory and operational risks, particularly as they relate to handling on-ramp and off-ramps for crypto payments.
As money movement becomes increasingly digital, accepting and leveraging crypto payments is becoming top of mind for many nations, businesses and consumers.
“Crypto is a business without borders,” Zhang emphasized. “The money will flow to where it is allowed.”
He noted that during a recent trip to the Philippines, the interactions between crypto and fiat entailed “no friction at all.”
“A shocking experience compared to the U.S. right now, where if you send money to a crypto exchange, your bank account might get shut down,” he said, adding that he is half-joking.
That’s because, in large part, today’s digital economy primarily rests upon a payment architecture created decades ago that was designed to support the settlement and transaction needs of fiat currency or physical money.
That architecture and its regulatory guardrails remain ill-prepared to support innovative new payment vehicles, including crypto.
See also: Fixing Crypto’s Liquidity Problem Will Boost Adoption
Still, many countries’ transactions are far from a high-trust, low-friction experience.
That’s why, despite the negativity and volatility surrounding cryptocurrencies more broadly, Zhang said that digital assets can still become “a lubricant in different business segments.”
PYMNTS research in the report, “Shopping With Cryptocurrency: Tech-Driven Consumers Drive Market Acceptance,” found that one in every three of the most tech-fluent consumers (33%) specifically purchase cryptocurrencies to use them to make purchases with merchants, highlighting that while unengaged observers may look askance at digital assets, there is still marketplace interest in accepting and using crypto as a payment method.
“There is very active innovation going on in the crypto world. Today’s decentralized payment protocols and management systems are even designed for AI (artificial intelligence),” he said, explaining that crypto’s infrastructure may provide an important backdrop to the speed of future innovations.
“In a fragmented world, you need something connected together,” Zhang added.
Many consumers are interested in and ready to onboard to Web 3.0 but are not familiar with existing decentralized finance (DeFi) on-ramps.
One benefit of the ongoing regulatory furor, including the headline-grabbing collapse of crypto exchange FTX, contentious debates among U.S. lawmakers over stablecoins, and the approval of the European Union’s landmark MiCA (Markets in Crypto Assets) bill, is that it has improved awareness of crypto as a “money asset,” Zhang said.
“Traditionally, the biggest hurdle for crypto payments is that customers didn’t consider crypto as money [rather, they viewed it as more of an investment], so merchants were hesitant to accept crypto payments,” he added, explaining that any regulations enacted will impact businesses more than they do consumers — and actually serve to “boost” awareness among consumers of crypto’s utility.
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“Our team is super cautious right now, we have to be because this is a huge industry,” Zhang said. “If you talk to Stripe, Square, they’ll tell you how much fraud there is in Asia — so when these [bad actors] turn their focus to crypto channels, we have to stay on top of that.”
That’s why, he explained, DeFi infrastructures have an inherent advantage: not only are they transparent, but no one person handles the liquidity pool as everything is automated, closing off many common and easily exploitable vulnerabilities.
A DeFi infrastructure also allows for easy regulatory monitoring and auditing minus the cost of the computing power involved in double-checking on-chain transaction histories.
By maintaining an automated liquidity pool for facilitating payments, Zhang sees DeFi solutions as only increasing crypto’s attractiveness as a transaction instrument while simultaneously widening its appeal among merchants and customers.
Still, as he said, the need remains to “train employees to recognize what is licensed and not licensed” across different countries and “know the regulatory requirements in different” marketplaces.
As for what the Pelago co-founder would like to see happen next?
“The number one thing is solving for the tax issue. Which country has the right to taxing a crypt transaction? It’s undefined, and right now the tax is imposed as an off-ramp event when you move money from your crypto wallet into a bank account — but if your tax body is undefined, a lot of things are uncontrollable,” he said.
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