The Vital Role of Fiat Onramps to Mainstream Adoption

Intergrating traditional finance and blockchain technology is considered critical to mainstream adoption of cryptocurrency and decentralized finance (DeFi). Fiat on- and off-ramps, also called fiat-to-crypto gateways, have always existed in the crypto and DeFi space, and they play a vital role in bridging the gap between traditional and crypto currencies.

During the early days of 2013, fiat onramps were built indirectly by centralized exchanges such as Coinbase, BTC-E, Okcoin, BTCChina, etc. There were huge barriers to entry during this time, as most payment companies and banks did not work with crypto companies; only a few crypto teams around the world were able to successfully set up exchange operations with proper licensing, KYC/AML programs, banking and payment operations for processing deposits or withdrawals via wires and local bank transfers. The majority of users accessed crypto trading through centralized exchanges during the first cycle.

During the “Initial Coin Offering” (ICO) boom of 2017, many users discovered self-custody wallets because this was the only way to participate in the ICO, is by signing your own transactions to interact directly with an ICO’s ERC20 smart contract (i.e. deposit ETH, receive XYZ token). These self-custody wallets positioned themselves as software providers that enabled users to hold their coins. Since the wallet provider is not directly in custody of the user's assets, they argued the legal position that it is not necessary to be regulated by e-money laws. As a result, none of the self-custody wallet providers were qualified to operate their own fiat payment systems. So how did users buy ETH to participate in the ICO?

Enter Simplex, the original fiat onramp. A team of Israeli payment veterans decided to work with a high-risk merchant processor along with a crypto exchange to launch the first fiat onramp. Simplex powered the early self-custody wallets such as MyEtherWallet, MyCrypto, Breadwallet, Edge Wallet, etc. Since none of the wallets had the licensing to build their onramp, they all used Simplex to allow users to buy ETH to buy ERC20 tokens. Simplex eventually became a principal member of Visa and operated for many years without competition.

Simplex worked but was not perfect. The UX was clunky; they did not have an embeddable widget but redirected to their hosted payment page. They had a long KYC order form for 100 per cent of users. They had very high rejection rates (only 10% of users were able to complete purchases in some countries). And because they had no competition, they charged +10% in fees. The market was not happy.

Enter Wyre in 2018, the first USA fiat onramp. For a full disclaimer, I was one of the first employees at Wyre between 2013 and 2021. Wyre operated a regulated US money services business with state-to-state money transmission licenses. This type of compliance architecture is very similar to that of centralized exchanges such as Coinbase. However, Wyre did not operate an exchange; they took their licensing regime and positioned themselves as a fiat-to-crypto onramp to power self-custody wallets and decentralized applications. The year prior, ICOs had raised billions of dollars. And now these projects were launching DApps. Their users who did not have ETH were not able to access these DApps. So the wallets and the DApps added Wyre — teams such as Trust Wallet, Rainbow Wallet, and Metamask Wallet, including others, added Wyre as their preferred fiat onramp for users to buy ETH to use the DApp.

As time went on, it became clear that onramps had found product market fit at the intersection of payments, banking, and crypto. Many onramps came on the market. Global first movers such as Transak, Ramp, and Moonpay were able to raise $20M, $70M, and $500M. Local players such as FomoPay and Alchemy Pay run solid operations in regional markets. As this sub-sector of the space became validated, even established payment enterprises entered with onramp products, such as Stripe, Paypal, and Unlimit.

There is good reason for payment companies to build an onramp. Payment companies already have payment infrastructure built out across multiple jurisdictions with local payment institution licenses. They have the know-how to deal with fraud, compliance and various layers of payment operations. And because payment companies help power hundreds of merchant categories, their overall business is not reliant on the crypto vertical and is therefore better insulated from extended bear markets.

In the backdrop of the banking crisis, it is more important than ever for e-money institutions and payment institutions such as Unlimit.com to offer financial services to the crypto space and help power important use cases such as crypto purchases, NFT checkouts, and global payouts. Building reliable on- and off-ramps on top of a battle-tested payment stack is the best way to securely and conveniently onboard the next billion users into the crypto-native space. As the space gets increasingly institutionalized where most new users may only interact with crypto through an ETF on their investment account, onramps maintain a direct lifeline that takes money out of the old system and puts it in self-custody. And in the bigger battle between centralized systems and decentralized ecosystems, that is of utmost importance.