"Basic Financial Services is a 21st-Century Fundamental Human Need:" OMG Network's Vansa Chatikavanij

Hello Defiers! This week’s interview is with Vansa Chatikavanij , the CEO of OMG Network. The Bangkok-based project formerly known as OmiseGo has spearheaded research and work on a scaling technology for Ethereum called Plasma. Scaling solutions will be key for Ethereum and therefore DeFi, to continue growing. The network is already at capacity, and gas prices are getting prohibitively high, especially for complex DeFi transactions.

OMG launched in 2016, did an ICO in 2017, and has since been heads down building its highly anticipated scaling solution, which promises to help the Ethereum network with its heavy lifting, take some transactions off-chain, without compromising on security. It finally launched in May, and it did so in a big way, partnering with the biggest user of the Ethereum network right now, Bitfinex and Tether.

In this interview we talk about OMG’s beginnings, the changes the project went through from conception until shipping, realizing that marketing should come after the project’s launch, and the different Ethereum scaling solutions. Most interesting to me is Vansa’s big vision of global value transfer as a basic human right and how she wants to help make that a reality.

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VC: I was born and raised in Bangkok, Thailand. And when I was about 11 years old, my parents put my little brother and I to boarding school in the States. So, we then spent the latter part of our teen years in the US and then eventually, I came back to Bangkok. So I've been kind of two culture kid for most of my life.

CR: Where in the US?

VC: We were in Connecticut. So, the typical boarding school kids, right? And then I actually went to undergrad in Vermont and went to Middlebury. And there are a couple graduates actually from Middlebury that are doing blockchain stuff now too, so it's been really exciting. Then I went on and did my masters at Columbia in New York and that was actually around GIS and remote sensing. And that path led me to the World Bank, which is how I actually stumbled onto Bitcoin, funny enough.

CR: What an interesting career. First can you talk about what GIS is and remote sensing and what were you doing at the World Bank?

Geographic Information System

VC: Yeah, so GIS stands for Geographic Information System. And the idea was with a lot of the world bank loans to the government, a lot of that time, the money goes out into public infrastructure financing and usually, it's out in the remote areas. So, you don't have a lot of data when you're making investment assessment and decisions. And so, we pull a lot of satellite information and things that are now dug like IoTs, a lot of sensors, to try to paint a picture on what kind of social environmental impact and investment might have. Things that we were working a lot around was water resources management and agriculture.

And so, having more data input in terms of what does the topography look like, demographics, people are using a lot of these technologies now to actually do poverty monitoring. You know, Social Giver has a really cool project, there's also a company called Planet Labs that do really cool satellite imagery stuff associated with the UN, like Sustainable Development Goal monitoring stuff.

Vansa Chatikavanij. Image source: OMG Network

World Bank

When I was hired into the World Bank, I was actually probably the first 10 GIS remote sensing people right into the bank and that was when they started to leverage a lot of more of these technologies. One of the first projects I got sent to, this was around 2011, was in Myanmar when the country started reopening. And the project I was working on at the time was improving resource management and utilization in the agriculture industry.

So, what's really interesting there is particularly in Southeast Asia, agriculture is so embedded in a very long supply chain and the fields are so small and so you don't have these large production systems that you do in the West. So, from getting from planting, processing, shipping until the food actually reaches the table, like your table, it goes through multiple steps. And a lot of that has to deal with rural commerce and financial services. How do you pay for things? And so that was how I got exposed to the rural financial services area. Yeah.

What was actually really interesting for me was when we started working in Myanmar, the banking infrastructure wasn't there; today, it's still not there. I think the bank population in Myanmar today is about 25% and credit card penetration rate is less than 2%.

What was actually really interesting for me was when we started working in Myanmar, the banking infrastructure wasn't there; today, it's still not there. I think the bank population in Myanmar today is about 25% and credit card penetration rate is less than 2%.

CR: And these really long supply chains, how were people transacting with each other and paying for services? Was it all cash? And I guess, that's really limiting when, you know, sometimes you're expecting to get paid for a crop in the future, but you need to pay for products right away. So yeah, I mean, I can imagine how limiting that is for an economy.

VC: Yeah. And so, you see things like we joke about sticking your money under mattresses and stuff. Right? I mean, that's reality.

CR: Right, they actually do that.

VC: And even with the World Bank work, that was also reality. When we disbursed the loans, there wasn't like a good way to transfer and wire money from DC to Yangon in the capital of Myanmar and then out to the countryside. Right? And so, we used to have to carry cash out to local government offices.

C: No, that's crazy. Like did you have to carry a suitcase full of cash around Myanmar?

V: Pretty much.

C: That’s amazing.

Discovering Bitcoin

VC: Now, the dollar had a premium, right? Because the country was opening up and the local currency now is more widely accepted, but before that, there was a preference to actually get US dollars, but you had to pay those in like $1 bill. And even if there's like a little crinkle or a tear in the bill, you have to kind of sit there and try to iron it out or like when you go back to the States, we would have to exchange it to get new dollar bills because people didn't trust it.

C: I guess, there was like a lot of forgery, so bills had to be perfect?

V: Yeah. So, those two trends, the banking coverage or the lack thereof and looking at how people view different currencies, having premium in the US dollar. And then at the same time, if you look at the smartphone penetration rate in Myanmar, I think that's the third trend in the picture that really started sending me down the Bitcoin rabbit hole, was that the smartphone penetration in Myanmar now is about 80%.

When I first started going into that country, it was about $500 per SIM card and that's just for call. And so in that sector, the cost came down really quickly and that sector grew so much faster than the banking sector. So, I mean, you're looking at these trends, right and as an entrepreneur, you have to kind of think, but there's just got to be a better way that you can start doing payments and fund transfers.

To add on to that, what I always think is really funny is Myanmar land is so expensive, it's like mind blowingly expensive. And it's not just in the capital, it’s anywhere. And so, it doesn't make sense for banks to then start following the old traditional way of opening up bank branches, right? Like it just doesn't make any business sense in that way. So, I started learning about Bitcoin and essentially, I was just floored. Like, in a way you can open a debit account, not having to talk to another human being and then not having to go to a bank branch. You can get all that done in a few minutes. And then on top of that, you can send it anywhere, which is amazing.

So, I started learning about Bitcoin and essentially, I was just floored. Like, in a way you can open a debit account, not having to talk to another human being and then not having to go to a bank branch. You can get all that done in a few minutes. Right? And then on top of that, you can send it anywhere, which is amazing.

CR: I know that in other countries in a similar situation in the sense that there's low bank penetration, but a high smartphone or mobile phone penetration, there have been kind of traditional FinTech banking solutions to cover that gap. Like M-Pesa is the classical example. And in Myanmar, that wasn't even the case, there was nothing?

VC: Not in 2011, today, there are. People are trying to push the wallet play into Myanmar for sure. If I understand it correctly, similar to Thailand, it's due to different financial licensing too. So, with wallets, you can only do certain things. Lending, all these complex, more banking services, are not under a wallet license. So, I think it's just kind of a progression towards mobile banking. It’s not there yet.

C: It's really interesting to have seen this area where something like a distributed network for value transfer was so needed, that not even these mobile phone-based solutions were there. So that's when you were saying you got interested in blockchain technology. How did that develop?

Omise Blockchain Labs

VC: Yeah, so that panned out away where I actually came back to D.C. to the World Bank headquarters. And I wrote a little memo to my manager and I said, hey, why don't we look into Bitcoin? At least we can try it for our own fund disbursement. I think I got stonewalled multiple times. I parked that idea.

And then fast forward to a couple years later, I moved back to Bangkok to start my own p2p organic farming lending project. So, you touched on this earlier where there's a lot of different pieces that go into the agriculture supply chain. Right? Part of that was I wanted to see if I can help finance organic farmers and so that was when I learned about Ethereum. And I actually got introduced to Jun and Donnie, who are the founders of the payment gateway company, Omise. And back then, they were experimenting with Ethereum from their own payment stack.

CR: Omise was a traditional payments company back then, using bank rails?

VC: Yeah. So, the payment gateway in a nutshell switches credit card transactions, so they work with Visa to process that payment.

And back then, we were actually called Omise Blockchain Labs. And Jun and Donnie, one of their earlier forays into the Ethereum space was they funded the first Ethereum Dev grant. So, part of that cohort, if I remember correctly, were people like Status and Raiden and so, we got a lot of really good OG Ethereum exposure with that, both on scaling and also on the mobile side of things.

C: In what way did you join their team? To work on blockchain solutions to their gateway or what were you doing exactly?

V: So, I was actually trying to poach one of the developers that they had. Because Bangkok is not a very big ecosystem in terms of startups to begin with. I'm like walking around and saying, okay, who knows how to interact with a smart contract, was like finding a needle in a haystack. So, I was trying to lure this guy away from their project. Jun caught me and called me in one day and was like, what are you trying to do? I was like, well, want to build this rail where I can transfer money because I want to do this p2p lending.

Jun caught me and called me in one day and was like, what are you trying to do? I was like, well, want to build this rail where I can transfer money because I want to do this p2p lending.

And I think after a couple of back and forth, we really hit it off. And what we realized is we had the same basic belief, that basic financial services like online payments, making a transfer, is a 21st-century fundamental human need. We share this vision of a world where people have the options and the ability to transfer money globally without any restriction.

CR: I heard you say this before and I think I've read it on these websites, this idea of the global value transfer being a basic human right or human need. I'd love for you to kind of expand on that a little bit, since it seems to be like very core to what you do?

Financial Services as a Human Right

VC: Yeah. I mean, so right now, about 60% of the world’s population has some sort of access to the internet, right? And as more of this moves online, for me, if someone cannot participate in that online economy, they can't get paid or they can't pay for services, then they're essentially at a significant disadvantage. You can't participate. It's like the UN, I think declared that internet access is a human right. From a very high level, I see basic financial services and online payment as the same thing. You can have communication, you can exchange services, but you can't get paid. I think for me, it's pretty simple in that sense, where it's just being able to participate in a global economy.

And I think in Southeast Asia where so much of our economy is importing and exporting and it's cross border goods and services and knowledge. The ability to move money around across those borders becomes really important and I think it's a lifeline for the region in terms of growing beyond just within the regional economy itself.

The ability to move money around across those borders become really important and I think it's a lifeline for the region in terms of growing beyond kind of just within the regional economy itself.

CR: Right. I think you're totally right. And I think it's interesting to have your perspective from that side of the world where I think that the issue becomes even more stark, how important having this basic ability is to transfer value globally. And yeah, it's pretty amazing that we're still not able to and we still have this like geographical barriers for money.

So once you established like that you and Jun and Donnie had the same kind of values, going forward how did it then progress?

Launching OMG Network

VC: Yeah. So, I think once we realized that, we said, okay, let's join hands and do something together, because we need common infrastructure. And as we've seen today, scaling in terms of being able to transfer money on Ethereum becomes even more of a pressing issue.

And so, them coming from a payment gateway experience, right, they know that 14 TPS is not going to be enough if they want to build any sort of financial applications on it. For me, I think even with lending at 14 TPS and having to share and pay high transaction costs was going to be a problem, because I was targeting small-scale farmers.

The end of 2016 actually, was when we decided that we would launch OmiseGo, now OMG network. And then we went down the whole path of we raised an ICO to fund it, because the way that we view it, the network is a public good.

I'm actually very bullish on the fact that I think a lot of the payment systems will converge on to an open public infrastructure like Ethereum. And I say this, because you need to build up an ecosystem when you talk about financial services and it's much more effective to scale that when it’s a open public system.

I'm actually very bullish on the fact that I think a lot of the payment systems will converge on to an open public infrastructure like Ethereum.

So, we launched the ICO in 2017 and I think we became the first company to ever do a full KYC and AML and everyone. This one lesson that I learned was always listen to your CFO. Because I think in the long term, it helped us with a lot of regulatory headaches as well. But I just remember when we announced that one side of the crypto space was like, yeah, this is probably the right idea and the other side just completely blew up.

One lesson that I learned that was like always listen to your CFO.

CR: Yeah, I imagine. And I mean, an ICO in 2017, must have been crazy and yours was one of the bigger ones. How was that whole experience like?

VC: Yeah, I think, bigger ones, probably one of the ones that were talked about more, we certainly raised a lot less money than a lot of projects. But our goal for raising the ICO and our goal for founding OMG Network has always been the same. It's to build a scalable infrastructure to then enable in financial services, whether it's for payment or for transferring digital values.

So, I think, from the white paper of the ICO itself, the why has always remained the same. What's been really important and interesting for me and I think for our team to learn is that the how to go about achieving this can change and you can expect these things to change, right, because the space is new. The research and technology progresses so quickly and the user behavior, the market demand, all those change.

From 2017 to what we launched as a commercial launch of the OMG Network earlier this month, the big scope change for us was that we shifted from a fully on-chain DEX using Plasma, to focusing on building infrastructure that scales up transactions.

From 2017 to what we launched as a commercial launch of the OMG Network earlier this month, the big scope change for us was that we shifted from a fully on-chain DEX using Plasma, to focusing on building infrastructure that scales up transactions.

Image source: OMG Network

CR: I wanted to ask about this kind of perceived delay in shipping. And this is something that I've heard in this space a lot like OMG has the example of the ICO that was big in 2017, but hadn't shipped yet. And when you shipped, there was even more confirmation of how much building there's been in Ethereum all the way through the bear market, even by the big ICOs of 2017 which many people like to laugh at or say, oh, these were all like get-rich schemes or whatever, but OMG was a great example of… no, actually, many of these teams like stayed on working. So, in these couple of years, what was that transition from your initial concept to what you finally launched and why did that change happen?

Building over Marketing

VC: From then until now, I think the big shift was one is in our marketing. I think, in 2017, a lot of people got caught up in the marketing of their product, selling it a little bit too early before a product is available. And we were guilty of that, we also were on that wave.

I think in 2018, we decided, when you put the marketing so much earlier than when the product is available, it's just irresponsible. And so, we hunkered down for two years and then we just said, let's build, and then 2020, let's come out, let's get a really good launch partner and then let's just let the product speak for itself.

In 2017, a lot of people got caught up in the marketing of their product, selling it a little bit too early before a product is available. And we were guilty of that (…) We decided, when you put the marketing so much earlier than when the product is available, it's just irresponsible. And so, we hunkered down for two years and we just said, okay, let's build.

In terms of our actual shift on why we went away from the DEX to just focus on scaling itself, I think the reason for that decisions, pretty straightforward from a business perspective. In a mature Money Lego world that we're all excited about, products should be interoperable, in my opinion. So, what this means is products are designed to not only be used as a standalone thing, but to easily integrated with other services and products.

And so, this is the idea that everyone should be able to do one thing really well. So, we look at it as, okay, let's stay simple, we're going to be an infrastructure, so, you want to minimize all the unknowns, all the complexity, solve that scaling pain point really well for a specific customer and then depending on what people want to use it for, they'll be able to put these different solutions together and have the best combination for what they're trying to do.

Yeah, so I joke with my team that we don't want to be a duck’ I don’t know if it’s a Thai saying, but with a duck, right, you can swim, you can fly and you can walk, but you don't do any of that stuff well.

I joke with my team that we don't want to be a duck’ I don’t know if it’s a Thai saying, but with a duck, right, you can swim, you can fly and you can walk, but you don't do any of that stuff well.

That's what we want to avoid. And it's clear that the congestion problem is a problem today, right? And so, we want to be able to solve that.

C: That makes total sense. And I think what you said about marketing is such a valuable lesson. I think that's a great lesson that this space learned from 2017 and I think it's matured, from what I'm seeing now in projects launching today, it looks like people are doing marketing after launching and after shipping more and more. So, I think that's a great development.

VC: Yeah, I think, it's maturity of the space as well, right? For us right now, we want to focus on let's talk, let's communicate to customer what we can do today, so let's be realistic about it.

And I think, from a product perspective, it makes a lot of sense but also from a consumer perspective, right, like consumer protection. That's the part that worries me is that we over-market and the product’s not ready, there's so many solutions that go to market and don't get security audits. Right? We were terrified. We did two security audits simultaneously. So, I think we just need to realize we're dealing with real people's money and there are implications. And so, I think just being a lot more responsible and take a cautious approach, it's going to be better for us as a space in the long run.

CR: Yeah, for sure. Okay, so speaking of that, tell me about what OMG can do today and is doing today?

The Ethereum Congestion Problem

VC: Yeah. The problem that we're focusing on is solving the Ethereum congestion problem. So, the way that I've always framed this is, I think blockchain is still in the early dial-up days if we compare it to the internet and these Layer 2 solutions are meant to essentially be broadband. And once these starts to mature more, I think it'll unlock a lot of different use cases that we haven't even thought about today. We didn't know Spotify was going to be a thing, we didn't know that Netflix is going to be a thing, which is really cool. That's what I'm very excited to see in terms of the layer to maturity.

Blockchain is still in the early dial-up days if we compare it to the internet and these Layer 2 solutions are meant to essentially be a broadband. And once these starts to mature more, I think it'll unlock a lot of different use cases that we haven't even thought about today.

In terms of the problem itself that we're solving, I think March 12 is like a really widely talked about congestion event, where even with a small number of adopters today in the crypto space during peak hours, the Ethereum network clogged up. And I think the average wait time of Ethereum was like 44 minutes.

Also, the last month or so, Ethereum gas prices have just been insanely ridiculous. The average is like $0.20 cents. So, I think it's a very timely launch of our network and also some other Layer 2s. But also, I think with our launch partner Bitfinex, USDT transactions on Ethereum, alone was spending about $2.4 million over the last 30 days. It makes up 25% of Ethereum transactions. And so, partnering with Bitfinex really was meant to start unlocking, taking some of this Tether off of the main chain to decongest and then help the exchanges save costs as well, because a lot of the USDT transactions are between exchanges right now.

CR: I wanted to ask, before we get into whether OMG is achieving that right now with USDT and Bitfinex, I wanted to kind of take parentheses and for you to explain a little bit of how exactly Plasma works. And what's the difference between OMG and Plasma and layer 2, all those terms, I think can get a little bit confusing for people who are not reading and doing stuff on Ethereum every day?

Plasma and Layer 2

VC: The OMG network scales up Ethereum transactions right now to a couple thousands of transactions per second and we do this at a third of the transaction costs of Ethereum today. We solve this problem by using a scaling framework called Plasma.

So, at the highest level, Plasma is an off-chain scaling protocol and it's predicated on the creation of a child chain, which is in this case, the OMG Network. The child chain batches transaction before committing them to Ethereum and this is how we get to scale. So, the OMG Network, the child chain, relies on Ethereum as the ultimate arbiter of security in this sense.

There are many flavors of Plasma out there, I think at one point in early 2019, we were counting and there were like 20 different flavors of Plasma. It was during research phase as well, right and so, people are trying different constructions to optimize for their use case. And with the OMG Network Plasma construction, what we use is what we call Plasma More VP. And the objective of this construction is to achieve higher transaction throughput at lower costs while maintaining the same security guarantee as Ethereum itself.

With the OMG network Plasma construction, what we use is what we call plasma more BP. And the objective of this construction is to achieve higher transaction throughput at lower costs while maintaining the same security guarantee as Ethereum itself.

So, we take one step back and we say, okay, you know the blockchain trilemma challenge. You have scale, security and decentralization, right, and you can really tinker with two out of the three. So, what we chose with this construction is we optimized for scale and then we maintain the security.

CR: So, you're compromising on decentralization?

VC: No, so we don't optimize for it.

CR: Okay, that makes sense.

V: So, maybe the hardest part and the part that took us the longest to get right, is really the trustless piece of us. So, credit to our CTO Kasima, the way that he framed the product itself, we have to say a one liner what it is, right? He says, it's a trustless, centralized transaction processing service with decentralized security.

It's a trustless centralized transaction processing service with decentralized security.

C: Okay, that's a lot to process.

VC: I have to essentially imagine the words as I'm saying it every time. So, what it really means though, is we do the decentralized security and trustless piece while including this piece of non-custodialality, which is like what people like about blockchain. But you get the centralized transaction processing piece, which is how you get to scaling. So, it's a single block producer and an OMG network is the block producer.

CR: Okay. So, that’s this kind of limbo when transactions are being batched in the OMG child chain and at this point, they are depending on a single block producer, so they are going through kind of this centralized transactions processor. How do you maintain security there when transactions are at this point?

Maintaining Security

VC: Yeah, we have these players call the Watcher. So, if you imagine the high-level construction of how all the services fit together, there are three players in this. We have the root chain, which is Ethereum and within Ethereum, we have a set of smart contracts that manage the Plasma protocol on the Ethereum root chain itself. And that handles the deposit and the exit in and out of our network, so we deploy that contract and we don't control it. So, going to your point, that's the decentralized piece.

The second entity is the child chain that we talked about, so this is what we operate. And then the third component is what we call Watcher. So, Watchers are operated by our users or our partners or OMG token holders. Right now, staking is not in the implementation, but that will be later down in our roadmap. So today, we essentially have partners running Watchers and the Watchers validate everything that's happening on the child chain against the root chain. And that's the part that we're using right now as decentralized security piece.

We essentially have partners running Watchers and the Watchers validate everything that's happening on the child chain against the route chain. And that's the part that we're using right now as decentralized security piece.

[ … ]

Paid subscribers have access to the full transcript, including sections on:

• Who are OMG’s Watchers today“Right now, we're the Watchers and then we're assuming that Bitfinex and a lot of the exchanges that integrate will actually have to run their own Watcher as well.”
• Different Ethereum Layer 2 solutions“When scaling, there's no such thing as free lunch and so, everything has a trade- off, you have to choose this trade-off based on your use case.”
• Optimistic roll-ups“The challenge of OR is that it's more complex and there's a lot more unknowns.”
• Layer 2 solutions on Eth2“The unknown for me from a business perspective is once the engineering is done, then you need to make it economically compelling enough to attract the Ethereum ecosystem over.”
• Why this matters“Going back to why all this matters to OMG, like the real end goal for us is enabling access to open financial services. And that's really providing people with the option and choice. And I think these things come in steps.”

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About the founder: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.