Onramps, stablecoins & regulations

Recorded at EthCC, Cannes.

Hodl Up: Hello guys and welcome back to another episode of Hodl Up. Today we have Arthur and Ashna from Mercuryo with us, and they're the first guests of our EthCC run. Guys, thank you for joining us today. Before we even start, could you give us a TL;DR of what you do and what you did before joining crypto? The shortest origin story.

Arthur: Thanks for having us. Ashna, do you want to start first?

Ashna: Sure. Thank you so much for having us. I joined Mercuryo just over four years ago, and I look after customer operations. Basically any team that looks after the customer, whether it's success, support, integration or finance, I oversee. Before that I was at Starling Bank, in traditional finance, so I've got the best of both worlds: going from a regulated environment into crypto, which is now becoming more regulated as well. That's basically what I do.

Arthur: I also came to crypto from traditional finance. I used to work at an investment banking firm, and I joined Mercuryo in the early days as part of the founding team. We've had, I guess, an interesting run over the last seven years. Right now I look after enterprise and corporate development, partnering with the largest financial institutions in the world and navigating the landscape of potential strategic partnerships and investments.

Hodl Up: Speaking of those developments and potential partnerships, what have you been working on recently? Give us some alpha on what you're planning for the next six months, for example.

Arthur: For the recent stuff, Ashna, maybe you want to add what we're currently dealing with.

Ashna: We're maintaining what we have with our existing business. One of our big focuses is on- and off-ramping, and we're growing that, working on conversion rates, success rates and things like that, to maintain and sustain the business we have. That's our main focus. We also have MiCA around the corner, so we're ramping up on regulation and building a robust team, so that we're not only ticking all the boxes but also maintaining trust with our clients.

Hodl Up: Since you mentioned MiCA: do you think it's the right step toward a more regulated world? Personally, I think it's a bit of an overreach, and I think it's done this way because they want us to obey the traditional finance world. It makes sense, because crypto has had its ups and downs. Do you think this will change in the future? Will MiCA be the final framework we follow in the EU and beyond?

Ashna: I do believe it's a good thing. I don't see MiCA as a blocker. The crypto industry is changing so fast that it's not so much about efficiency anymore; it's about trust. There are so many players in the industry, and what separates a lot of them is the trust element. Some didn't get their compliance right from day one, and we're seeing a lot of issues fall through the gaps. So I think MiCA has been put in place not just for transparency. It's a good thing. It helps us protect our end users, which is super important, and it builds trust with the institutions we work with as well, which I think is super important.

Hodl Up: I agree with you on that. A uniform framework is what the region was missing. But I can't help feeling it might hold back some startups. It makes sense for an exchange to go through all those procedures and compliance costs, but if I wanted to start a startup, in my opinion I shouldn't have to bear the same costs an exchange does. But since you said this is an evolving industry, and we're in an age of AI proliferation: how do you handle fraud prevention in this AI age? We have bots, we have a lot to be concerned about, and that's where regulation comes in handy. I want to hear your take.

Ashna: It's crazy. Essentially, we're fighting AI with AI. The bad actors are using a lot of AI bots, and we're using our own AI tools to fight back. So it's definitely becoming a problem. But I think educating our users is number one. That's what we need to do: educate users within the flow as they're using it, to flag any bad actors they come across. To answer your question, I think regulation does help with this kind of thing, because we're seeing fraud grow rapidly, whether in crypto, traditional finance or even a retail store. It's everywhere and it's growing, so we definitely need something in place to stop it from happening.

Hodl Up: I saw on crypto Twitter that it's "crime season" right now. There's fraud everywhere.

Ashna: Always.

Hodl Up: Okay, now I want to pivot a bit to Arthur and the business side. We talked about your approach to AI-driven fraud attacks, but why should a company choose Mercuryo to provide its on-ramping and off-ramping infrastructure? You have competitors, so what makes you the right choice?

Arthur: I'd start from the other question you asked, about MiCA, compliance and the startup environment overall. It's super important to be able to establish your company quickly in Europe. That's where we started: initially in the UK, with a European license from the start, which was our moat and competitive advantage, because other companies didn't have one. The majority of crypto financial institutions were pretty sensitive and kind of clunky in terms of their compliance frameworks and policies. Imagine seven years ago. So that was definitely an edge. Right now, if you want to start a company dealing with digital assets, stablecoins, or whatever infrastructure you're working on, your main focus will be distribution and the kind of strategic partners you're looking for. For us, we had a direct path: we got the license and went directly to all the crypto-native platforms that existed, primarily exchanges and wallets. That was 2019-2020, and we captured the majority of that market by approaching people directly, going to conferences, doing activations and education, talking about the products. On-ramps as a category were only invented fairly recently, maybe seven to ten years ago in the crypto world. There were companies doing fiat-to-crypto operations and letting other platforms accept users from all around the world. So our thesis was to build a Stripe for crypto, globally available and seamless to connect to.

Now, if you want to start a similar business in the same digital asset domain, whether payments, stablecoin infrastructure or yield infrastructure, you'll probably look at it from a different angle. Yes, there are some constraints, and you'll probably have to go through a larger-scale process of applying for and complying with licenses. But I agree with Ashna: in my opinion it's a great thing, because the framework is finally there. We used to start in one country while another country was thinking about a different framework, so we had to finesse it and talk to so many lawyers in all these regions. Now there's a unified standard. What has changed from a business perspective for companies starting in this space, particularly in Europe, is that you probably need to go through strategic partnerships rather than straight to a distribution model. Strategic partners might be banks or financial institutions, primarily modern ones like fintechs and neobanks, or payment companies like Mercuryo. So, to answer your question about why you'd go with Mercuryo: you might be building something in this domain without a license, and acquiring one means spending money and time, while you want to build fast. As a founder you want to focus primarily on distribution, scaling the company and building the team. Choosing Mercuryo now means tapping into the knowledge and experience we gained back then and over the last seven years, as we keep advancing. And I still believe in these moats. If you want to partner with enterprises or financial institutions, like you said, a lot of companies building in this space are super regulated, some of the largest financial institutions in the world. To work with them and meet their standards, you need a strong partner. We'll talk more about this, but I guess that's why both startups and large enterprises choose us: we've had this framework and have been working on it, along with fraud and all the other payment use cases, for the last seven years.

Hodl Up: When you put it like that, you've convinced me at least. Let's just hope... I've seen that some regulators, in France for example, don't like how MiCA passporting is working out and want to stop it, because for some reason getting a MiCA license in Poland is easier than in France. Now they see the disadvantage for them as regulators; they say it's not fair if someone easily gets a MiCA license elsewhere and is then allowed to operate in France. I just hope regulators understand that people will always find ways around things, and don't mess everything up now that we finally have a uniform framework. And I know stablecoins are a very boring topic, but they have the most PMF. We're seeing a lot of reports and a lot of stablecoin usage, but I can't help feeling that in the West, companies' main use of stablecoins right now is yield. We're seeing banks that weren't previously in crypto trying to integrate stablecoins so they can offer yield, because they see people using stablecoins to earn yield instead of leaving money at an interest rate below 1%. Yet not many people pay attention to stablecoin usage in developing countries. So I want your take on where stablecoins are going and what could happen in the next five years. I also see reports every day about stablecoin usage increasing, billions of dollars in trading, but how do we know it's not wash trading or other things? I know I put a lot into this question, but I had to vent.

Arthur: I'll try to answer the first part, part of the second, and the passporting issue as well. On regulation and compliance, I'll just comment that there's always been arbitrage. Innovators should innovate; that's the path. Founders should have the fastest way to start a company, establish the business, go live and acquire their first customers. So to wrap up on regulation, I think we'll probably keep seeing examples like that over the next 5 to 10 years, even locally here in Europe, and globally it will be even more saturated and fragmented.

On stablecoin usage, I agree with you. There are a lot of narratives around vaults and yield products for financial institutions, because there's a stronger connection between their existing businesses and what they could gain by implementing stablecoin infrastructure for yield. But stablecoin yield comes primarily from treasury bills, so it's more or less the same thing. If you look at the largest stablecoin issuers, like Circle and the others, their overall APYs more or less track what banks already pay, and they're going down over time. So that was definitely arbitrage, a gap between the initial offering from traditional banks and central banks in different countries and what stablecoin providers offered. But there was also a lot of risk, with DeFi primitives like looping, where you can take on larger risk. If you're one of the largest financial institutions or enterprises, you expose not only your company to that risk, in front of the regulator of the country you operate in, but also your customers. What we're seeing more and more now is stablecoins used for settlement. Mercuryo settles with most of our partners in stablecoins; that's been our day-to-day routine for the last seven years. Now we see all the other financial institutions, even the largest banks we've had as strategic partners and vendors for the products we offer crypto-native platforms, starting to settle and transact with each other in stablecoins, especially with companies like Mercuryo, because we're the crypto-native partner for them. Our business is basically moving money between banks and stablecoins. That's essentially what we do for individuals and for institutions: we help them move money between those two worlds. So those are two different narratives you'll probably hear more and more in terms of use cases in different countries, especially developing countries. But the numbers you mentioned are real. Just today, for example, Ramp announced the launch of its stablecoin platform, where all Ramp operations in the US, which people usually use for payroll, remittances and business operations, will now support stablecoins, enabling cross-border payments with 24/7 access at pretty low cost. So overall it's a great use case for businesses operating at scale, B2B or B2C, and that's the path forward. But there are always constraints in the regulatory frameworks and in fraud prevention in different countries, so it will still take a while for these examples and use cases to develop.

Ashna: I'd like to follow up. Arthur is right about arbitrage. We're seeing really high volumes in Africa and Latin America, for example. I think stablecoins are the gateway to crypto. There's no volatility. The assumption that crypto is so volatile you'll lose money doesn't apply to stablecoins. So I think within five years they could be in a better position, with the protection of MiCA as well. It's definitely a good subject. Boring, but it's growing, and you see traditional finance trying to take a piece of the pie too, moving toward regulated tokens for sure.

Hodl Up: It may be boring, but in my opinion it's actually why crypto has stayed alive since 2021. That's what kept us here, or me at least. When I heard I could swap my tokens for stablecoins, I thought, okay, maybe I can stay and not cash everything out when the bear market hits. Now I want to talk about Mercuryo's crypto card. Why did you decide to do it? It makes sense and probably comes naturally: you have your own on- and off-ramp solutions and infrastructure, the technology, so why not a crypto card? But why should I use your crypto card? I'm asking the same question about each of your products and services, because first I'm a Web3 enthusiast, and then I'm a podcast host. So why should I use your card?

Arthur: I can start, and Ashna can probably add some details on our partnership with Mastercard specifically. We've had a pretty close relationship with Mastercard for maybe all seven years since we started the company. There were different stages where we used Mastercard products indirectly, through banks and different providers Mercuryo had for our flagship on- and off-ramp product. At some point we realized we could do much more, because we'd gotten closer to the team and built great relationships along the way, so we decided to launch the product. First we talked to our existing partners and ran surveys asking users whether they'd like an extension to the off-ramp. That's how we saw it in the first place: we had an on-ramp and an off-ramp product, and we thought some users would prefer, like you said, to keep their stables and just use them, because that's probably an easier transition between the two worlds. If you're natively using stablecoins or other assets on crypto platforms, you'd probably like to stay as close as possible to that when you move into the real world. In a lot of countries you can simply off-ramp your stablecoins or other digital assets into your bank, but there's still the transition, the wait time, the limits and so on. So we thought we could optimize that UX, and that has been our whole DNA. We saw the problem from a product perspective: it was really hard to on-ramp money into digital assets back then, and we thought about the off-ramp the same way, so we could optimize around it. Plus we had this great partnership with Mastercard, where they were basically suggesting we explore this program. So we ran surveys and realized a lot of partners would love to have it, and some had already had it with other players. Why did partners decide to go with us, and why might users be interested? It's that transition. You're using your Ledger wallet or another wallet, and Mercuryo has products across the majority of self-custodial wallets; we usually have on- and off-ramp products there. So you might find the Mercuryo card valuable and sensible because you already use Mercuryo for on- and off-ramping. You're already verified, you have high limits, and you have customer support and a very client-oriented approach for crypto-native products, which you usually don't get from banks. At the same time, we don't hold any user assets. It's fully self-custodial: you store value in your self-custodial wallet and use it for any crypto-native use case, but you also get the card and a neobank experience with that self-custodial wallet, which can make it easier to spend stablecoins in the real world, buying groceries or paying at a restaurant. That was the initial idea: optimizing the UX around our partners and existing users. Looking ahead, where we see potential for users, and more interest from everyone in this market, is building something like an Amex experience, like Revolut Ultra here in Europe: all the perks, the lounges, eSIMs and so on. Users would get the benefits they usually have with their neobanks, fintechs or banks, but inside self-custodial wallets. That's what we're developing right now, and again, we're running surveys to figure out what's best.

Ashna: From my side, of course Mastercard is a huge strategic partner, and we were on the same page when discussing compliance. Compliance and regulation come first for them, and they did for us too, so it was a very easy conversation, and from there everything was seamless. Actually using the Mercuryo card is seamless and really easy. I'm biased, but the next reason is that we have an exceptional support team that's available 24/7. If you run into an issue at 2 a.m. while paying at a checkout or a bar, you have support if you need it. We also have a success team that works with strategic partners to make sure users are using it, look at conversion rates and help partners get to the next level. So that's why you should use the Mercuryo Spend card.

Hodl Up: I might just use the Mercuryo card.

Ashna: You should.

Hodl Up: We're onboarded now. Speaking of onboarding: you do B2B and B2C, and so far I've had my compliance hat on, but now I want to put my degen hat on a bit. When I joined crypto, the first thing I'd look at when signing up for an exchange was whether there was KYC or not, and of course I'd choose exchanges without mandatory KYC. In my opinion, a lot of people who sign up for a platform or product drop off halfway because they don't want to go the extra mile to verify and do KYC. It's a necessity, of course, but it's also a barrier to onboarding. What does Mercuryo do to get users to go that extra mile and join you?

Arthur: I can start, and it goes back to the previous question about why you should use our card over others, since there are a lot of cards. For me, it's first what Ashna just said about the client approach. Some companies are extremely regulated in their core business, even neobanks that offer crypto-native cards. You might see some of them launching cards, but their business is opening bank accounts for users, in a highly regulated environment with tighter compliance requirements and standards. What that means for you as a user is that they'll always prioritize their main business, which is probably banking under a full or small banking license, in an extremely regulated space. So they'll sometimes use that as an excuse to put limitations on products that are a lower priority for their main business. It's the same with centralized exchanges that offer cards. Most of them offer crypto cards right now, but they have many businesses: spot trading, futures and other products. Some of them are very close partners, and there's a narrative right now where some want to become more like fintechs and neobanks, and we've come a long way in refining the products and vision for what crypto-native platforms should look like in terms of usage and products. We're happy to support all those use cases, but their regulatory and compliance teams are a bit different, and their client service is primarily built around business as usual, with tens or hundreds of millions of users. So it can get tricky when you want to pay for food at 2 a.m. For us, it's very important to have both in place: really fast response times and the self-custodial wallet use cases. At the same time, we understand there's a broader ecosystem, and there will be other players offering similar products.

Hodl Up: You mentioned exchanges, stablecoins and the card all in that answer, so I want to combine them into another question. We know stablecoin usage is increasing every day, but I think there's a report, I can't cite the source right now, saying that 80% of stablecoin usage is still tied to trading, mostly on centralized exchanges, which should probably be using your on- and off-ramping solutions, by the way. Do you think that in the next 5 to 10 years people will actually use stablecoins to buy things and spend them somewhere other than trading? Will the gap between actual usage and trading get smaller, in your eyes?

Arthur: Absolutely. There will be even more use cases this year with real-world assets and companies doing real estate or other real-world use cases. I believe they'll work very closely with stablecoins, because it gives them more freedom and flexibility in offering their main products to customers. Stablecoins, cards and everything that helps bridge the gap between them and the end customer will definitely help speed up that transition and offer better services.

Ashna: I agree. With the education piece I touched on, once we start educating and seeing more transparent flows, I'd say that within one to three years we'll see it as a normal everyday purchase, for sure.

Hodl Up: You've also partnered with the likes of Ledger, and I stumbled on something called Mercuryo Pro but couldn't find much information. What's that? Could you walk me through it?

Ashna: Mercuryo Pro is a product of ours, and it's been quite successful. It's essentially an OTC, over-the-counter, deal. If you want to purchase more than 50K, we walk you through the Mercuryo Pro process. We've integrated it with Ledger, and we have one on our own site as well.

Arthur: I'll just add a bit, because I actually like this product.

Hodl Up: I asked the right question, then.

Arthur: Yeah. The way we started some of our products besides on- and off-ramps is very interesting; it's more experimental. We were thinking about what might help users. For example, Ledger thinks about something like a private banking experience. They have high-net-worth and ultra-high-net-worth individuals using Ledger, where security is the biggest narrative, and for those individuals you might want special care and service, a product that simplifies their daily operations and movement of funds. We were very passionate about serving different types of users, and about identifying what those users might use in the future and which products we can offer different groups: degens, traders, family office managers. That's how we started the experiment, and we saw it growing and saw demand on some specific platforms, not all of them, that might prefer this product. Ledger was one of the first pilot partners, and I think with Ledger we've launched the largest number of products by far. Ashna, correct me if I'm wrong. And we keep experimenting; we'll have something interesting this week as well.

Hodl Up: Being close to Ledger is a good thing, since you're both leaders in this space. This question is for both of you: in your eyes, what's the biggest challenge Mercuryo faces right now, and how do you plan to solve it in the near future?

Ashna: It's a very good question, thank you. From my side, it's more on the regulatory side: staying ahead of the curve, making sure we acquire these valuable licenses, and always thinking about the end user. There's nothing I'd point to as a huge challenge right now. I'd just say it's the rapid pace of regulatory change, and staying ahead of the curve on all the changes happening. That's what I can think of. What do you think?

Arthur: I think you're underplaying the biggest challenge a little. We have lots of customers and business processes right now, and Ashna is dealing with all of them. The biggest challenge is navigating between those customers. Over time you build a very sustainable user base that likes the product, both partners, enterprises and crypto platforms, and users. Moving forward, the question is always how you want to shape it. The biggest challenge used to be communication with some of the teams, but thankfully most of the crypto-native teams we deal with now are well educated through their partnerships. They also partner with other payment companies, and some of their people have worked with self-custodial wallets and platforms for five or six years, so they come with existing knowledge. Larger financial institutions are in the process of experimenting with new products and stepping into the crypto-native world, not replacing their legacy business but starting subsidiaries, small startups with huge upside and potential. So the challenge, for both Ashna and me, is navigating between the priorities of the existing business and the new business. When you have so much opportunity and upside in the new space, and the regulatory framework lets you experiment and move faster than before, you also have an existing business with clients using you every day, and thousands of chats on Slack or Telegram, all wanting to collaborate and do things together. Honestly, there's never been a better time to be in this space. We're super excited to overcome these challenges and look forward to seeing how it evolves this year.

Ashna: Echoing that: on the operational side, the volume is insane, and for the support and success teams it's overwhelming. Of course resources are always a concern at any company, and the volumes are crazy, so the operational pressure is there. But when you have the right people working together as a team, that's what really counts. It's not so much a challenge as an opportunity: having the right team, staying educated and staying ahead of the curve.

Hodl Up: Well, thank you so much for joining us today, guys. It was a real pleasure and privilege to have you both here with us. Please excuse the DIY setup, but this is also us being innovative in the face of challenges.

Arthur: Very Mercuryo. I love it.

Hodl Up: Exactly. Thank you, guys.

Ashna: Thank you very much for having us, guys. It was a pleasure.