The lack of solid crypto on- and off-ramps — rails for efficiently converting dollars, yen, euros and other currencies into tokens — is a bottleneck that has held back the industry’s growth.
While wealthier people in big markets such as the U.S. can move in and out of crypto easily, it’s much more difficult if you’re in an emerging market and don’t have a bank account or credit card.
Stellar Development Foundation, which supports the Stellar Network, has come up with a way to address the problem. Through a partnership with money-transfer company MoneyGram that’s launching Friday, people can bring fiat currency to a MoneyGram location, convert it to crypto and convert crypto back out to fiat. The service will use the USDC stablecoin on the Stellar network.
The service — initially available in the U.S., Canada, Kenya and the Philippines and expanding to seven more countries this month and other countries later — is an example of the ways that new crypto markets are converging with traditional finance. It also shows how crypto needs to integrate with existing financial systems to bring in mainstream users.
The partners plan to add crypto cash-outs in almost all MoneyGram countries, more than 200, by the end of June.
“It's an interesting and tough problem,” said Anand Iyer, founder at venture firm Canonical Crypto, which hasn’t invested in Stellar but is actively watching the infrastructure market. “It makes a lot of sense to [have this deal], because that's the only way you're gonna get more crypto into the ecosystem.”
If Stellar and MoneyGram pull off the project and show they can attract new consumers to crypto, it could open up a much larger market for crypto and Web3, and serve as a model for other companies looking to increase access.
Finding a super-anchor
For Stellar, the deal is part of its goal of opening up access to crypto to underserved or unbanked populations. “From that standpoint, this really changes, potentially, a huge amount and really brings the cash-based world into the digital economy,” said Denelle Dixon, CEO at Stellar Development Foundation. “We're actually really trying to target those users that have cash and really grow their opportunity.”
Since Stellar launched in 2014, its focus has been payments. Last year, the company added USDC to its network, enabling people to pay much less than on other systems like Ethereum, due to Stellar’s low fees, which are typically a small fraction of a penny.
Especially in today’s bear market, boosting accessibility is a way to address the misconception that crypto is just for trading, since this improves other uses such as payments, Dixon said.
For Stellar, that the new product uses USDC instead of its native XLM token highlights the organization’s recent focus on stablecoins. Dixon sees the future of crypto payments in stablecoins. “We don't prefer XLM over anything else,” she said. “In fact, we prefer stablecoins. Stablecoins are a really nice way for payments to be leveraged.”
Bringing together a traditional financial company with a newfangled blockchain group was not simple. MoneyGram and Stellar began talking in 2019, and the companies then built an “adapter” that showed it was possible for Stellar’s and MoneyGram’s systems to connect.
The companies started talking about this current product March 2021. In one key meeting last summer, Dixon told MoneyGram CEO Alex Holmes that “the thing that had been missed in a lot of different spaces is how much blockchain and crypto needs MoneyGram.”
The product was built over the next several months, and a pilot began in November. MoneyGram has licenses and operations in 200 countries and territories, with more than 420,000 agent locations, which allowed for a relatively quick build. Mark Heynen, vice president of Business Development at Stellar Development Foundation, praised MoneyGram’s “ability to abstract out all the complexity.”
With this product, users can bring fiat currency to a MoneyGram location, convert it to crypto and convert crypto back out to fiat.Photo: MoneyGram
Stellar has seen payments grow more than 500% on its network over the past year, but it needs to increase access for retail users. In 2016, it launched its first anchors — a network of regulated financial institutions, money service businesses, stablecoin issuers and other providers of on-ramps and off-ramps. It now has about 50 anchors in places like Brazil, Nigeria, the Philippines and the U.S.
But most of the anchors on Stellar are regional players, and not all have physical cash-in or -out locations. MoneyGram will be a sort of super-anchor for Stellar.
Opening wallets
This is how it will work: A customer initiates a transaction on a compatible wallet, then brings dollars or other fiat to a MoneyGram location. The agent verifies identity and loads the funds to the customer’s digital wallet as a MoneyGram transaction using the Stellar blockchain network.
Two self-custody wallets, Lobstr and Vibrant, will be live at launch, and the companies are working on supporting other custodial and noncustodial wallets. USDC creator Circle will help convert the funds, and United Bank Texas will handle settlement between Circle and Stellar.
MoneyGram said it is offering the service with no fees for the first 12 months to boost adoption. The price of transactions will eventually be competitive with buying and selling crypto or with sending remittances, said Holmes. The World Bank reports that average remittance fees paid on conventional money transfers in 2021 were a little more than 6%.
MoneyGram sees the Stellar deal bringing in new customers who want to get into or are already into crypto, as well as providing a new product for existing customers. Holmes notes overlap between immigrants who use MoneyGram to send money overseas and Latinx populations that show strong crypto interest. In addition, by integrating with Stellar, it enables any other wallet on that network to plug into MoneyGram, adding more potential customers.
Longer term, Holmes sees crypto as having potential not just in changing money transfers but also in helping redefine money. “If I had a U.S. dollar, and I put it into a stablecoin that was then accessible to someone in Argentina, that's a little bit different than saying I have to convert it all today when I go to pick it up or when I put it into my bank account,” Holmes said. “There are some interesting future concepts around how money moves, and does it really need to be instantly translated into fiat?”
MoneyGram has been focusing on technology and innovation in recent years. Last year it brought on Sara Vassar from Thomson Reuters and Intuit as chief product officer. In 2018 it launched a mobile app through which people could manage and send their money. It also secured a deal last year to let people buy bitcoin through Coinme at MoneyGram locations.
