Ask Me Anything — Cardstack & Chainlink
SaaS Crypto Payments for Merchants
Chris Tse, Founding Director of the Cardstack Project, joined Andy Boyan from Chainlink in an AMA session on May 11 2021. They spoke about the Card Pay product, the challenges of bridging crypto and traditional payments, and the use of Chainlink oracles.
What’s currently exciting in DeFi?
“What’s exciting is that the primitives are being put together into real usable applications. There are still a lot of primitives being introduced, but every single day, people are adding new things to this pizza. It’s going to be a really supreme pizza with all the toppings that you want.”
- Chris Tse, Cardstack Founder
What do you think about stablecoins?
“At the end of the day, people want to use stablecoins to do something. It’s great that we have many types of stablecoins, but they should be more fungible — to be able to pay with any stablecoin that is accepted by a merchant, the same way you can use any currency accepted by Visa. Those are the things we’re going to start seeing: that these primitives become on-ramps for different currencies and different communities. But at the end of the day, it’s just payments.”
- Chris Tse, Cardstack Founder
What is Cardstack? What’s exciting about it?
Cardstack is building a decentralized software ecosystem, replacing the Silicon Valley giants (with their hosting and lock-in) with an open-source, open marketplace for people to build any type of software that they want. We’re focusing on composability — not only on-chain, but also in the cloud, in your mobile app. This way, Cardstack is one interface that allows you to access all the great things on Web3.
Users can build their own dApps using composable units called “cards”. They are like mini-applications, which you can combine to build workflows, build your own space, and even do task tracking. That’s the idea of our framework.
The no-code revolution is coming, but seems hard to apply for Web3 apps. Is a no-code tool your basic idea?
No-code is a very high bar. If you want to make something composable for the users, that means you also make it composable for developers. We don’t believe that the user should get trapped into some limited capability like skinning and changing the colors. We want users to build real apps. If they want to go beyond the provided capability, a developer can simply come in and build a module or an integration (running on the same platform), because it’s all open-source.
And you’re starting with Card Pay?
We start with wrapping the primitives about crypto as it exists today — which is mostly about stablecoins, DeFi, and payments — and say, “Why not start with those building blocks?”, because those are the ones people already know and use.
The way we look at it is this: How do we make that DeFi ecosystem accessible to regular people? We use that as a way to test out all of our deployment, our dApp hosting, and the WalletConnect aspects. It’s not only about paying for whatever product you can buy with crypto; it is also the foundational point system for our marketplace, almost like V-Bucks or Robux.
So, we’re starting with payments, and that’s what Card Pay is all about.
How is Cardstack using Chainlink?
We use Chainlink’s amazing decentralized and reliable price feed to help with exchange rates. It’s similar to this: When you go to a foreign country with your credit card, there’s a bunch of conversion happening: “What currency do you have? What is the fee? What is accepted by the merchant?” Based on that, they figure out how much of your USD or EUR (or whatever currency you’re paying with) to deduct from your bank account or credit card to give to the merchant. Similar calculations are needed for Card Pay, where we have to figure out the rate at the time of the purchase, so we can transfer the currency exchange risk from the customer to the merchant. And we use Chainlink to help with that orchestration.
If you transfer the risk to the customer, does that make it cheaper and easier for merchants to accept crypto?
Yes. They don’t need to have a fee for the slippage. As long as they are willing to accept DOGE, for example, and take the currency risk, you will get exactly the mid-market rate — no spreads. We just take the fairest, most decentralized consensus rate for DOGE-USD and use that as the way to transfer the number of DOGE necessary to fulfil the USD amount for the merchant’s price.
If customers hold a volatile token, their purchasing power fluctuates until the moment of transaction, which is determined to be a particular rate, based on a price feed. From that moment on, the merchant takes on the exchange rate risk of that volatile token, as the number of tokens the merchant has received can still go up or down in value.
What kind of reactions are you getting from people in the payments industry?
People in the payments industry see the idea of cryptocurrency as very efficient and easy, because the Ethereum blockchain alone allows you to get rid of the issuing bank, the foreign-exchange aspects, and a lot of the complications surrounding merchants. These are all just on-chain accounts.
All you’re left with are fiat on-ramps and off-ramps, which you can’t use uniformly across different countries and jurisdictions. But all you need to do is onboard to crypto and offboard from crypto. Everything else is easy. The payment is all wallet-to-wallet. That’s much easier than trying to figure out which QR code to scan, which card to use, if or how to pay via PayPal, etc. Those processes will seem very archaic almost overnight.
DeFi payments on Card Pay:
We build a dApp in order to onboard value from layer 1 to layer 2. If you do a transaction on layer 1 these days, it may cost you $80 USD or even $200 USD per transaction; but if we can do it in bulk and move e.g. $5 million USD of value over as a token supply, we can fund economic bandwidth on layer 2.
So, the dApp allows token suppliers to move value in bulk; it’s almost like shipping a crate of supplies to an island. You do it once; and once you have it there, all the transactions are done between customers and merchants in the mobile app on layer 2. The fees on layer 2 are less than $0.01 USD.
We use xDai chain as the first chain, but we hope to integrate other chains in the future, so we can use cross-chain liquidity to allow you to make payments between different chains. We started with xDai chain because it has great support for WalletConnect and smart-contract wallets like Gnosis Safes.
The Web dApp also supports a workflow for prepaid card issuers, which allows token holders to issue prepaid cards.
As a prepaid card issuer, after you’ve loaded a balance of stablecoins into your wallet, you can create prepaid cards (smart-contract wallets) on layer 2, which you can then give or sell to users almost like you would transfer an NFT. Whoever buys this prepaid card receives it in their wallet, complete with all the gas tokens they need to be able to conduct transactions. Customers can use these prepaid cards the same way they would use an Amazon gift card.
This is just one example of a workflow that is supported in the Cardstack workflow system.
What is the role of the CARD token in the Cardstack ecosystem?
- In the US, there is this concept of credit card reward points, pioneered by American Express. These are membership reward points; so if you spend money, you get points. That’s the primary way we’re going to distribute tokens to people who are spending money. That’s the real economic value we want to reward. While liquidity mining rewards liquidity, we do spend mining. That’s one way for us to bootstrap the network: We offer incentives to get people to choose this payment method over other payment methods.
- The second way to bootstrap the network concerns protocol fees. We want to make sure that this protocol offers incentives for people to provide prepaid card services. Therefore, prepaid card issuers receive rewards. We distribute and/or burn a portion of the fees, similar to how protocol fees are deducted on Aave. That can be used for a variety of things, including burning it or distributing it to certain people as rewards. So, we use CARD as this unit for rewards.
- There are certain governance features in the network — e.g. to register yourself as a trusted merchant or to vote for a particular stablecoin to be accepted in the network — that will require CARD tokens. And that will create demand for CARD.
- CARD is also a gas token. But since we’re using layer 2, the gas fees are much lower than they are on layer 1. Users will basically conduct transactions from a smart-contract wallet (Gnosis Safe), because the basic mechanism of a multisig wallet works for small denominations as well as for big ones. So we’re actually doing meta transactions. If you’re on xDai chain, you can use DAI or CARD to pay the fees using ERC-20. You don’t need the native token. We have a relayer, using the great tools that Gnosis has already made (the Gnosis Safe Relay Service, which is an open-source project). This is our way to tell the user, “Once you load up a balance, don’t worry about gas, we’ll deal with that.” That’s really practical on layer 2 and we’re making it completely seamless through the mobile app.
What are some of the questions or concerns that merchants have?
On the one hand, there are traditional brick-and-mortar merchants that have a terminal to pay. Especially in Asia, a lot of them accept QR code-based scanning services. WalletConnect is very close to that, but there’s still some more work to do. We expect that to be the prevailing thing, even in countries that are a little bit behind — mobile payment will be the main thing in the future.
On the other hand, the people who really need this are actually those who sell digital goods online. And there are a lot of problems with digital payments, e.g. Twitter leaking your home address if you use PayPal to send a tip via their Tip Jar feature. So that’s where we’re going to start. We’re going to focus on NFT marketplaces or adjacent marketplaces where people sell purely digital goods.
Our QR code-based mobile wallet is very compatible with where the world is going in terms of mobile payments. We expect to create an SDK that is very easy to use for point-of-sale manufacturers (the people who make these terminals). This is similar to how they can support WeChat Pay, except that it’s crypto payment on the other side.
So that’s the way we want to do it — starting with digital payments and going further and further with digital terminals into more real-world payments.
What about other traditional payments or new FinTechs like Shopify, Stripe, or Square? How do they compare to this type of solution?
It’s going to be a bit harder for people who have a traditional e-commerce mindset (that is all about checkout and picking a traditional payment method) to really embrace Web3. It’s actually easier to say, “Hey, we’ve got crypto payment: Card Pay. What if you want to make a crypto storefront? Where will you do that? On WordPress? Maybe you can, maybe you can’t. There is no WalletConnect on WordPress.”
So we’ve decided to build the Shopify storefront for crypto products, including NFTs and other kinds of redeemable socks or shirts or other things. That’s what we will see. People who adopt wallets and WalletConnect (which allows them to pay by scanning a QR code) will want to do more with their balances. Instead of using a prepaid card to pay a merchant, you can also pay a hosting company or a protocol to do something for you. That’s what we’re doing with Card Space, which is the next release after Card Pay. We want to start thinking about the storefront for not only merchants, but also influencers and creators who are interested in crypto or communities that want to sell memberships. We believe that is the growth area, which intersects very nicely with the second generation of NFT products on the market.
The creator economy is blowing up right now. And content creators want to get paid in an easy way.
“Yes! And the great thing about the composability of crypto is that it’s very hard for you to come up with a mileage program for an airline; there’s a lot of work to it. But to create a reward program for a creator or group of creators? Really easy, that’s just a community token of different sorts.”
- Chris Tse, Cardstack Founder
Once we build the reward distribution for the CARD token — which is the base-level reward for the entire network, supporting every merchant and customer — the same mechanism can be used to distribute other rewards. “If you spend $1 USD, you get this.” or “If you have this membership level, you get double the rewards.” That same mechanism, which we call the “Tally protocol”, is available to all users, including creators. So, creators can actually reward users who are spending money, buying NFTs. That’s how they can distribute their token much better than through an Excel spreadsheet and an expensive airdrop on mainnet.
What else is on the roadmap for Cardstack?
In Q3 of this year, we plan to launch Card Space. Card Space is a no-code dApp hosting platform that is very easy to use, where you can just drag and drop to build your space. You can create your own crypto distribution reward program as well as merchandise that you can price. Then, people can pay you using their layer-2 wallet. While Cardstack is compatible with any Web3 wallet, including MetaMask, the mobile app we provide makes your life much easier, because you can simply use Apple Pay to load a balance and start spending right away.
After Card Space, we want to make an app store, to which developers can add new modules. Then, users who are creating their own space can pull any module they like into their space. Those different features do not need to be in 15 different apps. You can do it all in one site — whichever URL you choose, e.g. card.space/yourname — and that becomes your way to tap into all the developers’ creativity, so you can assemble the user experience for your community and your audience. So, the Card Catalog, which is our marketplace for the different components for Card Space, is coming in Q4.
Learn More
If you missed the live stream of the AMA, you can watch Chris Tse answer the questions above in this video:
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