Cryptocurrencies Are Not Sustainable for Money Transfers

Jul 23, 2018 · 5 min read

The painful joke about cryptocurrencies is they don’t solve the problems they were intended to. Cryptocurrencies on a decentralized blockchain is the adage to payments. There are many problems with the current business of payments. They are slow, expensive and difficult. These problems are well documented by both traditional financial institutions and FinTech (financial technology) firms, and they are both racing to solve this problem with technology and new business models.

This article subsequently appeared in the Op-Ed of the Singapore Business Times on 16-August-2018.

Below we lay out three main problems and how Chynge solves them:

1. Digitization by Customers is Friction

The money transfer business is a commodity business. There is zero price elasticity, customers are not loyal, they shop around, and they will leave you for your competitor for a fraction of a penny. Unless the customer benefits are overwhelming, the slightest bit of customer friction will cause your new business model to fail. Customers transact with fiat currency (money that is issued by governments and central banks such as US Dollar, Euro, Yen, etc.) and their recipients receive fiat currency. Having customers convert from fiat to cryptocurrency, sending the cryptocurrency to their recipients, and then having these recipients convert from cryptocurrency to fiat require both the customer and the recipient to be sophisticated enough to make this additional fiat-cryptocurrency-fiat conversion via digitization and tokenization. Customers have too much inertia in traditional processes which is insurmountable until the mainstream market reaches general acceptance of tokenization.

Tokenization of Money Transfers in the Back Office

Fix: The best of both worlds is the tokenization of the transaction but keep the customer and recipient experiences to stay fiat by pushing the tokenization to the back office. The money transfer operator (MTO) receives fiat, tokenizes the transaction and sends to the recipient country where it is de-tokenized back to fiat for last-mile delivery to the recipient. The MTO must first be licensed and regulated within the local jurisdiction to receive fiat and transfer money to other countries.

Chynge is licensed and regulated in Singapore and Hong Kong, and is in the regulatory sandboxes in Brunei Darussalam, United Arab Emirates (UAE), and the United Kingdom (UK). Chynge tokenizes money transfers in the Chynge back office based on a combination of the Chynge XCLP token and the Stellar blockchain.

2. Uncertain FX Rates

The biggest failure in the use of the cryptocurrencies for money transfers is not just the unpredictability of the amount that will be received but also the wide fluctuations in the price during the transfer itself which are a bust for the Sender and the money transfer operator (MTO) respectively. Senders need predictability in the amount that is received inclusive of fees. The fluctuations in the exchange rate of the cryptocurrency during transmission doesn’t meet this customer requirement. The exchange rates can also swing wildly, and can range in the 3 to 5 percent. The money transfer business is very competitive with thin margins and any cryptocurrency exchange rate wider than 0.5% may cause the MTO to lose money.

Money transfer customer experience with predictable amounts and delivery times

Fix: Provide a decentralized money transfer service with fixed rates, predictable fees, and predictable amounts for delivery.

Chynge believes that we need to be at both ends of the money transfer corridor to provide the best customer experience regarding fees, rates, and delivery times, and to share settlement and treasuries via Nostro accounts, liquidity pools, and distributed ledger technology (DLT). Chynge benefits from the speed and security of the Stellar blockchain, and provides the certainty of fixed exchange rates in the Chynge XCLP token. In addition, Chynge is licensed and regulated so that we can handle fiat currencies in a legal and compliant manner.

In the event that the liquidity of Chynge XCLP tokens has been exhausted, Chynge may then fail-over to the network of Stellar anchor partners for additional liquidity.

3. Unaligned HODLers and Users

An alternative way of solving the money transfer problem is by issuing utility tokens that allow you to transact on their platform such as Ripple. The Ripple token XRP is a utility token containing a transaction fee. The objectives of HODLers and users of XRP are on a head-on collision path. HODLers want the price of XRP to go up for portfolio appreciation but this increases the transaction fee of Ripple users. Conversely, users want the price of XRP to stay constant or even go down so that their transaction fee reduces over time, or at best, stays at a predictable price. Payment platforms such as Ripple will only succeed when HODLers and users share a common objective.

HODLers and Users have opposing objectives in transaction utility tokens

Fix: Create a money transfer solution that benefits both HODLers and Users, sounds easy enough but apparently it’s not.

HODLers and Users have shared objectives in Chynge payment token

The Chynge XCLP is a payment token and benefits both HODLers and Users. When the price of XCLP increases, HODLers benefit from the price appreciation, and Users benefit that they can send money with fewer XCLP tokens. Although the Stellar XLM lumen token is a transaction fee on the Stellar blockchain, Chynge treats the fee of a Stellar transaction, at a fraction of a fraction of a penny, as a rounding-off error and is easily absorbable in the FX spread.

To sum it up, Chynge leverages financial technology including artificial intelligence/machine learning, big data, cloud computing, facial recognition and the Stellar blockchain with novel business models to provide money transfers that are instant, free and safe from money laundering, terrorism financing and fraud. The Chynge combination of the Stellar blockchain and the XCLP payment token behind the simple and elegant customer experience brings fixed exchange rates and predictability to customers, and is poised to disrupt the money transfer business from banks and traditional exchange houses.

Separately, you may refer to the Chynge Top Ten List for Selecting Stellar.

For more information on Chynge:

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