IMPORTANT NOTE: This article explains the previous direct-to-customer model of Leios that is no longer its primary model. For a better understanding of the current model, please read an updated explanation of the system here.
It is increasingly becoming common knowledge that blockchain has the potential to greatly reduce the complexity and costs of international fund transfers, but this potential has yet to be fully realized. According to a CryptoSlate article earlier this year, “None of the older, well-established overseas money transfer companies have used blockchain, and it’s primarily startups that are giving it a go.” This indicates that the technology is still new, and still has yet to be put to the test on a large scale. It has yet to see a true implementation that can rival the likes of Western Union or MoneyGram.
Leios has designed its fund transfer stages to resemble these established, market-dominating companies. Users will not have to understand blockchain, or even know that it is involved. They will instead use familiar interfaces, dealing only in currencies they know. This is easier said than done, so then the real question is… how can it be done?
Although we fully explain our system step-by-step in our technical paper, which can be downloaded here, I thought it might be helpful to simplify the stages and explain them here in article format; Leios is all about simplifying, after all. So, let us go through the transfer process, along with the customer experience, at each step of our proposed transfer system.
For this process, let us follow the hypothetical transfer of funds from Alice in the US to her relative, Bob, in the Philippines. Alice has a U.S. bank account with USD, and she wants her funds to reach Bob’s Philippines account in the form of Philippine peso. Note that this is just one of the many transfer corridors that Leios is creating, but for the purpose of explanation, we will focus on this one example.
Step one: Getting funds onto the Leios app
This step is really the epitome of the “easier said than done” mantra; not just for Leios, but for the all cryptocurrency companies. What we are talking about here is a USD “fiat gateway,” or an entry point from the traditional U.S. dollar to a cryptocurrency asset. Also, for Leios to be a complete system, we actually will need several gateways all over the world. so people can go back out into their local fiat currencies.
As much as some people may want cryptocurrency to remain minimally regulated, this meeting point of the two currencies can only exist with full regulatory adherence and compliance. This is inescapable as long as the dollar is a regulated currency managed by a country which has laws about how it is transmitted. It seems obvious when stated this way, but the implications of following licensing and KYC-AML procedures can make many a crypto-enthusiast recoil. We thus make our stance on the need for, and our intention to follow, all money transmitting regulations clear. Blockchain technology is a means to improve our current financial systems, not dismantle them.
Embracing financial regulation adds a layer of complexity. This now takes us away from being just a development project to being a company that is stepping carefully into the world of exchange and transmitting regulations, using a means of transition that is not fully understood, let alone fully regulated. Just for the USD-to-crypto exchange step alone, we have done months of legal research at the guidance of our seasoned financial attorneys at Sullivan and Worcester, and have spoken with different legal experts and active money transmitting companies in the field.
The implementation we chose is one which grants us the most autonomy while also cutting middle-men costs: we will obtain our own money exchange and transmission licenses for all of the U.S. states. However, doing so is a lengthy process, so until that time, Leios will operate by working with existing companies that have said licensing already in order to integrate our system into their models. This point will be expanded into its own article in the near future.
Let us move to actually following the money. Alice downloads the Leios app from her app store of choice. She then creates an account, provides her KYC information (to be verified and stored by a reputable KYC agency, not by us), and chooses how she wants her private key to be stored (by her keystore of choice, not by us). She is now able to link her bank account and request funds onto her app.
This is where we introduce blockchain into the equation. What Alice is actually doing here is an exchange between herself and Leios. She will send her funds to us, while in turn we will send the equivalent USD value in stablecoins, which stand in as representatives for USD. Leios will have a pool of stablecoins that will always exceed the maximum expectation of transactions for the given day of operation. How we will replenish this pool will be explained in the last step.
Although Alice may not know what stablecoins are, or care to own them, what matters is that both herself and her ultimate target of Bob can redeem these stablecoins for fiat through the “withdraw” function. Let us move onto how she can get her funds to Bob.
Step two: Sending funds instantly across the world
Information travelling “instantly across the world” is something that used to be a wonder many decades ago. Now, it is mundane. It is the story of everything digital. Even the emails in your spam box “instantly traveled across the world.” It is old news, except when it comes to fund transfers. Now, that is something that makes you feel like it traversed 10,000 miles. In reality, just like an email, the change of funds is a small piece of information that can be digitally relayed in an instant. There is a much greater need for security, so until now, perhaps the delay was justified, but this is no longer the case with the advent of blockchain technology.
Alice can now transfer her funds to Bob in the form of stablecoins, that for both of them will just show as a USD balance on their phones. When Alice initiates the transfer, the stablecoins will atomically swap to LEIOS tokens and then back again, to the same stablecoin or perhaps to another type of stablecoin, both equally representative of USD.
This swapping stage allows for Leios transactions to be fully private, and allow exchange between different crypto assets. For our purposes here, this allows us to exchange between different stablecoins if need be. The stablecoin type can change based on the best compatibility with the point of withdrawal, which we will discuss in the next step. Besides allowing interoperability between stablecoins, This, along with all the steps in this transfer, are further described in the earlier-linked technical paper.
Step three: Withdrawing Funds from the Leios app
Bob now has USD on his Leios app in the form of stablecoins. Bob isn’t very technical, and doesn’t know what stablecoins are. But he need not worry, because all he has to do is withdraw his funds into his bank account, and they will be in the form of Philippine pesos. Let us explain how that is the case.
For all compatible Leios withdraw locations, Leios has partnerships in place to link their exchanges to the Leios app, while allowing interaction with the exchange from the app itself. This will allow someone like Bob to actually sell his stablecoins at a fixed price to the exchange, which will in turn deposit the equivalent value of the local currency into the user’s bank account. These exchanges operate within their local money-transmitting laws while also applying international KYC standards, thus ensuring the legal validity of the entirety of the transaction.
The exchange is happy to buy all stablecoins sold to it by our users, as it knows it has a customer waiting to buy all stablecoins the same day: and that would be us, Leios International. This buy-back replenishes our pool of stablecoin funds, hence starting the cycle anew for our next batch of users. This method ensures that Leios only needs a relatively small supply of stablecoins on hand— one day’s worth — to keep our operations running.
A cyclical, near autonomous System
We’ve covered a few journeys here: the journey of two different fiat currencies from their start to end points, the journey of stablecoins starting from us and ending back to our hands, and the journey of the users as they experience all of this without having to actually experience any of it at all. The funds flow for the user as it would in any other streamlined remittance app, but underneath the hood, the process is quite different.
The Leios method utilizes blockchain to significantly lower the need for trust, centralized fund management, and middle transmitters. Due to the necessary tie-ins to traditional fiat, we cannot completely eliminate these factors, nor can we be fully autonomous or independent, but we can close much of the gap between the rigidity of traditional fund transfers and the flexibility of blockchain.
With this hybrid approach, we will keep what is essential, familiar, and accepted from the old transfer methods, while introducing the faster, cheaper, and more convenient advantages of the new. Taking the best of both worlds will allow Leios to be a true application of blockchain-based remittance on a mass scale.
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