Velo Labs
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Velo Labs

So you say you want a revolution?

Velo Labs is disrupting a fragmented and uncompetitive international remittance market by enabling Trusted Partners to transact without relying on intermediaries. But to understand how Velo Labs’ decentralized settlement network solves the problems plaguing today’s international remittance industry, it is worth taking a moment to understand how international remittance works today, so as to properly contextualize Velo Labs’ solution.

International remittance, today.

At its core, international remittance consists of five distinct elements, or layers:

The Capture and Disbursement layers are both straightforward and easy to conceptualize. Capture occurs when the Sender hands their money over to an agent, MTO, bank, or other middleman. Disbursement occurs when money is given to the Receiver.

In between the Capture and Disbursement layers, however, things get quite complicated.

The Messaging layer manages the transmission of key information needed to complete a transaction. This information includes, but is not limited to, account numbers, the quantity of funds being transferred, the relevant fiat currencies required, and the information needed to complete Anti-Money Laundering and KYC compliance procedures. Due to the fractured nature of international remittance — especially in Southeast Asia — it is not uncommon for different middlemen to use different message formats. This means that the information must often be translated from one format to another. In extreme cases, manual intervention is needed. All this adds time and cost to each transaction. The information necessary to complete a transaction is often sent separately from the actual funds being transferred.

The settlement layer, perhaps the most complex part of international remittance, handles the actual transfer of funds by financial institutions and middlemen. This almost always involves a kind of “settlement chain” — which is basically a series of separate payments and transactions between banks, intermediaries, other financial institutions and agents. It isn’t unusual for a single international transaction to involve more than 5 of these middlemen. Of course, it goes without saying that each one of these middlemen charge a fee for their efforts.

The Liquidity layer allows each part of a transaction — or “settlement chain” — to be completed out of sequence. For instance, a disbursement agent may give the individual receiver money before it has received the funds taken by the capture agent. This situation clearly creates some risk for the disbursement agent. Liquidity providers assume this risk for a fee.

To state it simply, the problem with today’s international remittance system is that it is incredibly fragmented. Furthermore, a huge number of middlemen, checks, and balances are baked into the system because no one knows or trusts one another. This makes remittance complicated, expensive and slow.

Time for a change.

Velo Labs is building a guaranteed decentralized settlement layer with a highly liquid value exchange on a federated permissioned blockchain. Every transaction is tracked and recorded using distributed ledger technology and validated using the Stellar Consensus Protocol. The Velo Protocol enables trustless and secure digital credit transfers between two parties, without the need for middlemen.

The Velo Protocol comprises a Digital Credit Issuance mechanism and a Digital Reserve System. The Digital Credit Issuance system issues digital tokens corresponding to any fiat currency, while the Digital Reserve System ensures that these digital credits are always collateralized by the right amount of VELO tokens necessary to maintain a 1:1 digital credit to fiat currency value ratio. This allows Velo Labs’ Trusted Partners to freely and securely use these digital credits in their day-to-day operations.

The impact on existing market participants.

International remittances have traditionally been conducted by Money Transfer Operators (MTO) and their network of subsidiaries. These MTOs make use of the traditional financial infrastructure and leverage bilateral agreements with other MTOs in other countries to limit competition. This approach has led to a fragmented market defined by high transaction fees.

There are two main ways in which existing MTOs can participate in the Velo Ecosystem and take advantage of the Velo Protocol. The first is by becoming a Trusted Partner. The second is by working with a Trusted Partner.

Velo Labs is, in this way, creating a more efficient financial infrastructure that enables Trusted Partners and consumers to connect directly instead of engaging with the multiple layers of today’s international remittance system.

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Velo Protocol

A blockchain financial protocol enabling digital credit issuance and borderless asset transfers for businesses using a smart contract system