Buying crypto is, for the most part, hard. I know because I’ve tried. Even supposedly easy options, like using a debit card to buy bitcoin from a major exchange, involve many steps. And while some investing apps offer access to crypto, they only make it easier if you already have an account.
If you want access to anything more exotic, it’s even more complicated. To get an NFT, for example, you have to go to a crypto exchange like Coinbase, buy widely accepted tokens such as ethereum (ETH), set up a crypto wallet, transfer your tokens into the wallet, and then connect your wallet to an NFT platform such as OpenSea before you can even make a transaction.
VCs have spotted this problem too, and they think they’ve found the solution: on- and off-ramp specialists. These are companies that make it easy for people to buy a wide range of crypto directly from the sellers using fiat, or national currency — on-ramping — and vice versa — off-ramping.
In the last six months, just four companies in the crypto ramping space have raised $186m globally, with the biggest European round going to London-based Ramp. It nabbed $53m from major VCs including Balderton Capital in December last year.
But then came the crypto crash — the total value of digital assets in circulation has fallen from a peak of $3.2tn in November 2021 to $1tn in June 2022, according to the FT’s Digital Assets Dashboard. The price of ETH has dropped 67% in the same period.
So what’s next for the ramping specialists?
Surviving the crypto turbulence
The crypto markets aren’t the only ones crashing; global tech stocks are also down, and rising inflation is leading many people to try to get hold of some extra cash by selling crypto.
Investors aren’t phased, though. They think crypto is here to stay — and so are the startups helping people get into (or out of) it.
“Many of the great crypto infrastructure companies were born after the 2017 crash, and as such the current market downturn is unlikely to stifle the growth of infrastructure companies that are indexing the growth of the underlying crypto market,”says Akash Bajwa, investor at Berlin-based VC firm Earlybird. “Zooming out into the long-run, [this] will continue to be a paradigm-shifting technology.”
One such company is Amsterdam-based Onramper, which raised $6m in December 2021. Rather than focus on the actual movement of funds, it provides crypto sellers with access to a range of ramps via a single point of access. That’s important because each ramp has advantages and disadvantages, largely related to Know-Your-Customer (KYC) and Anti-Money Laundering (AML) protocols, and being able to switch between them while buying and selling cryptocurrency results in fewer failed transactions.
“We want to eliminate friction in all parts of the onboarding flow and become the cornerstone of fiat-to-crypto infrastructure. Long-term, my grandmother should be able to use the most complicated blockchain-based solutions without even noticing it’s blockchain-based,” says Thijs Maas, cofounder and CEO of OnRamper.
Solving more parts of the infrastructure puzzle is London-headquartered Mercuryo, which has raised €12.5m to date. It started in on-and off-ramping, but it’s since expanded. It now offers a wider range of services, including the ability for customers to embed fiat bank accounts within their apps and websites.
“Right now crypto and fiat are separate — but we believe they should be in one place,” says Mercuryo CEO and cofounder Petr Kozyakov.
Helping people get out of the storm
As these companies don’t solely facilitate transactions, they were less affected than pure ramping businesses by the dramatic price drops in crypto that saw people rush to sell their holdings in order to mitigate losses, and hold off on buying any more — NFT sales had fallen 92% by early May.
However, some ramping companies, which were focusing on on-ramping amid surging demand, have found themselves re-prioritising off-ramping.
London-based ramping company Transak told Sifted that working on an off-ramp was next up on its roadmap. Even Binance, one of the largest exchanges, showed its off-ramping needed work as it had to temporarily suspend withdrawals of a token called Luna due to “network congestion” as Terra, the project behind Luna, collapsed. That collapse caused people to lose significant sums — their life’s savings in some cases.
Given most of these companies’ models are to take a percentage fee of purchases and/or sales, being able to offer frictionless transactions in both directions will be essential for them to maintain growth.
“Ramping off will be very important later,” says Daria Bogatyreva, cofounder at Tallinn-based Wert, as the Web3 economy grows. “The major audience is yet to come, so we are very excited to welcome newcomers with our solution.”
Wert operates in the more nascent parts of Web3, providing embedded payment tools that allow anyone to access new Web3 projects by letting them exchange fiat for the projects’ tokens.
It aims to capitalise on the growing enthusiasm businesses from Prada to McDonald’s are showing in launching their own NFTs, and the expanding use cases for such tokens, while providing an alternative to the existing major on-ramp solutions like US-based MoonPay.
A crypto regulatory reckoning?
Despite the optimism among investors and those who see a Web3-based future for all, it’s possible companies in the ramping space may face another significant hurdle — the regulators. Rule makers in jurisdictions across the world are openly working on crypto-specific regulation, and the recent losses suffered by some people could spur them to move faster.
“It’s critical that […] there are strong safeguards to ensure that all interests — not just the interests of people making money from pushing crypto products, but also the interests of the people whose savings will be put at risk — are heard,” commented Charles Randell, head of the UK’s Financial Conduct Authority (FCA), recently.
Regulators in Germany have similar concerns. “The clock is ticking. The longer the DeFi market goes unregulated, the greater the risk for consumers,” wrote Birgit Rodolphe of German financial regulator BaFin.
Rules aren’t necessarily a bad thing for those crypto companies wanting to offer their services in a responsible way. “We all would love to see some guides or frames for how to deal in this market,” says Kozyakov.
Knowing what is and isn’t acceptable to regulators makes it much easier for companies to launch new products and services, and helps investors feel more confident about where they put their money.
But new rules take time to craft and the FCA has been open about how its resources are stretched taking on such a nascent and fast-growing industry.
“Whilst some jurisdictions may impose draconian levels of restriction, many others have acknowledged the merits of blockchain applications and here we can expect a more measured approach. When investing in entrepreneurs solving problems in this design space, we must be aligned on ensuring that products being built comply with the spirit of the frameworks that are to come,” says Bajwa.
For investors, the answer might be in the companies that specialise in helping others achieve compliance — London-based Elliptic and ComplyAdvantage are two such options. “The people who best understand and manage risk will do best in this environment,” says Simon Taylor, cofounder at fintech consultancy 11:FS.
Winner takes all?
We’re unlikely to see any one company dominate the market anytime soon. “Although we’ve seen huge amounts of capital flow into the market, the upside remains hugely attractive,” says Bajwa. “There is deep fragmentation of payment methods supported, differing degrees of KYC, localisation and other such factors, which typically require an international business to work with multiple on-ramps.
“Like payments, winner-takes-all is hard,” says Taylor. “You might get a dominant network or scheme that sets rules about how on-ramping works (for example a Visa type). But I suspect there will always be regional payment aggregators.”
Even Ramp, arguably the leading European on-ramp given its funding and customer base, currently only accepts card payments, Apple Pay and open banking transfers. Local options such as India’s UPI, Sweden’s Swish and Poland’s BLIK are all listed as “coming soon” on its website.
“This will continue to represent a huge opportunity with it still being unclear if we’ll have a monopoly or many large players succeeding here,” adds Bajwa.
Sarah Kocianski is a fintech strategy consultant and tweets from @SarahKocianski
Go to Publisher: Fintech – Sifted
Author: Sarah Kocianski