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The world of cryptocurrency has often been criticized for being exclusive and catering mainly to speculators and crypto-savvy individuals. Despite this, many proponents believe that the underlying decentralized technology has the potential to benefit society as a whole.
Gnosis, a well-established blockchain project in the developer community, is working to demonstrate the wider applicability of web3 by bridging the gap between self-custodial crypto wallets and traditional payment methods such as Visa. Its latest product, Gnosis Card, is a Visa card that allows users to spend their money from self-custodial wallets wherever the payment method is accepted.
As Gnosis Pay launches at the major Ethereum community conference EthCC in Paris, the goal is to reach a wider audience outside of the crypto community, said Dr. Friederike Ernst, co-founder of Gnosis.
Since the FTX implosion exposed the misappropriation of client funds, there has been a seismic shift in the crypto industry, with users moving their assets away from centralized exchanges and into self-custodial wallets like MetaMask and Ledger.
But for a long time, there has been no convenient way to spend self-custodial assets in the real world. The crypto industry, Ernst admitted, is currently dominated by “all those tokens that don’t work anywhere else”.
“We have always had a very strong line between crypto and the real world. We are trying to erase this little by little so that people can use their real money in crypto and use their crypto to pay for things in the real world,” she said.
The Gnosis Card will initially launch in the UK and the EU, with plans to expand to Brazil, Mexico, Singapore and Hong Kong. Gnosis Pay aims to launch in the US by the end of Q3 and will partner with MakerDAO to offer its USD-denominated stablecoin Dai as a credit card option.
Gnosis has already figured out the unit economy of the map. Gnosis Card retails for $30, while the cost of producing and distributing the physical card is $10, with the excess going to engineering and compliance infrastructure. Transaction fees will generate revenue and card adoption will drive demand for Gnosis’s GMO token, ultimately boosting the blockchain ecosystem.
Spend crypto like fiat
When asked why the financial system needs crypto’s game at all, Ernst argued for a more favorable future where crypto truly enables peer-to-peer transfers, but the technology needs time to mature.
“You have to give people like us some time because we are really trying to build these things out. Basically, the user experience provided by true peer-to-peer trust is superior in every way to what we currently have, and I think we need to get to the point where this is actually felt by the user.
Unsurprisingly, a project like Gnosis Card requires significant hard work in terms of technology development, integration with the existing financial system, and compliance.
“On the old side, when you pay somewhere, it looks so simple, but your payment actually passes through many hands. With all of these you need contracts [parties] for the transaction to actually take place. You need to join Visa, which we are; we will also become a member of MasterCard,” said Ernst.
One of the key partners powering Gnosis Card is Monerium, the company that offers the euro-denominated EURe, the only stablecoin regulated in the European Union. Monerium allows users to link their wallets to an international bank account number, or IBAN, which is a standardized system for identifying bank accounts across borders that is widely used in Europe.
When users send money from a bank account to a wallet-linked IBAN, payments as EURes are stored on blockchains such as Ethereum and Gnosis and reflected in their wallets. Conversely, when users sign off payments from their wallets, EURes are burned and sent to their bank accounts as Euros.
Scaling up fintech with crypto
Gnosis is also launching Gnosis Pay, a set of developer tools that allow crypto wallets to create a version of their Gnosis card for users without having to jump all the hoops to build an online payment system. For example, MetaMask could issue a MetaMask card simply by using Gnosis Pay’s APIs and tools.
The offering provides another revenue stream for Gnosis. When it allows other wallets to issue their own internal cards, a portion of the revenue is also taken.
Starting a fintech company has become very expensive, argued Julian Leitloff, co-founder and CEO of decentralized identity startup Fractal, one of Gnosis Pay’s tech partners. But a solution like Gnosis Pay will eventually help lower the bar for entering the field, he said.
“Fintech is supposed to be international, but all those companies, what they do is — we launch in Germany, and then we launch in France, then we launch in Portugal, so it’s kind of a piecemeal until they’re kind of international , ” he said. “And you have to use whatever the licensed bank assigns to you, which is usually their own products.”
“But with the stack — accounts from Monerium, credit cards from Gnosis, KYC from Fractal, and savings accounts from Aave, you have a full fintech product for a small fraction of the cost and allow others to connect to it because it opened.” source and without permission,” he continued. “Imagine how much less cost we will have and how much more fintech companies you will have.”
Make DeFi compatible
Fractal helps Gnosis Pay with its know-your-customer process. When a user opens a Monerium bank account and wants to apply for a Gnosis card, Fractal has a system that allows users to sign an on-chain message and share their verified identity with Gnosis.
The challenge, according to Leitloff, lies in complying with data privacy regulations. That is why it has been working on a solution that distributes data among a private but permissionless – meaning no one controls the blockchain – federation of nodes. Unlike IPFS, a popular distributed file storage protocol, this allows Fractal to “ensure that data is ignored and thus satisfies the right to be forgotten”.
In other words, the solution allows users to manage their own data while providing time-bound access to the mandatory entity as required by law. A notifiable entity is supervised by the financial regulator, which may request information, such as the party behind an IBAN number.
Together with its partners, Gnosis Pay is also able to screen fraudulent activities. The payment solution is built on Safe, a popular smart contract portfolio infrastructure that raised $100 million from investors including Tiger Global after exiting Gnosis last year. Each user has a Safe account on the Layer 1 chain Gnosis and another on zkEVM, the Layer 2 Ethereum scaling solution built by Polygon, similar to having a savings and a spending account, Ernst explained.
When money goes to the L2 account, it is screened through compliance partners for anti-money laundering (AML) and counter-terrorist financing (CFT). This means that anything that reaches the L2 is approved and can be spent directly through the Visa network. Users have full control of both vaults and can go back from L2 to L1 at any time. That is, the L2 works both to ensure compliance and to enable the network to handle a high volume of payments, which is essentially the goal of L2 solutions.
But of course, all of these technical complexities are “abstracted away from the user,” Ernst said, because the goal is to provide a seamless experience that feels like using a traditional credit card.
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