On/off Ramps in Web3: an Introductory Guide
What’s a fiat to crypto on/off ramp?
When I first heard the term “on ramp”, it seemed to mean different things to people. I’ll define it as:
- On ramp is the conversion of fiat into crypto. For example, using what you have in your bank account to purchase crypto.
- Off ramp is the opposite. To convert the crypto one holds into fiat. For example, to have fiat deposited into your bank account in exchange for selling crypto.
Examples of fiat to crypto on/off ramps (in alphabetical order, non exhaustive): Coinbase Pay, Mercuryo, Moonpay, Ramp, Simplex, Transak, and Wyre.
Deep dive into what on/off ramps provide and their differences from Payment Providers
First, I’ll cover the services that on/off ramps provide, then discuss how it’s different from Payment Providers.
What services do on/off ramps provide?
The on/off ramp is platform that provides (1) Fiat Pay-ins, (2) Crypto Liquidity, and (3) Fiat Payouts.
- Fiat Pay-ins: Modes/means that an end consumer/user pays with fiat. This could be via debit or credit cards (currently the most common), Apple Pay, Google Pay, or cheaper local bank transfer payment methods like ACH (US), Faster Payments (UK). The on/off ramp provides this via integration with payment service providers (PSPs, also sometimes known as acquirers)
- Crypto Liquidity: The end consumer/user receives crypto in exchange for the fiat payments made in (1). The on/off ramp is plugged into liquidity providers e.g., Coinbase Prime, Binance, Kraken, and delivers crypto to the end users’ self custodial wallet.
- Fiat Payouts: Modes/means that the end user converts crypto back into fiat (“off ramp”). Note that not all “on ramps” have “off ramps”.
My mental model how the on/off ramps work is below.
A web2 or web3 player plugs into the white box, and accesses full stack of solutions comprising multiple payment providers and crypto liquidity providers.
For example, an NFT marketplace partners with an on/off ramp. They are able to access all the services below in yellow and blue, with a single integration. The on/off ramp handles:
- End user KYC verification
- Fraud management: absorbs chargebacks, blocks high risk transactions
- Crypto delivery to end user wallet address
Hence, the NFT marketplace does not have to worry about all of these activities, and can focus on its core business.
How are on/off ramps different from Payment Service Providers (PSPs)?
An on/off ramp is NOT the same as a payment service provider (PSP). Let’s repeat that twice as this is a common misconception.
The two key differences from PSPs are that on/off ramps help with
(1) KYC of the end consumer
(2) Provide crypto liquidity
Here’s a comparison.
I suspect the confusion stems from the intersection with payments processing.
Thoughts on the future
I see parallels to payments and am curious about how the trends will unfold. I am most interested in these questions:
- Will on/off ramp services become commoditized? Core payments processing is recognized as a low margin commodity business. On ramps are built on existing payment partners who themselves face margin pressures.
- Will on/off ramp services be able to overcome country and local payment method coverage issues? Country expansion and local payment methods make international expansion hard for PSPS. This will impact on/off ramps too.
- What are some software products that on/off ramps can provide to differentiate their services? Recurring payments? Smart routing? How does one solve KYC?
- Who should be regulated? KYB responsibilities are with PSPs and on ramps. KYC is currently being done by the on/off ramps (vs issuing banks in the cards payments world). What do regulators care about?
Now that you’ve learned about on/off ramps — I hope this sparks an exploration rabbit hole. Thanks for reading.
