Digital Assets Payment Industry Research Report
August 2020
ANALYSTS
TokenInsight Research [email protected] TI Research
TokenInsight.com [email protected] Find, Create, and Spread Value in Blockchain. 2 and it has an experienced team. The project's subsequent and it has an experienced team. The project's to. development is worth looking forward The market demand for digital assets has provided room for the room The market demand for digital assets has provided that support digital assets' projects development of payment protocol in the project OMG Network is a representative value circulation. on Ethereum. payment protocol payment that the concept of aggregate Alchemy Pay proposes providing and digital assets simultaneously, supports fat currencies technical support and services for various payment scenarios. The fine layout is strong but its of early, development is relatively project's mature projects among payment projects. They are the big players in the big players They are among payment projects. projects mature about target transfers. The two have clear the feld of cross-border in the industry and have developed solid solving pain points occurred with many traditional ecosystems, including cooperative relations fnancial or technology giants. for users to use digital issue physical cards Some payment projects Crypto.com is assets for daily consumption. Among such projects, community popularity and high developing good and is able to reach wide global infuence. institutions, including banks, have begun to explore blockchain begun to explore institutions, including banks, have focused on B2B payments, trade Such explorations are technology. transfers. fnancing, and cross-border among decentralized blockchain many payment projects are There 100 with payment functions in the top 16 projects are There projects. in the by market capitalization. The development of projects projects and many projects mature, transfers is relatively feld of cross-border scenarios. services in various payment to provide positioned are the most currently established early and are Ripple and Stellar were background in the payment ecosystem may change the industry. industry. ecosystem may change the in the payment background in the payment industry, obvious existing pain points are There transfers, poor fcient cross-border fees, inef including high transaction hidden security and privacy networks, and of different interoperability leading of centralized institutions, risks under the operation solutions. new practitioners to explore new ideas to of blockchain technology has brought The emergence Centralized payment industry. solve the pain points of the payment The global payment market continues to grow, and it is expected that is expected that and it grow, continues to payment market The global the same time, in 2023. At US$2.7 trillion will reach revenue the market a technology players with of technology, with the development ⑦ ⑧ ⑥ ④ ⑤ ② ③ ① RESEARCH
Executive Summary tokeninsight.com 3 4 5 18 20 10 11 13 15 16 Crypto.com OMG Network Alchemy Pay comparison Comprehensive Blockchain transformation of centralized Blockchain transformation institutions overview Blockchain projects analysis Blockchain project Ripple, Stellar Payment Industry System Payment of the payment Overall development industry points Industry pain Blockchain solutions Industry status and development and development status Industry trends RESEARCH
Content tokeninsight.com RESEARCH
01. INDUSTRY STATUS AND DEVELOPMENT TRENDS 1.1 Payment Industry System In the traditional payment industry, the payment system is mainly composed of commercial banks, clearing institutions (Card Network), third-party payment institutions (Gateway), merchants, and users. Commercial banks often occupy a dominant position and have absolute dominance in cross-border settlement and fnancial trading. With the development of the internet and mobile payments, the importance of data, traffc, and user experience has become increasingly prominent. As a payment intermediary connecting merchants and users, the business scale of centralized third-party payment institutions with a non-fnancial backgrounds is growing day by day, and a relatively stable competitive landscape has been formed. Commercial banks rely on traditional fnancial positioning and professional capital management capabilities to continuously optimize their payment business, while payment giants, which have huge traffc, continue to consolidate their industry position and improve business types. The two cooperate in developing a mature payment ecosystem.
‣ Representative institutions in the payment system Source: TokenInsight China USA
Commercial Bank
Clearing Institutions
Third-party institutions
Commercial banks, clearing institutions, and third-party payment institutions form a complete payment system. The third-party payment institutions connect the merchants and users by providing money-collecting services and payment services respectively. Then they transfer the obtained transaction information and capital fows to the clearing institutions for processing. The clearing institutions connect multiple commercial banks to verify transaction information and settlement. In addition to being connected to third-party payment institutions through clearing institutions and obtaining cash fows from them, banks also directly provide capital services to users and enterprises. Other service providers offer software and hardware support for the payment system composed of commercial banks, clearing institutions, and third-party payment institutions. tokeninsight.com 4 RESEARCH
‣ Payment Industry System Source: DongXing Securities, TokenInsight
Regulatory Authority
Supervision Fund Fund management management services Commercial services Enterprise Users Bank
Transaction verification Clearing Institution
Information Settlement transfer Collection Payment service Third-party service Merchant Users Payment Institution
Service provision
Technical Channel Service … Service
1.2 Overall Development of the Payment Industry With the development of technology, challengers from the feld of technology have emerged into the traditional payment industry led by banks and fnancial institutions The development of technology has made the traditional payment industry undergo a cashless transformation. The rise of e-commerce not just divided the traditional offine sales market but also provided a strong foundation for the rapid development of internet payment. As the traditional fnancial institution, banks have accumulated many advantages over years due to their well-established systems, standardized business processes, and large-scale customer volume, which help them maintain absolute market dominance in transactions such as cross-border settlement and international trade. However, they lack suffcient fexibility in connecting users with merchants, and managing the relationship between the two. tokeninsight.com 5 RESEARCH
Simultaneously, technology companies and social platforms have massive amounts of data and traffc, which are naturally suitable for providing end-to-end connections between users and merchants. The user's requirements for payment convenience and payment speed provide opportunities for the development of technology companies in the payment industry. At present, the third-party payment giants, including Alipay, Paypal, Tenpay (WeChat Pay), etc , all have a technological background. In some countries, third-party payment institutions have replaced banks and become the frst choice for the public’s daily payments and transfers.
The payment market continues to grow and the ecosystem continues to improve The payment market has shown continuous growth in recent years. Clearing institutions such as UnionPay and Visa have realized the integration and interconnection between different commercial banks, which has promoted the development of the banks’ payment services. In the other hand, while third-party payment institutions have squeezed the market for bank payment services, they have also brought a lot of cashfow to banks, the three closely cooperate to form a payment ecology. With the strengthening of the payment ecosystem and the introduction of the concept of open banking, many technology companies have been gradually introduced and become new roles in the payment ecosystem. For example, ride-hailing software platforms such as Uber and Didi can be directly binded to user accounts for automatic payment (Push Payment). The steady growth of the market and the ecosystem's expansion provide space for new players with a technological background.
‣ Growth of global payment market Source: McKinsey&Company; TokenInsight Global payment revenue (US$ trillion) 3
2
1
0 2009 2011 2013 2015 2017 2018 2023(Expected)
Transformation of payment system, diversifcation of payment services and optimization of payment products In addition to cooperation with technology companies, banks have been continuously using technology to improve their payment systems. The emergence of digital assets puts forward the demand for the upgrade and construction of existing payment systems. Banks and clearing institutions will transform their systems' technical architecture to adapt to the changes brought by digital assets. The development of digital assets will also bring new players to the payment industry in the future.
In addition, third-party payment institutions continue to use their own technology and traffc advantages to enrich payment services, optimize payment products, and explore new payment methods that may be developed in the future. tokeninsight.com 6 RESEARCH
User experience becomes the core of industry development As the differences in the technical competitive advantages such as transaction speed and transaction convenience becoming smaller and smaller, user experience has gradually become the core of enterprise competition in the payment industry. It will also become an element of differentiated competition for enterprises in the industry in the future. Common user experience optimization in the current market includes various discount activities and payment adaptions to various scenarios. With the development of technologies such as artifcial intelligence and the Internet of Things (IOT), intelligent payment will be further explored as the means for enterprises to attract users and increase user stickiness.
However, the current cross-border payment experience in the industry is still bad. The excessively long transnational settlement time and high transaction fees have caused many inconveniences for users to make cross-border payments and transfers. Fortunately, the emergence of blockchain technology provides a solution to this problem. With the maturity of blockchain technology in the future, the optimization of cross-border payment experience will become one of the focuses of the payment industry's future development.
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02. INDUSTRY PAIN POINTS
Limited by the technology development and fxed business model, there have been clear pain points in the payment industry. There are too many intermediaries and centralized giants monopolizing the market in the traditional payment ecosystem, resulting in many problems such as lack of transparency, low effciency, and high payment costs. The existing payment system is slow to innovate under the game rules dominated by centralized giants. The increasingly saturated market has also caused the entire industry's development to encounter certain bottlenecks. Therefore, new technologies are urgently needed to promote the reform of the industry.
The emergence of blockchain technology provides solutions to the existing pain points and problems in the payment industry. Its decentralization, trustless, and traceability characteristics not only enable it to improve the service effciency of the payment industry from a technical perspective, but also provide the possibility to created a more open and transparent industry environment. The development of blockchain in the payment industry has led to the emergence of a group of new players in the industry, which might change the industry in several sectors.
2.1 High Transaction Fees In the traditional payment industry, centralized payment institutions usually charge high fees to merchants, and the cost of transaction fees is fnally paid by users. For example, the credit card fee includes the card-issuing bank service fee charged by the bank, the network service fee charged by the clearing institution, and the bill collection service fee charged by the third-party payment institution. The multiple fees charged by bank, clearing organization, and payment company have caused an extra burden to the merchants and users. As shown in the table below, beside the Chinese mainstream card network UnionPay, other mainstream payment networks, including Visa, MasterCard, and Discover, all charge a service fee ranging from 1% to 3%.
‣ Main payment institution credit card fees Source: ValuePenguin, The People's Bank of China, TokenInsight
Institutions Credit Card Fee
Visa 1.43%-2.4%
MasterCard 1.55%-2.6%
Discover 1.56%-2.3%
UnionPay 0.0325% tokeninsight.com 8 RESEARCH
2.2 Low Interoperability Between Different Payment Networks The competitive relationship between different payment institutions has resulted in the low interoperability among payment networks. Furthermore, it is even more diffcult for payment networks in different countries to achieve interoperability. For example, users cannot directly transfer funds from Alipay to WeChat Wallet (Tenpay), they can only withdraw the fund from Alipay to bank cards and then deposit it to WeChat, and there is usually a certain fee in this process. Also, if users want to transfer funds from Paypal to Alipay, there are even more intermediaries need to be gone through and the costs are extremely high. 2.3 Cross-Border Transactions Are Inefficient and Costly Cross-border transactions processed through banks and SWIFT have problems such as long processing time, high handling fee, and unfriendly exchange rate. This caused problems for individuals' cross-border capital transfers and also caused diffculties for multinational companies to retrieve overseas earnings. According to TokenInsight's research on the representative banks of the four countries, United States, China, Singapore, and Japan, the cross-border remittance fee by wire transfer and the processing time of major banks are as follows. At the same time, when users purchase foreign exchanges in institutions, they are often traded with an unfavorable exchange rate that deviates from the fair market, causing them big loss during the transaction.
‣ Handling fees and processing time of major banks' cross-border remittances Source: BoA, BoC, DBS, MUFG, TokenInsight Handling Fees Processing Time
Bank of $45 Telegraphic Fee 1-2 Working Days America $21 Telegraphic Fee+0.1% Handling No offcial disclosure, usually 3 Bank of China Fee* working days
DBS Bank $18—$40* 2-4 Working Days
Mitsubishi Bank $23—$70* More Than 1 Working Day
*Monetary units have been converted into US dollars uniformly, the exchange rate comes from Hexun Forex on 2020/06/22 2.4 Security and Privacy Issues Centralized organizations have always been criticized by security and privacy issues. On the one hand, users’ bank cards are often stolen while using. The number of fraudulent transactions in a single country or region can reach hundreds of millions of dollars a year. According to the Reserve Bank of Australia1, the number of fraudulent transactions in Australia was 574 million Australian dollars (about 393 million US$) in 2018. According to the European Central Bank2, the number of fraudulent euro transactions in 2016 was as high as 1.8 billion euros (about 2 billion US$). On the other hand, the safety of users’ information privacy relies heavily on the credit of centralized institutions. Users lack control over their information, which leads to lots of information privacy problems. Numerous scandals of banks selling user information have been reported.
1https://www.auspaynet.com.au/sites/default/files/2019-08/AustralianPaymentCardFraud2019_0.pdf
2https://www.ecb.europa.eu/pub/cardfraud/html/ecb.cardfraudreport201809.en.html tokeninsight.com 9 RESEARCH
03. BLOCKCHAIN SOLUTIONS
The potential of blockchain technology and the changes it can bring to the payment industry motivate practitioners to advance the application of blockchain in the industry. At present, centralized payment institutions such as banks have begun to explore blockchain technology to upgrade their payment services. At the same time, blockchain payment projects such as Ripple, Stellar, PundiX, Alchemy Pay, etc are continually emerging in the industry, dedicated to improving transactions speed, reducing transaction costs, and eliminating cumbersome intermediate procedures in traditional payment transactions. The use of digital assets has also created digital asset payment and transfer requirements.
3.1 Blockchain Transformation of Centralized Institutions The centralized institutions in the payment industry are continually exploring and applying the blockchain technology to solve the existing pain points in the industry. As there are robust application scenarios and optimization needs in international trade, the exploration and application of blockchain are mainly refected in cross-border commercial payment. In general, the major centralized payment institutions are relatively open to the use of blockchain technology to transform their systems, establish more effcient payment platforms, and join the blockchain ecosystem. However, due to several policy and market reasons, the promotion activeness of large-scale popularization for digital assets payment is relatively low.
‣ The exploration and application cases of blockchain by various centralized payment institutions Source: TokenInsight Carry out research and development of distributed SWIFT ledger technology and explore the formulation of industry standards and specifcations.
Collaborate with blockchain company R3 to build a MasterCard cross-border B2B blockchain payment platform
Visa uses blockchain technology to launch Visa B2B Visa Connect, aiming to simplify the B2B payment process.
UBS went live on the blockchain trade fnancing platform UBS we.trade.
Independent research and development of blockchain BOC cross-border payment system that enables international remittance business. tokeninsight.com 10 RESEARCH
3.2 Blockchain Project Overview The blockchain payment project uses blockchain technology and digital assets to optimize the existing payment effciency, increase the level of security and reduce the payment costs. Many high-quality payment projects have emerged in the market. According to TokenInsight's statistics on the top 100 blockchain projects by market capitalization, there are 16 payment projects (including stablecoin) in total.
As the business types for many payment projects in the market are currently diversifed, also, some projects are still in the developing stage and their business model is subject to change, so the industry has not yet been specifcally classifed. However, according to the main application scenarios and the most commonly used functions of the projects, several sectors can still be defned for the projects. It can be seen from the composition of the payment projects in top 100 blockchain projects by market capitalization below, stable coin projects account for the majority of the most mature payment projects. Cross-border payment projects like Ripple and Stellar are also well developed while payment cards, payment protocols and the projects supported by the payment scenario have huge room to develop.
‣ Proportion and composition of payment blockchain projects Source: CoinMarketCap; TokenInsight, 2020/06/18 19%
16% 13% 50%
Stable Coin 6% Cross-border Payment Payment Related Payment Card Non-payment Related Payment Protocol 13% Other
In addition to stable coins, most of the payment projects on the market take solving existing problems in the payment industry, popularizing digital assets, and building a more open payment ecosystem as their vision and goals. In terms of improving payment effciency and reducing costs, most projects emphasize the immediate realization of global transactions and low/no transaction costs. In response to the problem of low interoperability between different payment networks, some projects have proposed the concept of aggregate payment to support the different existing payment system. Such projects also provide a variety of currency options. Regarding security and privacy, due to the adoption of distributed ledger technology, centralized security and privacy risks do not pose a threat to the blockchain projects.
However, blockchain technology is still under developing and exploring, there is still a distance to achieve large-scale commercial applications. Blockchain also have its own security concerns. Payment projects still need to be improved in terms of payment application scenarios and technical infrastructure.
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04. BLOCKCHAIN PROJECT ANALYSIS
As a bridge connecting legal currency and digital assets, stablecoin has continuously expanded its demand since launching, and developed a large number of mature projects including USDT, PAX, BUSD, TUSD, and so on. At present, the classifcation of stable currency projects is relatively clear, including fat currency backed and digital asset backed. Stable coin contains stored value, fnancial management, payment, and other functions and rich application scenarios. Due to its low volatility, payment functions, and wide adoption, it is highly compatible with other payment items.
Due to the split system of stablecoin projects, it is inconvenient to make a direct comparative analysis between stablecoin and other payment projects. In addition to stable coins, there are many other high-quality projects in the industry, as shown below:
‣ Introduction to some payment projects Source: Official Website of Corresponding Projects, TokenInsight Project Introduction
Digital asset payment solutions and technology providers, providing online and offine merchants with payment solutions for the aggregation of digital assets and fat currencies. Promote the Alchemy Pay daily use of digital assets by building a hybrid acquiring ecosystem and integrating multi-currency clearing and settlement channels. Product types include digital asset POS, digital asset payment gateway and payment SDK.
BitPay is a bitcoin payment service provider, providing merchants with bitcoin and bitcoin cash payment processing services. In BitPay addition, BitPay also launched BitPay wallet and BitPay Card to help users store and consume bitcoin.
COTI is a fnancial technology platform and payment network that serves companies, helping companies build their own payment solutions and digitize any currency. Its payment COTI products include COTI Pay, which processes online and offine payments, a global payment network composed of merchants, and the cross-border remittance solutions.
A payment network that enables instant confrmation of large- scale transactions. The main products are MCO Visa card and Crypto.com Crypto.com App. The MCO Visa card enables digital assets to be used in real life; Crypto.com App is dedicated to the purchase, transaction, and transfer of digital assets. tokeninsight.com 12 RESEARCH
A fast, fraud-proof payment network that serves online and offine Flexa business applications, providing merchants with low-cost, fraud-proof transactions, and users with autonomous digital asset payment options.
Distributed digital assets with zero transaction fees, provide instant transaction and unlimited scalability. Nano is committed to making it Nano unnecessary for the end parties to conduct transactions through trusted third parties. The Layer-2 payment protocol that enables value transfer on Ethereum, OMG allows the development of decentralized and scalable payment Network applications on its network. Help companies transfer value across borders, across asset classes, and across applications. PundiX aims to become the world's largest offine digital asset sales network and promote the retail consumption of digital assets by PundiX connecting offine POS devices. Payment products include PundiX cards that are compatible with fat currencies and digital assets, and PundiX platforms that support POS device functions. Committed to solving the existing problems in the cross-border payment sector and providing fnancial institutions with on-demand liquidity. XRP is the native token of the XRP Ledger blockchain Ripple technology and is designed for payment. It can achieve the connection between two different currencies without passing through a centralized intermediary. XRP Ledger can complete the transaction in 3-5 seconds. An open network for storing and transferring funds that serves the feld of cross-border payments, enabling the digital creation and trading of Stellar any currency, including USD, pesos, Bitcoin, etc on its network. The native token lumen is used for initiate accounts and execute transactions. 4.1 Ripple, Stellar Ripple and Stellar are the earliest projects to integrate blockchain technology, digital assets, and cross-border payment. In comparing with many other payment projects, Ripple and Stellar is relatively mature-developed, and the competition between the two is prominent. The founder of Stellar is Jed McCaleb, he is also one of the founders of Ripple. After Jed left Ripple, he founded Stellar. Meanwhile, Ripple and Stellar are also facing competition from the traditional cross-border payment giant SWIFT, who also has plans for public ledger technology.
Ripple and Stellar have many similarities in the design of the project, the pain points of the industry they are targeting are very clear, and they have strong applicability to the payment scenarios. Ripple used to provide three products include xCurrent, xRapid, and xVia as the bank payment solution, on-demand liquidity provider, and gateway respectively. However, due to the doubts about xRapid's liquidity and actual market demand, Ripple rebranded in 2019, changing the three types of products into a unifed network called RippleNet. RippleNet nowadays emphases the on-demand liquidity and the marketing of XRP, bank customers who used xCurrent products in the past have all been moved into RippleNet. tokeninsight.com 13 RESEARCH
After rebranding, Ripple uses XRP based on XRP Ledger technology to connect different currencies. XRP Ledger is composed of independent verifcation nodes and can reach consensus in 3-5 seconds. There are currently 36 XRP Ledger verifcation nodes that consisted of universities, exchanges, and fnancial institutions, and Ripple operates 6 among them.
Stellar supports the digitization of any fat currency on its network. Organizations that join the Stellar network become network anchors to issue credit certifcates. Users can achieve a cross-border transfer of funds without opening an account in a foreign country. The Stellar network is operated by the non-proft organization Stellar Development Foundation, and its transparency is superior to Ripple. As the initial account and transaction fees, users need to deposit at least 1 lumen to ensure the account's maintenance, and each transaction needs to consume at least 0.00001 lumen. Therefore, the Stellar native token lumen's value lies in the actual application of its services and ecosystem construction. Compared with XRP, lumen's specifc distribution disclosure is relatively complete.
‣ Comparison of XRP and Lumen distribution Source: Ripple, Stellar, TokenInsight 1% 4% 6% 0% 12%
39% 44%
20% In Circulation Direct Development Use-Case Investment 49% User Acquisition Ecosystem Support In Circulation Upgrade Reserve Pool Escrow Fee Pool Ripple 24%
The Ripple and Stellar teams are both strong, but in terms of ecosystem construction, Ripple started earlier and the ecosystem construction is more complete. Ripple has strong connections with traditional fnancial institutions, its customer list covers more than 300 fnancial institutions in more than 40 countries around the world, and it cooperates with large fnancial institutions such as American Express, Santander, and SBI Remit. Recently, Ripple joined the Open Payment Coalition and have launched PayID to continuously optimize the construction of its payment ecosystem and network. In comparison, Stellar's partners consisted of a large proportion of non-fnancial institutions and SMEs, such as large technology companies IBM and young payment companies SatoshiPay.
‣ XRP and Lumen Ecosystem Source: Ripple, Stellar, TokenInsight
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4.2 Crypto.Com Unlike Ripple and Stellar, which serve the feld of cross-border payment and settlement, Crypto.com mainly serves individual users as the project aims at popularizing the application of digital assets in the real world. The project's physical card products enable users to integrate the use of digital assets into their daily lives and have robust scenario applications. In addition to Crypto.com, TenX is also a physical card payment project, and the two are relatively similar in the business model.
Crypto.com mainly includes Crypto.com App and MCO Visa Card as its payment products. Crypto.com App is a digital asset custodian, providing digital asset trading, storage, and transfer. It currently supports the sale of 7 fait currencies and 55 digital assets. Its functions are similar to wallets, but it is not positioned as a user-managed wallet.
The MCO Visa Card is a physical card, and the user's digital assets will be converted into US dollars for users to withdraw online and swipe it to consume. Crypto.com launched a staking reward program to provide users with higher MCO token consumption rewards for holding MCO tokens in their wallets for more than six months. Simultaneously, the credit products launched by Crypto.com offer credits for users who deposit digital asset assets.
As a custody project, the safety of funds is an important consideration for the project's overall development. Crypto.com's security protection is comprehensive, as shown in the following table. However, due to the recent scandal of the digital asset card issuer Wirecard, Crypto.com and TenX have received concerns from the public about the safety of deposited funds.
‣ Security guarantee details Source: Crypto.com, TokenInsight
Category Details
All user digital assets are stored offine using cold storage. Infrastructure security service provider Ledger provides hardware security services including multi-signatures. In User digital asset storage addition, Crypto.com digital asset insurance totals US$360 million, of which US$100 million is underwritten by Lloyd’s Syndicate.
The project's own digital asset assets used to provide Project digital asset storage liquidity are stored in hot wallets, using hardware security module and multi-signature to ensure safety.
The user's legal currency is stored in the escrow bank Fiat storage account, Crypto.com has no right to claim it.
Infrastructure security Use Amazon Web Security Services.
Quantstamp and Certik provide smart contract audits for the Code audit project. Both are leading companies in the security of blockchain technology. tokeninsight.com 15 RESEARCH
The Crypto.com has excellent team and a clear development roadmap. According to the May update report of the project, it has more than two million users worldwide, and it is a relatively mature project among payment projects. At the same time, Crypto.com has also extended its strategic layout to merchant services. Merchants can register on the project platform, and accept online digital asset collections. QRcode payment functions will also be launched soon. Since the project mainly serves individual customers, project popularity and user traffc are important factors for the project's future development. As can be seen from the fgure below, Crypto.com community has good infuence and globalization, which can provide a fundamental guarantee for its future development and business expansion.
‣ Distribution of social platform popularity and website traffic source Source: Crypto.com, SimilarWeb, TokenInsight 11%
167,600 Followers 6% 6% USA Italy 6% UK 41,100 France 28,653 26,662 24,552 Germany 5% Other 66% Twitter Facebook Instagram Linkedin Telegram
Also, Crypto.com adopts a dual-token mechanism, CRO is the native token of Crypto.com, which plays the role of transaction fees, node rewards, and discounts; the token MCO is used for the issuance, upgrade and consumption rewards of the MCO Visa Card. In general, the project has good market space in the daily use of digital assets, and is able to solve the existing industry pain points such as high transaction fees of oversea bank card use.
4.3 OMG Network OMG Network is a Layer-2 scalability solution and payment protocol on Ethereum, enabling large-scale, low-cost peer-to-peer transactions and on-chain transfer of digital assets. It helps third parties to build scalable, decentralized payment applications on their networks, so that fnancial services can be cross-region, cross-asset, and cross-application. The project supports Ethereum and ERC20 Token, and transaction fees can be paid with different digital assets.
Besides OMG Network, Loopring is another renowned protocol which provided payment functions. But compared to OMG Network, which emphasis on enabling borderless fnancial services and the instantaneous transfer of digital assets, Loopring is more focused on helping the construction of decentralized trading platforms on Ethereum.
On the technical level, OMG Network uses the Plasma scheme, and transactions are carried out on child chains. Multiple transactions are merged into child chain blocks and compressed back to the Ethereum root chain in the form of a single transaction. At the same time, the Watcher verifes the child chain to ensure the correct operation of the child chain consensus mechanism. As one of the current mainstream Layer-2 expansion solutions, Plasma has certain technical reliability. tokeninsight.com 16 RESEARCH
In terms of security, the child chain's security comes from the root chain, and the withdrawal of funds from the child chain must provide proper certifcation. In terms of contract audits, Quantstamp and Consensys Diligence have provided services for them, but there has been no public audit disclosure since January 2020. Also, the project launched a bounty program that can reward up to $25,000 to improve technology and system security continuously. The plan covers:
‣ OMG Network bounty plan coverage Source: OMG Network, TokenInsight
Category Subcategory
Root Source code
Child chain URL, Source code, Swagger(API tool)
Watcher URL, Source code, Swagger
Block explorer URL
Web wallet URL, Source code
Regarding the progress of the project, the project is well-received. OMG Network has launched a web wallet and recently launched a beta version of the mainnet, but the specifc roadmap and plans are lack of disclosure. At the same time, although the project gave a detailed introduction at the technical level, and its white paper was co-written by the project team and Joseph Poon, who is one of the Plasma creators, the project has insuffcient information disclosure for the entire team and thus is offering relatively low transparency. According to offcial information, the current CEO of the project, Vansa Chatikavanij, has experience in fnance, consulting, and management, but lacks technical background.
For the token mechanism, users use OMG as transaction fees and validator staking. OMG has a high degree of centralization in the initial distribution, and the team and the project own 29.9% of the tokens; while the top 100 addresses on etherscan currently have 67.91% of the tokens. 2% 2% ‣ Initial and current Etherscan token distribution 3% Source: OMG Network, Etherscan, TokenInsight 2% 4% 5% 2%
ICO 4% 10% 1% Address 1 OMG Network Binance