Show Notes for Michael Dunworth Podcast Episode
How would you describe your project? Wyre is a payment processor. On a surface level, yes; but I would classify us as an infrastructure provider. The whole Fiat to the Crypto world is pretty bad. I know you are fighting against existing MSBs which are doing billions of dollars through the fiat on-ramps for crypto. They hold everybody by the balls, and they squeeze as much as they can. The fees we are paying are just insane because we are considered high risk by PayPal. PayPal double dips on both sides for payments. They not only take a huge fee on our side, but they take fees from the client too (they take 2.5%). Everyone is just getting gouged left, right, and centre basically.
Once you get into crypto, you can make those 6 billion dollar transactions for 5 cents, but it’s the on-ramp that sucks. For example, someone from DeFi was talking to us, and we were talking to them because they didn’t have a registered entity yet. I started thinking what the point of them having a registered entity was, you have enough capital flow in DAI or Ethereum to make people come and go as shareholders. It is not necessary to register an entity. If you didn’t have a vision, what were you doing for all these years? The vision was that we didn’t have a vision. We didn’t want one; the Crypto space moves so quickly, so we’d always thought let us manage expectations as best as we can. Those people who left Coinbase based on their listing of Lightcoin year ago were Bitcoin Maximalists. We did not have any allegiance. We have tried to just move our chips forward 75% of the way and then see where we are.
After my conversation with Bryan from Kava, he gave me a better term for what I am: A Liquidity Maximalist (and what he is too). I believe more that you increase liquid flows between Fiat, crypto and protocols; the easier/cheaper you can make it, the better it will be for everyone. This is where the power lies.
I, 100%, agree with that. The number of liquidity options benefits everyone. We are helping people go to market as fast as possible so they can fail as fast as possible. Sunk costs affect their emotional involvement with products. This way, everyone has the best chance to see what works and what does not.
Do you think you could see the trajectory of your project from the beginning to now? I think some of the members of my project are from the future. We could not have planned for our trajectory. We have always been an agnostic company. That was really important to us. We don’t need to fight between ourselves in this industry. There is always competition that is healthy. I think MoonPay and Carbon are great projects that we compete with. The net gain is that the industry will do a better job; and if we are all excited about the space and building something that contributes to the Crypto space, no one loses. A rising tide lifts all boats – in a positive way; not like in 2015 where it had a negative connotation.
Why are payments such a pandora’s box when you are connecting these crypto assets to Fiat? It is harder than just showing up and being PayPal or a traditional payment vehicle. Why is it such a punish? Are we all sadists? The main thing is that you have the first universal digital currency where you are trying to link up the real-world system with its legal recourse, regulation etc. for example with credit cards, you have 90 days, with ACH you have 60 days… you can go and kick and scream to the bank to get your money back. This world is a shitty place where people are fighting each other for money; that is what happens. Scammers come in and skim credit cards, and they start trying to buy bitcoin. Someone has to be liable for this. Why do they need a blood sample from me? They need to take all this information in the USA; we know that we give over more than this because it is to protect them from recourse. Identity theft is easy to do, and so banks have no way to verify that it’s you buying the Bitcoin. I was speaking to a detective today about bitcoin that was stolen from me, and it is very traceable. With all this KYC data, it makes bitcoin easily traceable. We want to make compliance as easy as possible. Our compliance token says you have been verified by us attached to your transaction; this can be a public utility function. These verified users can make people feel more comfortable. We did this at this time, and it is auditable.
What about data privacy at Wyre? Are you doing data analytics on your users Google-style to predict behaviour or transactions? Not beyond compliance. The time data would be used for underwriting. When someone comes, and we have verified them, those components have to be looked at for KYC and a risk profile for fraud prevention. As a payment services company, blockchain protocols are a gold mine for anyone doing data analytics. All the transactions can be traced. You can have really pure data. PayPal/Stripe are doing data analysis, like Google and Facebook. Their fraud prevention data analytics is necessary for underwriting people and risk profiling. This is because of the 90-day and 60-day rules. You are underwriting the risk of someone creating fraud during this timeframe. The dynamic is not very well understood by people. ACH is the most backward system ever.
How would you change the payments system? One thing I have learned about multi-sig verification and best practices for security is this: device-based security is what it all comes back to. GooglePay, ApplePay, Samsung… those guys are very well positioned in that space. Digital identity and having it attached to a device is one of the most important areas we need to address this decade. Yes, because of that and regulation. Multi-factor authentication is being pushed very hard in Europe. This shift in regulation from government to individuals to make it harder to get a card under these conditions and merchants will not be as liable as they once were for fraudulent transactions. It is trying to make it fairer. It is making the person issuing the credit more liable for the fraud, not the bank or the merchants.
Can Wyre move into the credit side? Is there a consumer or business credit side you could move into? We are very interested in savings, to be honest. It is something our clients are very interested in this. As a plumbing company, because essentially that is what we are, so we need to be on top of this space. We need to make sure we are enabling this for our partners. DSR is incredible as a product. Dave and I were chatting about this yesterday, and he thinks it is a monopolist centralist draw on the space or a liquidity black hole that sucks money from other lenders and puts it into DSR. The capital in circulation is not benefiting, and Maker is too big, which represents a risk to the whole ecosystem. His argument is that money always becomes monopolistic at some point. I don’t think he is too far off. I am not against a trial run of an emergency shutdown. It is only going to get bigger; it is a good time to do it now to see what happens, and everyone tore me a new one.
Are Fiat on-ramps a threat to Wyre? If you can move seamlessly between protocols and from crypto to Fiat, what happens? I know you have tokens that sweep money to your bank account. Where does a payment provider fit into this seamless scenario? We are adios—100 per cent. We are currently catering for both markets, and these are cyclical. We need to work together. I am always positive that there will a place for payment providers because of the lack of regulatory compliance between countries. This regulatory arbitrage creates markets for projects like Wyre. We try to tell teams we are working with, with different applications: you can’t build a relationship with a financial provider, with someone in the middle is not the goal. Our goal is to make the pie bigger not to be in the middle.
What is your take on Maker? Do you think it is too big? I think Bitcoin volatility will never go away; so being a payment vehicle is not going to work because of the price movement. The hedging process is very costly, and it does not lend itself to being a payment vehicle. What I know works is the Dollar. It works great. When you make something stable out of these very volatile assets; you create trustless value, and from that, you create dollars. Maker has done such an exceptional job to build the network. Before the mentality was we need to do a token sale, list on binance and now there are a 100 million people with our token; in comparison to the Maker mentality which is about building the network.
What I would like Maker to do better is articulate their near-term goals and their long-term goals. If your goal as MakerDao is to give everyone a CDP or savings account, then that is going to determine the mentality and how people approach it. I think Savings is the perfect start. We are going out of the bear market. Markets being so cyclical; volatility is where people make their money. That is why Maker has been so successful is because they have been able to distill this into an easy to use interest/savings rate that anyone can use.
This comes back to their goals and if theirs is to have savings rates that any one can access then that is a really good thing for them. If their goal is how do we make this the go-to venue for any trader in general, then they are going to paint a different storyline. The DSR is timed so well; on the back of DAI launching. They have DAI to market, multi-collateral DAI to market in a downward market, now it is going to be a bull run so the DSR will become the clutch. Why do you question my bag holding?
With the data stuff, one of the things I like looking at are transaction volumes on the network. Synthetics does not list many tokens. People always ask us why. It does not add much value long term to list other tokens. Is there anything in your data in Wyre that points to anything moving in the market? Activity and trade volume is what we look at to see trends in the market.
The sentiment has changed to something is happening and the ground is starting to shift. Why do you think there is going to be a bull run? Fear I totally understand. The base line of logic that I am pretty subscribed to. Bitcoin is the entry point to the market and drives the crazy. It will do it again. It is fundamentally valuable to a group of people. Halving is going to create volatility. If people know this is going to happen, it will half the supply which will affect miners big time.
Miners will drive price up and more people will be trying to access half the supply, like rent prices in San Francisco. Same demand spike created by limited supply. It has always been the entry point because Bitcoin is so liquidity. Bitcoin catches a lot of liquidity. Because there are so many more people in the market now, changes in the market happen faster. What happened to Lightcoin after halving? LightCoin went down 70% after halving.
Buy the rumour, sell the news. This is what happens given the coming of halving. Do you have any crazy stories about things at the top of the market in 2018? I went to conference in late 2018 at the top of the market and it felt different to earlier this year when Bitcoin when to $14,000. The after event for the entire conference was at a strip club; it was a lot of money and not a lot of sense. That is what happens when people make money easily. Easy come, easy go.
The problem is that no matter what you tell them, they are going to do whatever they want. People are granted the illusion of skill when they become a trader. It is hard to know if you are good or are just getting lucky. Education is very important. This is survivorship bias – you are just lucky to be in the right place at the same time.
Why are you in San Francisco? Why don’t you move somewhere cheaper for your employees and the business? Everyone has relocated at Wyre. If it was up to us we would have 100 per cent relocated and move everyone to remote. We are frugal founders. We don’t want to pay a big rent bill if we don’t have to. It is a disadvantage being in San Francisco. Distributed team set ups globally are contributing so much to the space and are really interesting. As someone running a company, do you think about moving your employees to a location that was more affordable? Yes of course.