Dear Telcoin Community,
I wanted to start this update by reminding everyone that Telcoin’s assisted self-custody model works to protect the safety of assets in chaotic times like we’re experiencing now. Our off balance sheet approach is designed to safeguard customer assets from meltdown on both the crypto side and banking side. To clarify, as we learned this month, when stablecoin liquidity is only backed up by a large amount of reserves in uninsured “on balance sheet” deposits, customers are at risk. Telcoin’s approach of intersecting digital and traditional finance helps to mitigate this risk.
In mid-2019, when I was developing Telcoin’s business model for the United States, I heard that Metropolitan Commercial Bank was used by the major exchanges and issued Crypto.com cards. On a quick initial call, the bank told us they would be very happy to open accounts for us once we’re ready. We were ready a few months later, in January 2020, but on a follow-up call with them we were told that, “Unfortunately the bank board has decided to pivot to marijuana banking, and will not take further crypto customers.” Perhaps that decision saved MCB, as Silvergate and others picked up the slack. But I was shocked to learn that the bank underpinning the industry at the time could come across as so flippant and opportunistic. Silvergate may not have gone into marijuana banking (and I’m not saying that couldn’t be done responsibly), but they also were clearly not risk averse.
It was after that call with MCB that I decided, in the long run, there was a great opportunity in taking a conservative and “bare metal” approach to intersecting digital and traditional finance. A foundational, bottom layer approach to any problem always takes the most time to develop, but I think that’s precisely what’s required in this case — which means actually being a bank, issuing regulated stablecoin or “digital cash,” and facilitating DeFi transactions with eventual direct merchant payments. I think Silvergate took their role in the industry more seriously than MCB, and built something great in the Silvergate Exchange Network. Where they ran into problems was at the layer below. It was a great idea to build a lightning fast settlement network to serve customers with the means and desire to move funds quickly (crypto-related or otherwise). But it was built on top of a foundation from a different era; specifically, it was transacting on-balance sheet deposits in a fractional reserve system with a 10 percent capital requirement. Silicon Valley Bank ran into the same problem, a smartphone bank run by large deposit customers who were attentive to social media and adept at moving a lot of money with one click.
The problem with on-balance sheet deposits being able to move so quickly is that banks in the US are required to maintain a 10 percent capital to asset ratio (technically eight percent, but in practice, effectively 10 percent). The requirement is intended to make banks safer, but ironically in the Silvergate and SVB cases it pushed them toward riskier behavior. When interest rates are nil (as they were until recently), and a huge amount of fast money flows in (be it from VCs, startups, or crypto firms), banks had a hard time meeting the Return on Equity (ROE) expectations needed to attract capital, without chasing yields with long term treasuries. It didn’t really matter how responsibly Circle managed their bond portfolio if the most liquid 20 percent of USDC reserves sat in uninsured on-balance sheet deposits in banks that were under capital requirement pressure.
The “bare metal” solution to this problem is for banks to be the issuers of stablecoins with off-balance sheet reserves, i.e. “digital cash.” Regulators could provide banks a mechanism for maintaining overnight funds off-balance sheet. The end result would be the bottom layer of finance that could freely move 24–7 without putting financial institutions and their customers at risk. This would also be much better for consumers in that if banks assist self custody of off-balance sheet “digital cash,” they can still incentivize consumers to deposit the digital cash onto their balance sheet in exchange for a yield (e.g. “staking” digital cash into a digital CD deposit token.) Consumers will benefit from this arrangement, where effectively one bank assists their self custody of digital cash and facilitates the deposit of that digital cash into digital CD deposit tokens of any bank or other financial institution. Consumers could easily connect to the best yield time deposit product available without having to open an account at another bank. There’s a reason why the largest banks are promoting on-balance sheet “deposit tokens,” which essentially is an attempt to co-opt crypto but maintain the status quo that locks consumers to their banks — a setup that benefits large banks, not consumers. Treasury rates are above four percent, and average mortgage rate around seven percent — yet Chase high yield savings rates are still a paltry 0.02 percent.
This isn’t a crypto issue, it’s a technology of money issue. There is growing demand for 24–7 borderless flow of capital, and it’s a demand that can’t simply be “banned.” It’s not illicit activity that drives that demand, it’s common people simply trying to maintain the value of their hard earned money in the face of high interest rates. Even consumers with a few hundred dollars average balance, whether they’re living in Downtown Los Angeles or rural Nebraska, shouldn’t have a technological or compliance barrier to easily earning a few percent yield right now. Our mission to spread financial inclusion doesn’t only mean lower fees and superior products for users in Africa or South and Southeast Asia — there’s plenty of work to be done in our own backyard and beyond. Consumers deserve the digital equivalent of directly handing a merchant a 20 dollar bill. Going “cashless” should not mean forcing a three percent surcharge to process a payment to a person standing right in front of you, ostensibly to control a fraud-ridden archaic ecosystem that those payment processors are incentivized to perpetuate. US consumers deserve the ability to self custody the fruits of their labor, and one click “stake” (deposit) into and out of the best bank or other products available on the market. The flag of consumer protection should not be used to perpetuate a status quo that effectively serves as regressive tax on the 99 percent. This should not be a political issue.
Telcoin’s core initial use case is still about sending money smarter, but what we realized pretty early on was that it didn’t matter how efficient self-custody and DeFi were if the last mile rails connecting to traditional finance were inefficient. This is why we are focused on the bank project in the US as our top priority. This is what we are excited about as a company, this is what we are incredibly passionate about. We are very far along this “bare metal” path, and our model is only looking better and better with both the recent crypto and banking meltdowns.
We appreciate everyone’s patience as we walk this long path, as we know the silence is difficult to swallow in this space. I would just remind everyone that others who have taken a more vocal approach have run into issues. We are very close to the public phase of our application, where we will be able to be much more open with the community about progress.
Thank you again for your continued interest and support in uncertain times.
- Paul Neuner, Telcoin CEO
MWC: Event Recap
Telcoin made its first Mobile World Congress appearance in Barcelona since 2018, with seven team members joining nearly 90,000 attendees and more than 2,400 exhibitors from across the globe. CCO Rajesh delivered two exciting digital asset-centric panels alongside executives from Caixa Bank, Celo, Circle, Citi, Deloitte, GSMA, Idemia, S&P Global insights, and Vatom; providing a golden opportunity to share the Telcoin mission and value proposition with telecom and fintech leaders from around the world. Those words resonated with many in attendance, and the commercial team had a week packed full of private meetings with a diverse set of telecom, fintech, government, and investment contacts. Follow-ups are already well underway, and we’re confident that these new connections will bear fruit in the near future when it comes to expanding Telcoin’s utility and geographical reach.
To strengthen these new relationships, Telcoin also hosted its first official MWC after party in the heart of Barcelona’s stunning Gothic Quarter. A popular local bar and restaurant played host to an intimate group of approximately 40 VIPs from both inside and outside the conference, with authentic local tapas and wine enjoyed by all.
Incredibly, Telcoin also managed to become the most-mentioned startup on Twitter using the official MWC “#4YFN23” hashtag during the big event. The hashtag stands for “four years from now” and was used to highlight emerging technology on display at the conference and the more than 800 young companies both exhibiting and pitching at the conference’s dedicated startup hall. Twitter impressions during the event surpassed half a million — with mentions up 45 percent and profile visits up an incredible 85 percent. Our pre- and post-MWC campaigns on LinkedIn also garnered more than 5x the average LinkedIn engagement rates. Despite not even having a booth, the Telcoin hype was unstoppable — and our popularity did not go unnoticed by our hosts at GSMA. Expect an even bigger showing from us at future MWC events and beyond!
- Jeff Quigley, EVP BD & Comms
The past several busy weeks for the commercial team have been a validation from the market on Telcoin’s mission and value proposition in a number of ways.
We’ve been working on expanding Telcoin’s payment rails ecosystem, to increase the payment methods, mobile wallets integrated in the Telcoin App, and new regions we are looking to venture into. In parallel, we have been working closely with global stablecoin providers, to add 1:1 fiat-pegged stablecoins in international markets.
Telcoin forged a number of relationships while on the conference floors in MWC Barcelona with dozens of potential commercial partners, government agencies, intergovernmental bodies, regulatory bodies, and investment firms. These relationships will help us propel growth and adoption of Telcoin’s current product suite, but most importantly expand to new verticals, and validate new disruptive use cases with the appropriate network of stakeholders involved. Some highlights:
- Numerous major telecom companies have expressed interest in working with us for both fiat and stablecoin remittances into their platforms or complementary mobile money wallets.
- Our initial pitches for Telcoin Network resonated with a wide range of market leaders in their own categories. Tech giants we spoke with are excited to work with us on the deployment of the network and setting up the nodes. Some of the biggest telecoms in their respective geographies want to become part of the Telcoin Network as node validators.
- We established contacts with several major licensed payment rails providers in key geographies that could further assist in expanding cash in and cash out capabilities and digital asset on and off ramps. The team also met a neo/merchant bank in Africa supported by one of the biggest telecoms in the continent, to potentially venture into merchant payments — where digital assets can bring an improved level of efficiency and fluidity of capital to the current model.
- Major banks and financial services provider executives were incredibly interested in our mission and value proposition to disrupt the banking sector, as both partners and investors. We also met a number of VCs, private investors, and sovereign venture capital funds (and even a stock exchange) that expressed interest in supporting Telcoin’s growth and expansion.
- As a priority for us at Telcoin, we also took the opportunity to further our progress toward financial inclusion and general aid relief initiatives. We met with governmental and intergovernmental agencies, NGOs, and academic institutions to jointly develop products specifically for positive social impact purposes.
- We are a compliance-first company, and as such we leveraged MWC Barcelona to groom relationships with regulators and advisors to ensure we operate under the light, transparently, and aligned with regulators on the frameworks necessary to bring new blockchain-based financial products to market.
As some of these conversations are still in the early stages, it would be bad form to name names, but more details to come in the near future.
Last, but certainly not least, we are also fulfilling our commitment to launch our fully licensed commercial applications in Singapore (remittance) and Europe (full digital asset functionality with on/off ramps) upon the completion of ongoing internal testing. This was feasible due to our strong partnerships with market leaders in payments, payments gateways, and digital asset infrastructure services providers globally.
- Rajesh Sabari, Chief Commercial Officer
It has been a productive stretch for Telcoin in terms of product evolution. We have seen great adoption of our Stake and Refer platform which was released in the fourth quarter. Users have utilized its staking capabilities and are receiving their earned TEL daily. It truly is a great first step in delivering our long-term staking vision in the app.
Our upcoming EU on/off ramp release is coming along nicely. We are currently beta testing with live money and external testers in an effort to fine tune the experience for a widespread release in the near future. We look forward to expanding our on/off ramp capabilities to more regions globally after we complete the EU, so stay tuned.
Finally, we’re also in the process of vastly expanding our global remit corridors, and are also in a beta testing phase here as well. The ongoing integration of Syniverse will ensure a much broader reach when it comes to SMS compatibility with a wide variety of mobile networks across the globe, enabling countless new users (and some in existing regions) to receive activation SMS to complete onboarding.
- Ryan Tully, VP of Product
In addition to building and testing our EU on/off ramp release, launching our Stake and Refer platform, and expanding our reach through additional remit corridors, we have been busy focusing on improving our scalability, security, and reliability. We have prepared our infrastructure and systems for the influx of user activity expected by our imminent on/off ramp launch in the EU. Our average API request latency over the past 30 days was 43.28ms. Scalability will remain a focus as we continue to expand.
Among other things to improve our security posture, we have improved our Web Application Firewall (WAF) to combat SMS fraud and API abuse. We continually run internal penetration tests across our entire API. Additionally, our staking contracts were recently audited by Sherlock. They are currently auditing several additional contracts and will continue to do so in the future.
We have taken measures to improve our reliability by refactoring legacy code, including several large database schema updates. We are also in the process of increasing our engineering headcount by roughly 30 percent, including Quality Assurance (QA) engineers to help with the testing process and improving overall app reliability and robustness. We are also taking measures to increase our trading and transaction reliability especially under high volume and volatile market conditions.
- William Myers, VP of Technology
New Telcoin Team Members
Stephanie Schellpeper joins Telcoin as Fintech Operations Manager on our Banking and Finance team. She will also help set up future operations for the bank branch and digital asset depository. Steph began her career in Boston working as a consultant for Federated Investors (investment manager with more than US$600B under management) and also worked as an account executive for two other firms. Steph continued her career spearheading operations and business development for a national law firm that obtained billions of dollars for its clients. Steph is eager to get back into the financial industry by helping Telcoin shape the future of fintech.
If you’ve been following our new TikTok channel, then you probably already know that Ryan Neuner joined the marketing team in Tokyo as a Marketing Analyst after a year of interning as a Research Analyst at the Los Angeles office. A recent graduate of Chapman University’s Dodge College of Film & Media Arts, he has enjoyed collaborating with the other marketing team members to create video content for Telcoin’s ever-expanding social media presence. Additionally, Ryan is overseeing remittance testing as Telcoin prepares to add new e-wallets and country corridors in its quest to help more people Send Money Smarter.
As alluded to above, we’re also excited to announce some new engineering hires in the near future. Check out our open job postings here.