What is MoneySwitch
TL;DR: MoneySwitch is a Liquidity-As-A-Service Platform offering uncollateralized lending to cross-border payment providers and is governed by MST holders.
MoneySwitch Overview
Global cross-border payments are the engine enabling cross-border trade and investment and have been instrumental in the emergence of today’s global economy. The total value of these payments is estimated a little over US $156 Trillion in 2022. Despite the importance, growth, and market size of the cross-border payments industry, it is often characterized as slow, costly, and opaque. This is increasingly frustrating to consumers, businesses, and enterprises that desire efficient and safe cross-border payment services.
MoneySwitch is on a mission to transform the cross-border payment industry by using the power of decentralized finance (DeFi). MoneySwitch is building a capital marketplace targeted at cross-border payment providers, giving them access to uncollateralized real-time liquidity. Through access to real-time liquidity, MoneySwitch solves one of the biggest challenges for cross-border payment providers utilizing SWIFT, the need for pre-funding (more about this in the next section). For lenders, MoneySwitch opens new lending and earning opportunities, which thus far have exclusively been available to big banks and financial institutions. Lenders will be able to offer short-term loans which are safer, more efficient, and better suited to the needs of the cross-border payment industry.
Cross-Border Payments via SWIFT a Broken System
The current global cross-border payment architecture is based on the SWIFT network, established in the 1970s. There are a wide variety of problems related to the antiquated SWIFT network. However, specifically for cross-border payments, the industry works on a pre-funding model, with no guarantees of credit time using SWIFT networks. The pre-funding model forces cross-border payment providers to lock up their working capital in the form of pre-funded liquidity with their payout partners worldwide. This makes cross-border payments highly inefficient as it requires the right amount of capital to be pre-funded to the right place at the right time, every time.
In practice, this means that cross-border payment providers must buy USD in advance and try to predict to where and how much their customers will send in the coming days, and then pre-fund their payout partners within those locations accordingly. Whenever this prediction is not 100% correct, the payment providers are exposed to FX risks, delayed payments, and customer dissatisfaction.
For example, as a cross-border payment provider, you expect to send $1,000,000 to Japan and $2,000,000 to South Korea over the next couple of days; you buy $3,000,000 worth of USD and pre-fund your payout partners in Japan & South Korea. However, your customers end up sending $2,000,000 to Japan and only $1,000,000 to South Korea. In this case, you will not be able to process all payments to Japan, even though you have enough funding; because your funding is in South Korea, the money is at the wrong place, at the wrong time.
This problem is further exacerbated because there are over 180 “red banking days” worldwide, where the SWIFT network does not work; the money essentially sleeps. This forces cross-border providers to predict payment patterns for more extended periods of time and less ability to move funding around due to a lack of banking services.
Decentralized On-Demand Funding with MoneySwitch
MoneySwitch, a Liquidity-As-A-Service (LaaS) platform, leverages the power of DeFi and digital assets to offer cross-border payment providers access to real-time liquidity, outside of traditional constraints like time zones, trading hours, holidays, weekends, and all “red” banking days. MoneySwitch will enable cross-border payment providers to attract more customers by providing a more efficient and reliable service, enable them to reduce the size of their pre-funded working capital, thereby freeing up capital for growth, and reducing counterparty risk.
More fundamentally, by enabling access to real-time liquidity free from traditional constraints, the industry as a whole will be able to rethink and evolve the pre-funding model utilized under SWIFT. With access to real-time un-collateralized liquidity, cross-border payment providers can adopt a decentralized on-demand model, where liquidity for B2B settlements for cross-border transactions can be done on-demand rather than on a pre-funding basis. This will enable cross-border payment providers to unlock working capital for growth and investment and offer better value to their customers and their payout partners, ushering in a renaissance within the cross-border payment industry, all powered by MoneySwitch.
Lending on MoneySwitch
Lenders on MoneySwitch will be able to access lending opportunities that thus far have exclusively been available to big banks. Lenders will be able to do so in a way that is more efficient and better suited to the needs of the cross-border payment industry. Lenders on MoneySwitch will become part of powering the global cross-border payment industry. Their loaned assets will provide real-time liquidity and better enable the multi-trillion-dollar cross-border payment industry. Lenders will be able to earn by lending to some of the biggest cross-border payment providers in the world transparently and securely. While at the same time having complete control of their assets, lend without any lockup. Lenders will earn in both stablecoins and the MoneySwitch Token (MST) rewards.
The loans are secured through a Credit Default Protection Pool. Stacker will be able to choose to take on the risk of potential default by depositing liquidity into a 50/50 MST-FRAX pool. The LP tokens from the MST-FRAX pool will be staked into the Credit Default Protection Pool. In the unlikely case of a loan default, the LP tokens will be liquidated to allocate additional liquidity to the lending liquidity pool and ensure loss protection for lenders. To compensate stackers for taking on this risk, 10% of all interest generated across all lending liquidity pools will go towards rewarding Credit Default Protection Pool participants.
The MoneySwitch Token (MST)
MoneySwitch is on a mission to transform the cross-border payments industry, and the MST is used to reward for participating and enabling the transformation of the cross-border industry. The MST is a governance token that will allow token holders to participate in the MoneySwitch DAO and drive the future direction of MoneySwitch and other practical matters such as approving borrowers and setting max-borrow limits. Further, 35% of all the revenue generated on MoneySwitch is allocated to an MST treasury and can be used to buy back and burn MST tokens or be distributed to all MST token holders.
Conclusion
MoneySwitch provides cross-border payment providers real-time access to uncollateralized liquidity at fixed interest rates. It empowers them to break free from a legacy pre-funding model constrained by SWIFT and move towards a real-time decentralized funding model. This means less FX risk, less credit risk, fewer transfer delays, less trapped liquidity, and, most importantly, better customer satisfaction. In doing so, MoneySwitch opens a whole new frontier of lending and earning opportunities for lenders and expands the utility and impact of DeFi.
