Unqualified Opinions: Kris Marszalek and The Crypto.Com Story

Unqualified Opinions host Ryan Selkis sits down with Crypto.com co-founder Kris Marszalek to hear the past, present, and future of his journey.

Unqualified Opinions S2E6 Blog Graphic.png

Ryan Selkis
Hey everyone. This is Ryan Selkis, and you're listening to Messari's Unqualified Opinions, where each week I interview crypto's top builders, investors, and personalities, to discuss the key trends in the industry. Today, I'm speaking with Kris Marszalek, co-founder and CEO of crypto.com. We're going to talk a bit about crypto payments, how to make them mainstream, how to scale them, whether they're still relevant. It should be an exciting conversation, so let's dive right in.

This podcast is presented by BlockWorks Group, one of the top blockchain events and media production companies I've worked with. For exclusive content and events that could help you with insight into the crypto and blockchain space, check them out at blockworksgroup.io and you will not be disappointed.

All right, everyone welcome back to Messari's Unqualified Opinions. I'm your host Ryan Selkis, @twobitidiot. We've got a good one today with Kris Marszalek, who's the co-founder and CEO of crypto.com. We're going to talk about their new crypto credit card. We're going to talk a bit about payments. Do they still matter in Crypto? Jury's still out on that, and some of the DeFi applications that they are working on.

As a disclosure, crypto.com is part of our registry and disclosures initiative, but we certainly hope that that becomes the norm, versus the exception, as we've now got 50 participating projects on. Kris, thanks for joining the conversation. You kind of sit in this middle market of projects that are large, in terms of dollar value and headline value, that have certainly shipped a number of applications, but that still seem to kind of fall below the radar of the general conversation on crypto Twitter, at least in terms of hype.

Maybe that's a good or a bad thing, but why don't we start by just talking a little bit about the project, and some of the overarching goals of crypto.com. Because there is quite a bit going on, and you've got a few different moving pieces that have shift even this year. How did the project come into existence? What are the most important components that people need to know about if they're just getting introduced for the first time?

Kris Marszalek
First of all, thank you for having me, Ryan. A pleasure to be talking to you today. Crypto.com and our vision is very simple. Cryptocurrency in every wallet. In every product that we release, we try to move this industry forward into production. So we started with Visa cards that allows you 24/7 access to your money that you hold in Crypto. We've launched in Singapore in 3Q of last year and just last month in July we began shipping to customers in the US. Besides this payments product we've got also an interest earning product, crypto earn, allowing you to earn up to 8% per annum on the coin you believe in. So if you deposit in BTC, you earn interest in BTC. Deposit ETF, you earn interest in ETF, et cetera. We also issue instant loans in our app which are…with BTC.

So it's a full sweep of products and essentially allowing the crypto currency holder to replace their digital banking completely. Like you said, we are not really big on hyping the project up. We are steady builders. We've been working on this for three years now. The company has over 150 people and our apps have been downloaded around 750 times. So it's small, but you know, slowly gaining traction.

Ryan Selkis
One of the first questions that I asked before we turned the camera on was about stable coin. So when you think about payments, when you think about interest bearing products, volatility in the underlying currencies can be quite dramatic. If you're thinking about mainstream usage beyond just speculation, how have you built the product so that when someone is spending money or someone is borrowing or lending and earning interest, that it's actually compelling? Because 9 times out of 10 if you had an account that was denominated in Bitcoin, if the principal is swinging wildly in value the interest, doesn't really matter. It's very messy and can kind of excuse some of the incentives in terms of default risk and things like that.

In fact, that's why some of the early crypto lending products failed. Right? It wasn't until more recently that you started to see a resurgence there and it was for different reasons because it was more about hedging and hedge fund investors managing their own positions. Where does stability of the underlying currency fit in or, have you thought about that as a challenge for some of these applications that you have?

Kris Marszalek
Well, the way we build the product, it's about the giving our users options. So, we support Fiat. So you can deposit funds in NPF in dollars, euros, pounds, you name it. So bank transfers are free on our platform. You can buy crypto credit cards. Our cards are multicurrency, so you can actually store multiple currencies, CF currencies on the card itself. We support a number of stable cards on the platform. So users can use the platform any way that they want. For the Lending Club specifically, the way we approach this is, this is built for people who believe in cryptocurrency. So our objective is for our users to have the access to cash if they need it without the need to actually sell the crypto. So we've got a full spectrum of options. If you want to have the stability of a stable coin or Fiat or Piat, you can have it. If you want to have the upside of crypto you can have it. The platform supports all of it. That's one of the things that makes it tremendously useful.

Ryan Selkis
What type of usage, maybe even use cases, have you seen for a crypto credit card? Because I remember, even back in 2013, it seems like once a year someone else hypes that a credit card is either coming, or has been released. At first it was, I think Coinbase was rumored to do it, Xapo had a credit card. There's been like six or seven of these, I feel every couple of years from all walks of life and in the industry. Who's using them, and why are our payments still important if you're using the legacy rail or at least the legacy card infrastructure to transact crypto? It seems counterintuitive.

Kris Marszalek
So the first thing is that there might have been attempts to build a project like this before, but this is the first one that actually makes commercial sense for the user. So the sweet spot for us is the card that offers for you 3% cash back in our cryptocurrency, plus a set of perks that are very competitive against the best credit cards offered by banks today. So like, access to lounge at the airport, perfecting exchange rates if you travel. There's, you know...There's plenty of perks on this end. Those are beautifully designed metal cards. So it's a premium product. If you compared us to typical Coinbase card, you're probably roughly 5% better off using our card on every transaction. So it's just a better deal for the customer.

We as a company also are building a native cryptocurrency payment network, called Chain, that settles all the transactions instantly and it's got much lower cost than the Visa network and it supports all the cryptocurrencies out there. So all the good stuff is built in but people still need a firm factor that they understand. What Visa brings to the table is acceptance of 15 million merchant locations globally. So you'll get this instant utility and instance trust in the product, plus, all the cool perks. That results in people being really passionate about it and they really like it.

For us in terms of business strategy, this is a customer acquisition tool. So we want to build a large distribution network using these cards. We've noticed a click correlation between users who actually are live with the card and just transact, use our platform more frequently than users who don't have the card in their wallet.

Ryan Selkis
Can you talk a little bit about the usage of the CRO token versus other cryptocurrencies or other stable coins that could be transacted in the system? Because whenever you talk about an actual currency, so not just a utility token or something that's distributed file storage or bandwidth or governance token in prediction markets, those all have certain participation rights in the network. It seems like you are hoping that the CRO token will serve as a bonafide currency, but yet you offer all of these other more mainstream cryptocurrencies right along side of it for use. So where does CRO fit in the product? Why do people benefit from using that versus just using bitcoin and some of these other more liquid assets that have been around for quite a bit longer?

Kris Marszalek
So we are basically building a new public chain that is tailored for the cryptocurrency payments network. We don't want to restrict users to use CRO for payments. You can use Bitcoins here and all the other digital assets for payment. We just need a network that allows those merchants to accept any crypto anywhere potentially for instant settlement. The CRO will basically serve as the settlement currency on this network. We compare this solution to what we have with Visa network. So you've got some multi-day settlement times, huge costs of using the network and whatnot. Even today, even with all the work we've put in, well Visa still transacts in Fiat only. Same as all the other major card schemes.

So we feel there's a needs to build infrastructure that allows for all this to happen seamlessly with lower costs. This is the most ambitious project that we're working on. If we're successful and we bring in millions of merchants onto this platform and eventually tens of millions of consumers, it will help us get closer to this vision of cryptocurrency in every world. We are using a very proven, go to market strategy that worked very well for guys like Ipay and widget pay. So you basically could incentivize usage both on the merchant side and on the customer side and you have to compliment the incentives with really sleek user experience. It has to be extremely smooth. We're taking these learnings from large players out of China and trying to deploy it in the cryptocurrency world.

Ryan Selkis
Doesn't it undermine some of the use case for CRO in particular though? Just the fact that so little of it is currently liquid and floating right now? Let's kind of break down the rollout and treasury of CRO because it was created all at once. It's not necessarily all liquid. So, one of the things that we're working on with your team is just trying to bring better transparency into how this is going to hit the market. I actually didn't have a chance to check before this call, but refresh my memory. I think it's only eight or 9% that's currently circulating right now. The rest is kind of locked in a number of different programs.

Kris Marszalek
Yes.

Ryan Selkis
So that's a massive overhang potentially. We've seen this with Stellar, we've talked about this with Ripple, to the extent that people are interested in acquiring CRO. They've got this massive amounts of the token supply that is still kind of overhanging and you know it's going to hit the market over the course of x number of years. So how do you manage that and how do you think about making sure that the incentives are aligned in the short term, but certainly in the medium and longer term knowing that if you are to be successful and if that token is to continue to grow in value in that token ecosystem is to continue to grow, you've got to do quite a bit in terms of central banking wizardry. Or at least setting the structure in place so that this doesn't become problematic. What were some of the design decisions that led you down this path to have such a large reserve?

Kris Marszalek
Well, first of all, we begin a transparency. We've laid out the clear schedule of talking release over the next five years. There was very strong belief within our team that in order to build a successful network, we need a five to 10 year horizon. This is the kind of timeframe that is required to bring onboard a critical mass of merchants and critical mass of customers. It's not particularly cost-effective either. If you look at the airports of which should pay hourly pay and they spend literally billions of dollars on incentives for both sides of the platform. So that's how we approached it. Yes, the coin is not particularly liquid today, but there is a clear roadmap of what are we doing every month, every quarter and every year in order to make sure that it is liquid.

In terms of token economics, we also published in our consultation papers so the community can work with us together, figuring this out. I mean we got some proposals, in terms of counsel we'll be responsible for transaction processing, and how the staking works and those numbers will be tweaked over time as we grind and gain traction. I don't think that you can figure this out to 100%, one decade in advance. We just keep an open mind, make sure that we are transparent in our process, and make sure that we are building products that people actually want to use.

Ryan Selkis
So the next key milestones...you also have an interesting dynamic between MCO. Explain the relationship between CRO and MCO, which was the other related token. One was an ERC 20. Where are you in the migration right now?

Kris Marszalek
In terms of public chain progress, we open source some early version of Testnet and in September we'll have full public Testnet ready for everybody to play around with. Every single milestone that we've set, we are currently accomplishing ahead of the schedule. So, any of the schedule for next year, there's going to be a migration from the EOC 20 code camp for CRO to a main light coin. The easiest way to think about the difference between MCO and CRO is, MCO is a…allows access to services, centralized custodial services within our app. The ambition across CRO and the…chain is to be eventually a fully centralized network with a native coin that powers this network, and processing all these payments in a fully centralized way. So building an entire system around it so that it works even without Crypto…is the ultimate the goal.

Ryan Selkis
The general distribution then for CRO, which would be the main net coin, this migration will take place. The current stakeholders in the MCO network will have a small slice of the larger CRO network. Then is it 60% is split or 80% is split between a few different participants that there's this concept of counsel nodes, customer acquire nodes. There's a lot going on, but I guess, the important takeaway then is these are the different stakeholders that you see in the future chain, not necessarily crypto.com the company reserving and selling off this treasury over time. So, what is your ongoing stake and how do you ultimately get some of those other stakeholders to join the fray and ensure that when you do get to main net launch, you've got a a pretty well distributed system that's working as intended.

Kris Marszalek
Again, we are growing the size of our platform every single day. We are growing at roughly 20% a month right now as a company. We are at 750k users today, we'll probably hit one million users milestone in September. So those numbers are still very small. But if you extrapolate this type of growth rate for two or three years, then they get to build up a decent size of the platform and with a decent size of the platform, it becomes much easier to onboard the merchants and get people to use our payment solution in general.

So I guess again, we start and end with the customer. How do we make this useful? How do we get people to use this? How do we get merchants to use this? This always takes priority over the details of how it's going to be distributed. The general point of view is that if you bring in millions of merchants on board and tens of millions of customers, in token economics will work itself out. Again, we were very transparent about every step of the way and we always consult our community and source ideas of how we can improve it so it works best for all the stakeholders.

Ryan Selkis
Where is your team based? Then where's the project based?

Kris Marszalek
Most of our teams are based in Hong Kong. We've got a little over a hundred people in our Hong Kong office. We've got a team of 40 or 50 people in Sofia, Bulgaria mostly dealing with back office support like some service tries to cross saying risk management, kind of what you would expect from a car business. We've got a really tiny presence in the US and Singapore to support our card programs. Just the last month we started an office in Shenzhen and where we're stealing our engineering teams for…development on the product side.

Ryan Selkis
Is it safe to say that the lion share of the community then that you're generating right now is in Asia versus the West? Or, what efforts, if any, have been made in the West? Because this is kind of an ongoing topic that that has been coming up more and more in the last few weeks. I'm starting to get the opinion that we as a company, even though we're just data services, we're not even necessarily touching these assets or financial services company or a token issuer. I'm wondering if we should even be in the US right now, if we want for this to be a successful, large enterprise because it's just so painful.

What are you seeing? If you're pretty well taken care of as a company, domiciled overseas and with most of your operations in Hong Kong, but certainly as you build out this distributed network and you do have the US card program and some other applications that you're gonna wanna roll out here, how do you think about the other stakeholders and kind of incentivizing folks that are gonna secure the network and actually use these applications and help scale this and at least encouraging some type of activity in the US and Europe in particular?

Kris Marszalek
We take compliance first, the approach here. So again, we didn't bring on board large partners like visa and in every region we need banking partners throughout our product. We didn't bring those guys on board without treating compliance seriously. We KYC every single user on the platform. We operate in line with local regulations.

So in case of the US route, we're simply going on state by state and review our product features and how it's communicated. It's huge overhead. I'm not going to say it's something simple to do because it took us over two years to launch the US program at all. You've got definitely more restrictions than some of the international markets in terms of coins that you can release on the platform, and tread extremely carefully. There's a reason why a number of companies in this space, are leaving US market altogether. The cost and the complexity is just enormous. For us, it's still 25/30% of our entire user base. So we've invested so much that we're not going to pull out of the US, we just got in there.

I guess the bottom line is that you need to be compliant if you want to scale a business to millions of users. So that's our way of doing it anyway. We're just not taking any risks over there. We're playing by the rules and slowly building it up.

Ryan Selkis
So, 25% in the US or 25% of the West?

Kris Marszalek
25 to 30% in the US actually. We've got probably a quarter in Europe and the rest is kind of Asia and the rest of the world. So it's a pretty well distributed user base in 72 countries where our app is available today.

Ryan Selkis
You've got payments. You've got these interest bearing accounts. What do you see as the growth driver, as something that's highly differentiated that is ultimately going to be the killer app that you promote the most heavily as you approach the main net launch next year? If the goal is to ultimately build a better, faster backend and facilitate transactions, then it seems like Visa and that partnership is a bit of a stepping stone because that's really the bread and butter that you're trying to go after. At the same time, the lending market is exploding, right? So the number of companies that have gone from zero to 100 and in crypto lending this year especially, is just astounding at the rate of growth. Are those kind of equal weight? You can't have one without the other? What's going to be the one thing that you really need to get right from the product suite to get your foot in the doors of brand and make sure that this is a market that you can continue to scale into and then maybe cross sell other services as you win that first application?

Kris Marszalek
We kind of look at Amazon prime is an inspiration. So first, payments is the distribution platform, right? No matter our card or our payment network, they will allow us to bring in millions of users into the fray. Products like lending are a way to monetize the users when they come in and we can generate robust revenues through lending to our user base. So again, the more you lend on the platform, the more revenues are generated, you can simply pump more investment back into the payments product in terms of user incentives or in new features, and then it becomes a self reinforcing circle. I still believe that payments is a killer app in terms of growing the number of users of cryptocurrency globally. You've got 15 million people who, for the most part, just trade it as a new if the asset cost today. If you want to go to 500 mil, a billion, there's no better use case in payments. It's just a basic math, right? How many people go to buy groceries everyday versus buy stocks every day? It's just that simple.

Ryan Selkis
One last question I have, and it's a little bit more on the technical choices that you're making, I guess in the medium term. I feel like we're going to see more migrations and more interoperability across these different protocols, particularly with Polkadot and that system on the horizon. Obviously Ethereum was the only game in town. You started with an ERC 20 token, the goal is to migrate. You're also using Tendermint's consensus algorithm on the back end. How do you think about the different interoperability solutions and kind of base layer technology stacks? Are these going to be important for you going forward or are these just stepping stones? So you started ERC 20, you might use bits and pieces of these other platforms, but at the end of the day, as you hit scale and as you had your main net launch, do you just completely divorce yourselves from these other protocols and just focus on the crypto.com chain? What's the relationship going to look like going forward?

Kris Marszalek
Once you have a platform of millions of users, I'm very pragmatic. I think entrepreneurs just don't spend enough time thinking about how they're going to get distribution for a product. How are they going to get people to use it at scale? So for us, 80% of our effort is to grow this platform to scale. Once we are at scale, signing up partners is actually not that complex because everybody wants to partner with you just because you've got scale. I think we have a very transparent and inclusive approach as a company. So we do not intent to build a walled garden that is closed and we will be definitely open to partnering up with people who bring a value to the table. You've mentioned we are using bits and pieces from Tendermint, some stuff from Cosmos, we've licensed some technology from Intel.

We started and end with the customer, not with technology itself. If we can do a good job for our customer, there's technology out there that helps us get it done for the customer. We're going to bring it in and get it done together. I really am a strong believer in building networks that don't have a single point of failure and you can't really do that if you address everything in house, and you can't really do that if you are building a walled garden. So what you will see from us is more open source effort, more partners, bringing more people on board into the ecosystem. Always with customer in mind, always with customer mind. Not for the sake of partnerships, just because you know there is a partnership.

Ryan Selkis
Well that's a very Amazonian way to end I guess. We'll be on the lookout. So the Testnet target date, do you have a target date in mind or just going to be some time in late September?

Kris Marszalek
September, September. No date yet. September.

Ryan Selkis
Great. Where can people find you? It seems like it should be relatively straightforward to to find given the name of the project, but how can they get involved and where are some of the areas of greatest need right now on the development side?

Kris Marszalek
The easiest way to begin is to just go to the controls column or to Twitter crypto column and follow our progress there. Again, we are very open as a company and always invite people who have great ideas to come join us in this journey. It's been remarkable so far. I think it's just the beginning.

Ryan Selkis
Kris, been a pleasure. Thanks for joining us.

Kris Marszalek
Thanks a lot Ryan, it was a great session. Thank you.

Ryan Selkis
That's a wrap. Thanks for listening. New episodes of Unqualified Opinions go live weekdays at noon eastern time. You can follow me in the meantime on Twitter @twobitidiot. If you want to continue the conversation or troll me. Otherwise, I'll see you next week.