A low cost Fiat onramp through Algofi

Hey All,
I’ve been lurking for since the beginning of this forum and just recently decided to make a project suggestion. I’m not a coder and am not familiar with any regulations involved in my proposition. What I am saying is coming from an Algorand and Algofi user who would like a better experience on chain. I want to float the idea of a low cost stablecoin/Fiat on ramp facilitated through Algofi (independent of the current Coinbase option). I see this as the creation of a fully reserved stablecoin, similar to USDC.
Right now, we are very limited as to sources of stablecoins like USDC on the Algorand network. A very limited number exchanges support USDCa, and purchasing them from Transak or the like ends up with very high fees. If crypto is going to grow, emphasis should be placed on ease of getting assets on and off chain.
A fully backed Stablecoin would give Algofi 3 new sources of revenue (that I see).
1. The low cost fee for on-boarding. I assume an absolutely free on/off boarding platform would invite volatility (maybe?), as a result some fee would likely be necessary. Something like 0.1% up to some maximum maybe. No idea, that would be up for discussion. The point is that the fee would be far under what anyone else is charging to onboard crypto.
2. Profits that the fiat currency yields. Fiat could be held with a portion of it placed in very safe yield bearing liquid assets like US treasury bills or something similar. Nothing fancy. This should be boring and completely transparent. This is exactly what I understand circle does with USDC.
3.The crypto could be made available instantly as a loan until the actual bank transfer comes through (assuming the correct amount of collateral on the users end). This would give the user the option to pay a small interest fee for instant access vs. no additional fee to mint the tokens whenever the bank transfer clears. The principle of the loan could be repaid automatically with the incoming completed transfer, leaving a small balance that would need to be paid off.

Beyond the fees that Algofi would profit from, both on and off chain, this would bring users to Algofi. The instant access loans would incentivize keeping liquidity in Algofi, deepening available pools. Using Algofi for one service would familiarize users with the platform, and some percentage would likely find other useful offerings.
Those are concrete ways that Algofi would benefit, but this could also be a boon to the larger ecosystem. A reliable low cost on/off ramp would allow people to fluidly use their assets for more real world applications. Crypto loans that could be easily and cheaply used in the real world, increasing the utility of Algorand.
I’m very sure that this would be a difficult process to implement, both technically and with regard to regulation. If I’m off base suggesting something like this, feel free to tell me. The fact that no one has suggested something similar before seems to tell that this would be too big of a project, but since this is just a temperature check so I figured I’d drop it out there.

Thanks for your time.

I’m rightfully getting pushback regarding the complexity of the suggested project. What about using Algofi as a passthrough to directly purchase USDC from Circle. My understanding is that Circle provides free accounts to businesses that allow minting of USDC at low or possibly zero cost. Is there a way to send money to Algofi, have them purchase USDCa and send it to our wallets? It seems like at least technically that would be simpler.

thats what i think as well. algofi devs should focus more on the protocol imho


Agreed with others, this would be hard to pull off for a lot of reasons. Primarily, to offer a dollar backed stablecoin would require a legal entity to represent the DAO in order to conform with US regulations. We don’t have this yet. Even if we did, as others pointed out, the regulatory burden of operating a Stablecoin is immense and is better left to a professional team in a traditionally organized company or non profit. Imo its not a great exercise for a DAO. You have to be ready to comply with things like SARs, sanctions, etc which really requires full time staff.

A question I have for you, why isn’t STBL2 sufficient? if someone built a fiat onramp for STBL2, would you use it?

As far as I’m concerned the problem to be addressed is getting stuff off and on chain. If it were possible to offramp STBL2, it would be a big step. That would take care of half of the problem, we’d be able to pull loans off chain, but we couldn’t bring more value to the chain as STBL2 is only minted on chain through debt ( unless I’m missing something). But I’m not sure what that looks like. Where does the Fiat come from if you’re pulling STBL2 off chain?

RN it would take a swap (STBL2->ALGO @ 0.3%), sending that to an exchange, selling it for a loss ( exchange fee or spread, neglecting any change in value of the ALGO) and possibly a fee to send it to your bank. Stuff adds up you know?

I do get what you are saying about complexity though.

I love all the conversations around stablecoins. 2023 continues to be the year of stables. I still think stablecoin legislation might be something that the US Congress can get through. I’m hopeful. Until we have some new definitions for US based entities, I think we should focus on USDC and other US based coins like TrueUSD and USDP by Paxos if and when they land on Algorand.

I assume that since the Algofi protocol already supports USDC it might be easy-ish to support the Circle Euro Coin if and when Euro Coin is on Algorand. Currently, Euro Coin is only on Ethereum.

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Anyone could build a STBL2 onramp. If you started a company to do this you could swap the STBL2 for USDCa at a much better rate (0.05%). Then on the backend you could facilitate cash deposits/withdrawals with Circle directly. When someone onboards you take their cash and buy USDCa directly from Circle and then swap it into STBL2. If there is lots of demand for this, STBL2 will depeg positively and arbitragers will mint more STBL2 which will bring the price down.

The challenge with the above isn’t technically how it works, its managing liquidity. You probably want to batch buys to Circle or swaps to STBL2 to manage fees. That requires some decent demand forecasting and idle liquidity to manage. This is the kind of work exchanges are doing on every pair they offer market trades for. The reason fees are so high for services like Moonpay is that its not actually that easy to do. The costs of actually executing this are not low and the expertise (regulation, KYC, financial modeling, etc) are not trivial, such that the market is not actually very large for USD onramps.