Flash Talk by Denney Kwok - CPO, Mento Labs

Uh, as Dave said, I'm the CPO of Mento. Um, I'm here today to talk about onchain FX and what that really means and how we can rebuild the global FX layer using stable coin rails. Uh, I was told I was only given 8 minutes, so I'm going to go relatively fast and keep this high level. So, if anyone wants to get into the details, come find me after. Um, so I want to start with like a real user problem.

Imagine you're an Argentine freelancer being paid in USDT, USDC, or whatever your favorite PYUSD is, as someone mentioned, whatever your favorite stable coin of choice is. Um, to actually get utility and spend that money that you earn in real world, you have to go through a bunch of hoops and steps. Um, you have to offramp it, you have to transfer to your bank, uh, and either get that in fiat or, uh, in your digital wallet like Marcato Pago. this whole process kind of like incurs about 3 to 5% in fees. Uh takes t plus one or t plus 3 days to settle into fiat.

So you're left with um uh time wait time waiting to actually get your cash to spend. Um in addition to that, you have additional FX spreads from the bank or from uh any of the money transmission operators. Um so just want to ground that. Um I'm going to go a lot faster. So the FX market um largest markets in the world the NASDAQ is only 500 billion daily.

If you look at this right over here uh the FX markets is 7.5 trillion annually. Now if you annualize that that's about quadrillions of dollars some unfathomable number. Um however if you look at the dollar it's had its worst performance in years uh relative to the other global currencies. um yet if you look at stable coins in circulation um 99% plus of stable coins are denominated in USD.

Now that creates an interesting dichotomy in how we actually build FX globally. Um like I said 7.5 trillion annually um if you if you look at FX markets uh it's 100% taker market. uh retail users like us, people like us everyday um use cases, uh you're subject to kind of the institutional pricing. You're just taking the rates that you get oftent times at very unfavorable spreads.

Um and because of the dynamic of USD dominance, um only 01% or mere basis points of that is actually happening on chain today. Um everyone's talking about it, everyone's trying to build on it, but it's still really really early if you think about it. Um now if you look at FX and some of the shortcomings for everyday users why it fails you know I talked about access um everyday users small businesses developers can't plug into this network unless you plug into the intricate inner bank network that you have with a bunch of these large banks that everyone talks about us trying to replace. Uh there's fragmentation there's different entities every step of the way that take their cut. Um, and then there's currency mismatch.

Uh, the end users like folks in Argentina have to hold the bag and deal with uh currency exposure, especially with high inflation currencies. That's a real issue, right? Um, so what do I mean when I say onchain FX? I think this term is thrown around a lot these days. Um what I really mean is a programmable FX layer where you have local currency peg stable coins not just USDC USDT um beyond the dollar dominance that we talk about transparent onchain pricing so price finding that actually happens um uh that's brought onchain uh because if you don't have the price of the currency that you're swapping for example the Argentine peso is about plus or minus - 1,500 to 1 USD.

If you're actually having to pay 1,800, then you're subject to kind of these spreads and slippages that uh we've been talking about. And then the composability element, uh being able to hook into kind of this FX layer um on a smart contract programmable basis. Now, what this all means is you can get instant quote trade settlement all in a single transaction on chain and leverage all the utility and benefits of uh being onchain. So in the FX landscape today, um I'll start on the bottom right over here. Um these are stable coin issuers.

You know, a lot of them, uh you know, Circle, Tether, whatever. Um with these you can get access to the currency that they're pegged to. So the yen, for example, um the Sing dollar, so on and so forth. um but they lack the infrastructure needed to transact with each other because if you think about it, blockchains are kind of dumb unless you give it the data that it needs. Um on the top left here, there's all these talks about uh chains that I will not name or purpose-built chains that uh are like payments or FX chains.

Um what they really rely on to facilitate these transactions I talked about on the bottom right is uh RFQ and offchain liquidity. I think liquidity is something we all talk about a lot. Um for them to actually make and facilitate the transactions they have to leverage kind of these trades market makers OTC desk to uh facilitate these transactions. Um, and then we have Mento, um, which I haven't really talked about much yet, but what we're really building is this neutral FX layer for you to be able to swap stable coins at the given FX rate. Um, so, you know, talking about swapping, um, we're all familiar with the AMM model.

Um, I'm going to go really fast here. I have a minute left. Um, so if you look at the I I was going to pull up Argentine peso, but there's like no liquidity on chain for Argentine peso. So I use the Brazilian realale. Um, the the rate there is about 5.

3. Um, if you try to do a transaction on chain with DRZ, one of the most liquid Brazilian real stable coins. If you even try to swap $10,000, the number is really small there on the bottom, but uh, you see a slippage of about 30%. So you'll actually lose 30% of your dollar value if you do the swap on chain today. Uh the reason for this is because AMMs rely on price finding on chain.

You need really really deep liquidity for you to be able to swap and thus it's really capital inefficient. Um I'm going to zoom through this really quick. So what is Mento? We have 15 local currency peg stable coins. uh we have this uh pricing mechanism called FPMM fixed price market makers uh which leverage oracle based price finding or prices that we bring on chain uh so that you can actually swap any of the stable coins supported on the platform at the real rate uh we power opera mini pay which has 10 million users in 60 countries we did about 20 billion annually uh integrations with all uh onchain protocols um I I want to touch on this really quickly um if you're a stablecoin issue not only with Mento stable coins, you can actually plug into our infrastructure and leverage the pricing model.

And the value here is if you're a Argentine peso stable coin issuer and you want to be able to swap for reals, dollars or what have you. Um you can't really do that on chain um at at an efficient model without having to have millions of dollars of liquidity to actually get the price. uh we offer real world pricing um swaps um size of the prize I mean we talked about 7.5 billion even if we bring 1% of that onchain um that's about $2.7 trillion of swap volume annually um even if you get 5% that's 12 trillion annually if you look at if you look at that um so just to wrap up um it's not a winner take all space we're looking to build the FX layer for onchain FX Um, if you know you're a fintech or super app that want to build stable coin flows into your app for your users, uh, issuers, I just talked about that.

Um, and then protocols, DeFi protocols like uh, AMMs can also leverage us to get better price finding uh, borrow lend protocols so that you can um, um, create loans and then obviously traders and LPS. Um, cool. Um, that's it. Super quick talk. Um, if you're interested in FX and stable coins, uh, you can find our socials here, website, um, or just find me and we can chat.

Thanks everyone.