Ivan Fartunov, Generic Money | Balancing Privacy and Compliance in Onchain Payments

Uh hello everyone, my name is Ivan. I'm a co-founder at Generic. Um we're building confidentiality um stable coin infrastructure. And you know this talk is about a bit of the mismatch of of where it's needed and what a solution looks like. I realize I don't have a clicker.

Do I get a clicker? Nice. Okay, cool. So um you know as anyone that is building um privacy and conf confidentiality on chain you know we get very excited. Uh there are like a lot of nerds talk about this.

You just heard the previous talk. Um it's one of the verticals that is still seeing VC interest alongside RWA. Everything else is basically dead in terms of like fundability at the moment. Um so we we went out and we spoke with like actual potential users which is enterprises, PSPs, custodians etc. Um so something that came across which is at least for us it was unexpected when we started doing this is that like a lot of the um demand is not really coming from like an end source but it's intermediaries and infrastructure providers preparing for the arrival of actual demand and those like end organizations.

So enterprises and institutionals that actually take privacy seriously um they're not looking at it from leaking competitive intel perspective. They're looking at it from okay I have a like user protection um regulation that I need to I need to comply with on behalf of my clients and that's why they're thinking about privacy and confidentiality on chain. So it's more around regulatory obligations. Um and you know why is sort of like nobody too worried about this at the moment. So um currently this is roughly what the stack would look like.

A lot of the enterprise clients and frankly a lot of like the more traditional institutions they would go through like a PSP that provides a hosted wallet and through a custodian um before they hit the network right so from their perspective I mean some of them don't even realize that transactions are going on a public chain where everything is visible. Um but something else that is um like relevant at the moment is if you look on the network you would see I don't know cross mint paying BVNK or just like a transfer between two cross mint wallets because this uh payment processor basically provides abstraction of who's behind this. Um this is however at the moment just on like UX level basically. Um and we believe that that sort of abstraction is going to run its course in terms of usefulness and at some point like more and more of the flow would be visible on on chain. Um why do we believe that?

Glad you I mean you didn't ask but let's let's assume you did. Um basically there is like a billion dollar industry around uh onchain analytics. Um you know we have Nansen, we have chain analysis, we have Arcom like those are players that have something like 500 million wallets um labeled on chain. U the infrastructure around this sort of analytics is getting better and better by the day. Um the gap between technically public and and practically readable is shrinking.

Um we have AI which drastically decreases the cost of running these analytics and you know soon enough uh basically all your flows will be visible to someone who doesn't need to hire a team of for like financial forensic analysts. They just need a $200 subscription. Um and something something that is sort of again like if you're just a user of the network not necessarily intuitive is a lot of people would use a centralized exchange as a mixer or a confidentiality bridge of sorts right the thing is in a centralized exchange a lot of the the funds get comled because you're dealing with like end consumer funds if you're dealing with a custodian or a PSP from an institutional perspective you have segregated accounts so uh a custodian set would spin up like often multiple wallets that are just for you and they wouldn't mix assets of different clients which actually like results in better traceability on chain. Um and then something else that actually uh is a reason why organizations are are going towards like future proofing is that the the longer his the the more history you have on chain the easier it becomes to decode behaviors as we just saw in the previous talk. It was just the perspective of a consumer.

But if you think of of enterprise payflows things look quite similar. it just the the the counterparty that is interested to understand what's going on is different. Uh it's not someone who wants to sell you something. It's often like a competitor or someone who wants to get better negotiating power knowing your behaviors. Um so although like there is most of it is future positioning at the moment there is um there are undeniable signs of demand arriving on chain.

So we have regulatory clarity. We had the Genius Act that mandated what a federal level stable coin would look like. Um we had the FSAB uh treatment of stable coins which was a big unlock. It basically means that if you have stable coins on your balance sheet as an organiza like as a auditable organization in the real world, these stable coins would be treated on par with cash or cash equivalents instead of being being written down to zero which was the previous treatment. And this means that it becomes practical for uh companies that are subject to the GAP like which is the American standard for or it's the global standard for auditing like financial reporting um they can actually hold stable coins now without getting punished for it.

And lastly um you know there is the clarity act that is currently undergoing um um final touches. Yes, the treatment of yield is not exactly what we hoped for. Uh but it adds as the name suggests some clarity on how these things would be handled which inevitably creates um less friction for an institution to come on chain. Um we've seen also like volume picking up tremendously like 730% in a year and this is B2B volume specifically. Um we're also seeing uh large players spend serious money on acquisitions of infrastructure in the space that show conviction into the future of onchain payments.

So um we spoke that like a lot of enterprise use cases don't really care too much about privacy today. Uh there is one quite notable exception uh which is payroll. So we have global leaders of payroll like not just within crypto just like generally global leaders of of of of payroll like remote.com rise uh deal even ADP which process something like double digit percentage of all the payroll in the US they are pushing a lot of volume already on chain it makes sense because a lot of these organizations they they deal across states or cross countries it's cheaper it's faster it's2 247 it makes sense to push the stuff on chain. Um the thing is like in the legacy setup do I have oh yeah cool.

Okay so in the legacy setup usually you had you know an employer this like pay uh like payroll processor and then a bank wire or um a uh wire and then you have the employee. So basically everything is sort of hidden except for the processors internal database and the regulators. When you move this onchain, you know, after the the processor, you push it onto a public network and then it arrives with the employee. And um, you know, if it's like outside of our industry, if it's like a normal, you know, everyday web to employee, you still have enough abstraction. But one of the the main reasons to do things on chain is, well, there's like a lot of other things that I can do, right?

some of these um providers are thinking of like okay can how can we bake in you know tap into some of the yield that is on chain for our clients and this way money spends more time on chain which means you have more information leakage and then you run into um you know security concerns about sometimes I mean in France you might lose a finger for it like if people know how much money you have and how you make them um so we're seeing that these These type of payment processors are actually at the forefront of doing pilots around private payments. So um yeah confidentiality and compliant confidentiality it's not a response to a demand. It's a prerequisite for this demand to actually come on chain. Uh so how does that look like in practice? Uh basically there are broadly speaking three approaches.

Um we've seen a lot of uh projects come out and secure like pretty decent funding to build a dedicated network for uh handling onchain payments confidentially and and privately. Um there isn't a one-sizefits all. Um so like this usually gives this sort of solution gives you like a full stack control which is great but the main the main problem there is that you need to basically bootstrap ecosystem from the beginning. Um this means like yield sources dexes but also integrations with on and off ramps asset issuers etc etc etc. Um another solution popular solution are mixers and pools.

Those are like mostly services that we might be familiar with uh privacy pools um rail gun etc etc. Uh one of the main challenges there and why we believe that it's not the best solution specifically for payments is that um every um transfer to achieve compliance it basically has to pass a KYT test KT check and that takes between 3 hours and a week. So you can't exactly run payments on this sort of speed. Uh and the the approach we're taking is onchain encryption. This basically means that you have confidentiality which is not full privacy obviously.

Uh but it it hits um a better um balance on the other trade-offs. So you you can tap in existing liquidity and infrastructure. You have uh high settlement speed and uh provenence of funds is easily provable and also you have a auditability which is a prerequisite for a payment service provider for example to integrate this sort of stack. Um so why am I talking about this stuff here? I'm I'm basically I'm I'm building generic and we're a compliant confidentiality layer for stable coin settlement.

So basically what this means in simple terms is we encrypt amounts and balances but um addresses remain visible. Um so you end up with proven provenence it you end up with uh comp uh comp compliance readiness and with compatibility with existing uh infrastructure and liquidity. Um and you know we believe that this sort of solution slots uh in the most easy and natural way into an existing flow. Uh this is broadly how it works. Um we believe that the next wave of adoption is not going to be people holding their um self-hosted wallets whether we like it or not.

It's just the way that new capital and new users are coming on chain. So they usually have a payment service provider or custodian handling this. Um so you have you know somebody sending money goes through a payment service provider at that point uh this gets uh you know converted into USDC goes through a privacy pool the receipt from the privacy pool is GUSD generic dollar uh which is an FH encrypted confidential token. uh transactions on the network happen using that token. Uh and until someone wants to exit the system, you can not see who is sending how much money to whom.

So you see start point, end point, you don't know the exact volume of transfer, which basically means no everyone on my payroll is going to know exactly how much each of their colleagues is making in a in a simple practical terms. Um, this allows us to deliver payments at a speed that makes sense and is compatible with the way that people think about payments today um, in the offchain world. And um, that's pretty much it. Um, you know, we are we are building this for um, the real users that are out there. It's it's a very unopenated design.

If some of the problems that I highlighted are something that you face in your daily business, come talk to me. Would love to hear about what you're building and what problems you're uh facing and maybe validate if our solution works for you. Thanks.