On-ramping in web3 is the first critical action that a user must take in order to participate in the decentralised economy. It is the first step that involves a user taking fiat currency such as, USD or GBP, and turning it into the equivalent amount of cryptocurrency such as, BTC or ETH.
Despite its importance in driving adoption, it remains one of the least understood steps in the lifecycle of user participation in web3, as well as consistently ignored by builders when architecting their products.
Given the pace of innovation on-ramping is undergoing, this piece aims to elucidate why it will materially affect how web3 products are built across verticals, from DeFi to DAOs.
When Bitcoin was launched in January 2009, the primary way in which users would on-ramp into the space was either to mine bitcoins, or purchase them directly via peer-to-peer trades (P2P) on forums such as the Bitcointalk Forum.
Given the technical skill required to operate a Bitcoin mining node, P2P marketplaces such as LocalBitcoins developed as a viable alternative for user on-ramping. These marketplaces allowed users to trade directly with one another, and typically involved a seller placing their cryptocurrency into escrow, only to be released once they had received a deposit of an equivalent amount of fiat in their bank account from the buyer.
This method of on-ramping for new users was high-risk because it required a degree of trust in the counterparty, particularly if the trade was not orchestrated through a marketplace. Given the points of friction that exists with P2P transactions, centralised exchanges emerged as an alternative for new users to on-ramp into the space.
Centralised Exchanges (CEXs)
With the emergence of new cryptocurrencies, centralised exchanges emerged as a new on-ramping vehicle for new users to acquire digital assets. CEXs such as Coinbase provided a simpler on-ramping flow in the form of a fiat bank transfer or card payment, with the equivalent amount of cryptocurrency being credited to a user’s account.
In contrast to P2P transactions, CEXs eliminated the need for a user to manage their own wallet, negotiate and execute transactions with a third-party, as well as to reduce counterparty risk. Arguably, the speculation-fuelled bull run of 2017 would not have been feasible under the previous on-ramping paradigm of P2P marketplaces when compared to CEXs.
However, as the 2018 / 19 bear market began to subside, user behaviour began to shift from passive participation in the form of holding cryptocurrencies on an exchange, to active participation in using decentralised applications in the form of “Connect Wallet”.
The rise in active participation can be characterised by the DeFi summer of 2020 and the NFT mania of 2021. Given that users could not interact with decentralised applications from wallets hosted on centralised exchanges, this presented on-ramping challenges.
As a result, the web3 on-ramping flow would change for a second time to solve this problem; with the checkout quickly arising as an alternative on-ramping experience to CEXs. As opposed to using fiat to purchase cryptocurrencies that would then be stored on a wallet hosted by an exchange, the purchased cryptocurrencies would instead be directly deposited into a user’s self-custody wallet, such as MetaMask.
Given that the core use case to self-custody cryptocurrencies in a hot wallet is to “Connect Wallet” and interact with decentralised applications, the checkout significantly reduced the time taken to do so when compared to the on-ramping flow of centralised exchanges.
Step function improvements in on-ramping would once again show its importance in facilitating speculation-fuelled bull runs that crypto is well-known for.
Popular on-ramp checkouts including: MoonPay, Transak, Ramp and Onramper, were all founded in 2019, preceding the DeFi & NFT bull runs of 2020 / 21. These on-ramping checkouts have emerged as some of the biggest start-up winners in recent memory, with MoonPay accruing a valuation of $3.4 billion in just 2.5 years.
Checkouts as an on-ramping mechanism have proven to be so successful that use case specific checkouts have started to emerge, the first of which being NFT checkouts.
This is as a result of the application landscape in web3 continuing to mature, and NFTs emerging as a clear use case. With it, an explicit user intent has developed, i.e., a user wanting to purchase an NFT.
With this intent, the flow by which a user will go through typically involved the use of an existing checkout, such as Transak to purchase the cryptocurrency, in this case ETH. This cryptocurrency would then be used to purchase an NFT from a marketplace such as OpenSea, to then go through another checkout flow to complete the purchase.
NFT checkouts eliminate many of these steps, and instead, enable a user to use a fiat payment method, such as a credit or debit card, to purchase an NFT directly. The NFT would then be transferred to the buyer’s wallet upon completion of the purchase.
An offering that is less than a year old, NFT checkouts as an alternative on-ramping flow to existing checkouts have become increasingly competitive, with startups such as Paper, Crossmint and Winter vying for dominance. MoonPay, having realised the opportunity, has since released an NFT checkout product of its own.
Given that there exists other applications in web3, each with their own explicit user intent models, I expect to see other use case specific checkouts emerge in service of them. Areas that this new form of on-ramping may apply include: DeFi, Launchpads and GameFi. However, an area that I am particularly excited for is in DAO onboarding.
Many DAO landing pages, in explaining that the purchase of a token or an NFT is required to join their collective, will display a link redirecting a user to a decentralised exchange, such as Uniswap with which they can use to acquire their tokens. For example, when acquiring tokens to join the Global Coin Research investment DAO, I would go through the following flow:
- Transak as an on-ramp to exchange fiat for crypto (USDC)
- QuickSwap to exchange the USDC for GCR tokens
- Collab.Land in Discord to have my GCR tokens verified
- Proceed to GCR’s onboarding flow
However, a DAO checkout, similar to an NFT checkout, stands to simplify the above flow by not only enabling a user to directly purchase a DAO’s tokens with fiat, but also to consequently deliver an integrated onboarding experience for new joiners.
In this model, I argue that onboarding begins at the moment of token acquisition, and as such, a DAO’s on-ramping flow should be incorporated into their onboarding flow.
On-ramping has undergone a gradual process of refinement, from P2P transactions to checkouts, and arguably have been an essential requirement in fuelling the bull runs of 2017 and 2020 / 21; as such, their importance cannot be understated.
Because of this, the purpose of this piece is to push builders to recognise the importance of on-ramping as a powerful tool in driving an increase in the number of net new users interacting with their applications, in addition to the well-established discipline of onboarding optimisation.
On-ramping is a critical action that new users will take when deciding to participate in the decentralised economy. Given that, we must expand web3 product development methodologies to meet users at this First Step.