Brian Nibley


<p>Witnessing millions of people lose access to their savings on centralized exchanges and crypto debit accounts is a sobering moment for crypto. Since the infamous moment on Nov. 6 when FTX showed signs of insolvency, investors have moved over <a href="https://studio.glassnode.com/metrics?a=BTC&amp;category=Distribution&amp;m=distribution.BalanceExchangesRelative&amp;s=1597683317&amp;source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link&amp;u=1670457600&amp;zoom=" target="_blank" rel="noreferrer noopener">200,000 BTC off exchanges</a>. That is 1% of the total supply. The &#8216;not your keys&#8217; meme is a dead horse no one is particularly keen on visiting.&nbsp;</p>



<p>But still, the feeling of no longer being able to use a BlockFi card has many wondering if there is a world where crypto credit cards can coexist along with the safety and assurance of a cold wallet. And while the importance of self-custody may reign supreme in the zeitgeist for now, how long will it be before it&#8217;s traded in for the convenience of a third party?&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>



<p>If the crypto industry wants the indispensability of self-custody permanently engraved into its psyche, it needs to plan for the next wave of crypto adoption. It needs to appeal to the collective need for convenience.&nbsp;</p>



<p>There is one crypto credit card company that is already planning ahead. <a href="https://www.curve.com/en-us/" target="_blank" rel="noreferrer noopener">Curve</a>, the London-based fintech, believes that crypto credit card rewards will be a significant gateway for the crypto curious and that their app will make self-custody a natural and necessary step for the next wave.</p>



<p>We sat down with the team at Curve to learn more about their role in transitioning these new Web3 users to self-custody.</p>



<h2 class="wp-block-heading"><strong>What is Curve?</strong></h2>



<p>Amanda Orson, CEO of Curve US, gave a brief history and description of Curve: &#8220;Curve is a payments fintech with 4 million customers in the UK and Europe. We were born in London, but purpose-built in New York for the American market.&#8221; A good example of this is crypto; Curve US is leading crypto expansion for all of Curve, globally, because we recognize the need. Crypto adoption in the United States is roughly 20%, compared to just 5% in the UK and 2-4% in most European markets.”&nbsp;</p>



<p>Curve serves as a single contact point for all of a user&#8217;s potential financial payment mechanisms. Using only the Curve card, customers can access multiple funding methods: &#8220;Curve is one card that sits on top of a smart wallet that connects to your other underlying funding accounts, which can hold more than just cards. By connecting all of your underlying accounts and cards to Curve, you gain a lot of great functionality on the other side. We like to call it supercharging your money.&#8221;</p>



<p>But the vital aspect of all this includes how Curve can help make it easier for people to self-custody their crypto holdings.</p>



<h2 class="wp-block-heading"><strong>How does Curve help with self-custody?</strong>  </h2>



<p>Curve comes with several tools that can both offer flexible payment methods and assist individuals on the path to self-custody. For example, &#8220;by having all of your underlying funding cards attached to Curve, and using Curve as your payment device, you can use our feature [called] &#8220;go back in time.&#8221; That allows you to change the way that you paid for something within one billing period,&#8221; said Orson.</p>



<p>The Curve card lets you customize which types of purchases are paid for with each payment method linked to your account. These are referred to as &#8220;smart rules.&#8221; Orson put it this way: &#8220;Smart rules is one screen in the app that lets you predetermine what card you always want to have charged for any of several highly rewarded categories. So, like dining, miles, you name it, we&#8217;re about to release one that will allow you to do it by merchant, in addition, but that makes the Curve card literally smart. You tap it, or you swipe it and depending on what category that is, it goes to one repayment card or to another depending on the category you chose.&#8221;</p>



<p>This allows users to maximize rewards, which can be received in crypto and sent to a self-custody wallet.</p>



<p>Orson concluded by adding that &#8220;the most important thing is that it lets you drive and see your money and we give you rewards on top of your other repayment card in most circumstances.&#8221;</p>



<h2 class="wp-block-heading"><strong>How does this model assist mass market adoption?</strong></h2>



<p>The critical distinction between this model and the now infamous crypto savings accounts is that there is no yield incentive for staking crypto on the platform. This model leans on the fact that everyone will continue to use credit cards for purchases in the future. And the credit card user base is magnitudes larger than crypto natives – a user base fatigued and battle-tested from the crypto winter. Offering just a fraction of credit card users the simple and familiar benefit of cryptoback rewards can send countless more adopters down the digital asset rabbit hole.&nbsp;</p>



<p>Orson said that Curve sees it like this: &#8220;We think that the future for crypto is mass market adoption and the way to get to mass market adoption is not a 20-step onboarding process…it&#8217;s something that looks more like Web2.&#8221;</p>



<p>Continuing with the self-custody narrative, Orson noted that Curve doesn&#8217;t rely on centralized exchanges: &#8220;The difference between us and the other crypto rewards cards on the market is that we&#8217;re not tied to a centrally held exchange.&#8221;</p>



<p>When asked how Curve functions without a centralized exchange, Orson clarified: &#8220;it&#8217;s not that we operate without one. We work with a third party called Zero Hash; the distinction is we are encouraging our customers to do what is in their best interest.&#8221;</p>



<p>Today, taking ownership of your private keys involves several steps and can be intimidating for less tech-savvy users.</p>



<p>Soon, Curve will make the process of going from fiat rewards to self-custodied crypto seamless: &#8220;What we actually do is allow people to take their cash back and convert it into crypto. And we are about to release an off ramp for them to self-custody the crypto rewards they’ve earned.&#8221;</p>



<p>In light of recent events, features like these, along with Curve’s revenue model, will not only open crypto to new users, it will encourage them to explore the benefits of their rewards by moving them to self-storage.</p>



<p><em>This content is sponsored by <a href="https://www.curve.com/en-us/" target="_blank" rel="noreferrer noopener">Curve</a>.</em></p>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<p><strong>Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.</strong></p>


Can Crypto Credit Cards and Self-Custody Mix?

<div id="highlights-block_627d366985b12" class="highlights">
        <ul>
                <li>Crypto credit cards are a familiar way for people to begin investing in crypto without having to spend weeks educating themselves about the ecosystem</li>
                <li>With lower fees and potential for the collateral to appreciate over time, crypto-backed loans maximize purchasing power</li>
            </ul>
    
</div>



<h3 class="wp-block-heading">A quick primer on crypto credit cards</h3>



<p>Crypto credit cards are very similar to any other credit card. You make purchases using a line of credit, earn rewards, and pay back what you owe at a certain interest rate. What makes crypto cards different is they give you a direct line of credit by using your digital assets as collateral, removing the need for a credit check.</p>



<p>The inability to use cryptocurrency to buy everyday goods is a common criticism. But with crypto credit cards, the user doesn’t notice a difference at the Trader Joe&#8217;s checkout line. That direct line of credit can offer instant liquidity of their crypto portfolio.&nbsp;</p>



<h3 class="wp-block-heading">The difference between crypto credit and crypto debit cards</h3>



<p>Crypto debit cards work much like a traditional debit card. Users fund their account with stablecoins, bitcoin or altcoins. And when they use it at their local Gamestop, the card sells the equivalent value of their assets in exchange for the USD needed to make the purchase.</p>



<p>The main difference between the two is that crypto credit cards allow you to borrow funds for purchases and debit crypto cards sell your assets immediately whenever you make a purchase.&nbsp;</p>



<h3 class="wp-block-heading">The case for crypto cards</h3>



<p>On a recent <a href="https://www.youtube.com/watch?v=XCFSYU_EJws" target="_blank" rel="noreferrer noopener">episode of Empire</a>, Jeff Dorman reminded us that 20 years ago, people were afraid to put their credit card in a machine. Today we can’t imagine our lives without these magic rectangles. With some countries adopting bitcoin as legal tender and innovations like crypto cards, the question of wide adoption is not if, it’s when. But this inevitability is not the only reason to use a <a href="https://nexo.io/nexo-card" target="_blank" rel="noreferrer noopener">crypto credit card</a>.</p>



<h4 class="wp-block-heading">Earn crypto rewards</h4>



<p>There are many rewards cards giving cash back, travel points or other kinds of loyalty points for goods and services. Crypto credit cards offer rewards in crypto. This is a great way to <a href="https://bitcoinmagazine.com/business/stacking-sats-how-small-weekly-investments-can-offer-decent-returns" target="_blank" rel="noreferrer noopener">stack sats</a> or other cryptocurrencies without having to buy them on an exchange. While rewards differ from card to card, it’s easy to see the potential upside when crypto has a history of appreciating over time and fiat has a history of decreasing in value.</p>



<h4 class="wp-block-heading">Bridge TradFi and DeFi</h4>



<p>In the last several years, crypto adoption has shot through the roof, <a href="https://bitcoinist.com/not-just-a-fad-bitcoin-adoption-curve-rivals-the-internet/" target="_blank" rel="noreferrer noopener">mirroring the adoption curve of the internet</a> back in the &#8217;90s. But even today, it can be difficult for new users to understand how to get started with digital currency. Crypto credit cards are a familiar way for people to begin investing in crypto without having to spend weeks educating themselves about the ecosystem. What Robinhood <a href="https://www.cnbc.com/2020/10/07/how-robinhood-and-covid-introduced-millions-to-the-stock-market.html" target="_blank" rel="noreferrer noopener">did for stock investing</a>, crypto credit cards can do for crypto adoption.</p>



<h3 class="wp-block-heading">Adoption barriers to crypto cards</h3>



<h4 class="wp-block-heading">The taxable event</h4>



<p>Most crypto cards create <a href="https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies" target="_blank" rel="noreferrer noopener">a taxable event</a> every time you make a purchase. Because most governments classify cryptocurrencies as property instead of foreign currency, they are subject to capital gains. So if you were to use a crypto debit card to buy a $5 mothers day card and your portfolio is up 100%, that gesture will have an expensive tax bill.&nbsp;</p>



<h4 class="wp-block-heading">Price volatility&nbsp;</h4>



<p>Many investors are hesitant to use crypto cards because of major price swings and volatility. They not only want to avoid paying capital gains, they want to avoid missing out on potential gains. This mindset is why many view crypto largely as a store of value rather than a currency. This is why platforms such as <a href="https://nexo.io/" target="_blank" rel="noreferrer noopener">Nexo</a> are innovating ways investors can use their crypto without missing out and paying capital gains each time they make a purchase.</p>



<h3 class="wp-block-heading">How the Nexo card works</h3>



<p>What makes the <a href="https://nexo.io/nexo-card" target="_blank" rel="noreferrer noopener">Nexo card</a> unique is how it incentivizes <a href="https://www.investopedia.com/terms/h/hodl.asp" target="_blank" rel="noreferrer noopener">HODLing</a>. Using Nexo’s proven, crypto-backed lending service, Nexo card holders can utilize a line of credit to make fiat purchases without actually selling their crypto. Not only does it allow them to keep valuable assets, it won’t trigger a taxable event by selling crypto to make fiat purchases as is the case with other crypto cards. And as an added bonus, every transaction with the card pays back up to 2% in crypto rewards.</p>



<h3 class="wp-block-heading">What is crypto-backed lending?</h3>



<p>The way Nexo uses <a href="https://nexo.io/borrow" target="_blank" rel="noreferrer noopener">crypto-backed lending</a> as a line of credit is a first for crypto cards. To understand a little more, here’s how lending works.</p>



<h4 class="wp-block-heading">P2P and trustless</h4>



<p>Unlike in the traditional financial system, crypto-backed loans are peer-to-peer and trustless. You don’t have to apply to a loan institution, have your credit score checked, get approved, or trust a centralized company. If you have collateral, you’re able to borrow. Crypto-back loans tend to be over-collateralized for this reason, opening borrowing opportunities to more people.</p>



<h4 class="wp-block-heading">Automated smart contracts&nbsp;</h4>



<p>Because crypto-back loans use smart contracts which execute automatically, they’re as strong as the code itself. They also have lower fees than traditional loans because there’s no intermediary taking a cut.</p>



<h4 class="wp-block-heading">Maximize purchasing power</h4>



<p>With lower fees and potential for the collateral to appreciate over time, crypto-backed loans maximize purchasing power. If you’re borrowing against your crypto portfolio without selling the underlying asset and its value goes up, your borrowing maximum will also go up.</p>



<h3 class="wp-block-heading">Final considerations</h3>



<p>Fiat isn’t going away yet, and crypto needs to become practical for everyday users. Crypto credit cards are doing that.&nbsp;</p>



<p>As with all investments, there are risks that should be carefully considered. Under-collateralization could trigger loan liquidation and crypto volatility can drive investors to seek higher interest yields, but taking risks into consideration, companies like Nexo are offering new and innovative ways to change the crypto credit card landscape.</p>



<h3 class="wp-block-heading">Related Articles</h3>



<p><a href="https://cms.blockworks.co/the-investors-guide-to-defi/" target="_blank" rel="noreferrer noopener">The Investor’s Guide to DeFi 2.0</a></p>



<p><a href="https://cms.blockworks.co/the-investors-guide-to-yearn-finance/" target="_blank" rel="noreferrer noopener">The Investor’s Guide to Yearn Finance</a></p>



<hr class="wp-block-separator"/>



<p><em>This Investor’s Guide is sponsored by <a href="https://nexo.io/" target="_blank" rel="noreferrer noopener">Nexo</a></em>.</p>



<p><em>The content of this webpage is not investment advice and does not constitute any offer or solicitation to offer or recommendation of any company, product or idea. It is for general educational purposes only and does not take into account your individual needs, investment objectives or specific financial circumstances.</em></p>
