In recent days, Lawyer Honglin has been on business trips in Hong Kong and Shenzhen, participating in Web3 industry events, visiting clients, and communicating with industry partners. It is obvious that the current hot tracks of Web3 are nothing more than RWA (real world assets) and cross-border payments. Especially in the field of cross-border payments, with the continuous increase in market demand, the potential of Web3 payments is gradually emerging, but in the understanding of the native Web3 circle, Web3 payments are nothing more than a point-to-point solution.
From this perspective, user A can directly transfer his virtual assets or digital currencies to user B through the blockchain network. Without the need for intermediaries and without relying on third-party institutions, the decentralized structure makes the entire process more efficient and relatively low-cost, and can even save the cumbersome procedures in traditional payments. In theory, Web3 payments can indeed make cross-border capital flows smoother. However, in actual operations, this type of peer-to-peer payment model has caused a series of problems, such as transparency of capital flows, cross-border management of data assets, and foreign exchange control, and sovereign states’ crackdowns on virtual currencies and restrictive policies have followed one after another.
Because the peer-to-peer Web3 payment model has shortcomings in terms of compliance, many entrepreneurs have tried to provide various solutions to help users cope with these challenges. For example, some entrepreneurs have tried to introduce on-chain KYC (customer identity verification) to help users complete identity verification on the chain. Unlike KYC in traditional finance, Web3's KYC needs to be bound to multiple blockchain addresses and accounts, which undoubtedly increases the complexity and technical difficulty of compliance processing. In addition, some entrepreneurs have begun to explore the provision of virtual address collection services so that users' assets in multiple on-chain addresses can be managed in a unified manner, thereby enjoying more convenience in payment and settlement.
However, the act of collecting assets on the chain may further arouse regulatory attention and may even face potential legal risks. In addition, the compliance issues of cross-border payments are particularly severe for start-ups - not only must they comply with local regulatory requirements, but they must also report compliance operations to major global regulators and even early warning mechanisms. This series of compliance processing undoubtedly increases the operational burden of start-ups, especially for those Web3 entrepreneurs with higher operating costs. Each compliance expenditure may squeeze the overall operating space.
Innovative payment model with sandwich structure: balancing user experience and compliance requirements
Faced with these challenges, many entrepreneurs have begun to try a new payment structure, the "sandwich structure", to balance the needs of user experience and compliance. The innovation of the sandwich structure is that by completely separating the compliance part of cross-border payments from C-end users and transferring it to on-chain transactions between institutions, users can enjoy the same experience as traditional Web2 payments, while the efficiency and asset security of blockchain are achieved through inter-institutional settlement.
Specifically, when a user in country A needs to pay a user in country B, the sandwich structure allows the payer in country A to receive the funds in fiat currency first. The user completes the payment locally, and all processes are the same as local payments, without the need for cross-border operations. Next, the institution in country A uses blockchain technology to complete the on-chain transfer to the payer in country B in the form of stablecoins or recognized virtual currencies. The institution in country B converts the funds into fiat currency locally and completes the payment to the user in country B.
In this model, users do not need to understand the cross-border payment process behind it, and the payment efficiency is improved through on-chain settlement between institutions, avoiding the complex process of traditional cross-border payments and retaining the high efficiency advantages of Web3 payments. This model not only provides users with a seamless payment experience, but also greatly reduces the compliance burden of cross-border payments, while ensuring the security and efficiency of capital flow.
In the sandwich structure, institutions can manage transactions through on-chain compliance measures, such as whitelist management, compliance reporting and other measures, to ensure efficient cross-border payments under the premise of compliance. At the same time, the use of stablecoins can not only realize the flow of funds between the two countries, but also reduce the high costs of traditional cross-border payments, making this model have both the stability of traditional payment experience and the low-cost advantages brought by Web3 decentralization.
This undoubtedly brings a new entrepreneurial model to cross-border payments, allowing the traditional Web2 payment experience to be organically combined with the efficiency and asset security of Web3. For the development of Web3 payments, such innovation also represents a future trend in the industry, that is, the integration of convenience and compliance, which will surely drive the entire cross-border payment industry towards a more open and efficient direction.
Balancing business innovation and compliance: Learning and challenges for Web3 lawyers
As a business services lawyer focusing on Web3, through communication with many clients, Lawyer Honglin can deeply understand the compliance challenges and innovation needs faced by entrepreneurs in the Web3 era when exploring new businesses and new scenarios.
The compliance exploration of Web3 is not a one-dimensional process, but a process of continuous adjustment, optimization, and innovation. That is why, as a Web3 business lawyer, the sense of accomplishment and fun brought by this exploration is unique. Conceiving and implementing solutions with clients is not only a learning and challenge to explore the boundaries of compliance in business innovation, but also the source of our sense of accomplishment.
We look forward to working with more entrepreneurs who combine Web2 and Web3 to build a more stable foundation for the future of the Web3 industry, so that Web3 business scenarios can truly move towards compliance and innovation. If you have any communication or discussion needs on the new project, please contact Honglin Lawyer.
This article is the opinion of the PANews columnist, does not represent the position of PANews, and does not bear any legal responsibility. The article and opinions do not constitute investment advice.
