Thursday, May 4, 2023

Comparative cross-border payments: Wise vs USDC

image via Guy J. Abel and Stuart Gietel-Basten

 A popular response to my recent tweet about remittance company Wise went like this: "but JP, stablecoins are better for remittances; they're instant and cheap!" In this post I want to talk about comparative remittance costs. The problem with most of the responses to my tweet is that they incorrectly compare the cost of making a plain-vanilla stablecoin transfer to a traditional cross-border payment.

Can't do that folks! That's an apples-to-oranges comparison.

A traditional remittance, say like those offered by banks or transfer companies such as Wise, is made up of a bundle of four services. By contrast, a stablecoin transfer (I'll use USDC as my example) offers just one service. To accurately compare USDC to a remittance platform like Wise, you've got to add back the three missing services, and their associated costs.

Here are the four bundled services that Wise offers when you make a cross-border transfer:

1) verification and on-ramping: first, a sender must pass a series of Wise checks so that they can use Wise's platform. Think of this as Wise justifying your money to regulators. Next, Wise pulls your funds from your bank and onto its platform.
2) the transfer itself: once your funds have arrived at Wise, a lattice of databases moves your funds across Wise's platform towards their final destination.
3) a foreign exchange conversion: along the way, Wise converts the sender's currency to the recipient's currency.
4) off-ramping: Wise takes the funds off its platform and deposits them to the recipient's bank account.

By contrast, USDC offers just one of these services; the transfer itself (#2). In order to be verified and onramp into USDC (#1), convert from U.S. dollars to local currency (#3), and offramp back into spendable fiat (#4), both the sender of USDC and the recipient will need to use a third-party, most likely a cryptocurrency exchange. Alas, crypto exchanges extract their pound of flesh.

As an example of how to do an apples-to-apples comparison, I recently looked into the economics of a USDC remittance to see if that option made sense for me. I often sell stuff in U.S. dollars and need to repatriate my funds and convert them into Canadian dollars to pay for living expenses.

Here's what my own personal USDC calculation looks like:

Say someone in the United States owes me US$2,000 for services rendered. As payment, they offer to transfer me 2,000 USDC. I provide them with an address at my crypto exchange, BitBuy, and they send the payment. 

Next, I'll have to do a foreign exchange swap on BitBuy, trading out of USDC and into Canadian dollars. Alas, BitBuy's USDC-to-Canadian dollars market isn't very liquid, and the best rate I could get when I checked yesterday was 1.3569 (compared to the institutional rate of 1.3598). The loss from a loose bid-ask spread is called slippage, and it represents an implicit but very real C$6 fee.

On top of that I'd have to pay a 2% trading fee to BitBuy, or C$54. (If I was a high-volume trader, the fee would be much lower, but I'm not.) Next, I have to move my Canadian dollars off the exchange and into my bank account. Alas, BitBuy charges a 1.5% withdrawal fee, so that adds another C$40.

All those fees works out to C$100. That's not cheap, basically eating up 3.7% of the entire transfer. My current remittance route, which uses a U.S. dollar bank wire and a uniquely Canadian kludge called Norbert's Gambit (buying a ETF with US dollars and selling it for Canadian dollars) is significantly cheaper.

Some Canadian crypto exchanges offer better rates. With NDAX, for instance, I'd be paying around $10 on USDC-to-Canadian dollar slippage, $5.60 on trading fees, and $5 to withdraw to my bank, for a total of $20.60. That's an improvement.

However, keep in mind that what I'm describing (i.e. using BitBuy or NDAX to convert USDC to Canadian dollars) represents just the second leg of the entire remittance route. I haven't even included the fees that my U.S. sender must incur to onboard into USDC, nor have I accounted for any on-chain fees. By contrast, Wise will do both legs of this transfer for just US$14. That's tough to beat.

Your own personal estimation for whether to go with a traditional remittance or stablecoins will differ from mine, of course, depending on how cheap your local cryptocurrency exchange is (as well as that of your counterparty), and the availability and price of options like Wise or Western Union. Just make sure you include all stablecoin-related fees so that you're not mistakenly comparing apples to oranges. Stablecoins don't work for me, but they might for you.


  1. Nope.

    Go to the Wise site and try making that transfer for Naira instead. Banned, no?

    P2P Crypto via Binance isn't. Further, the remittance offers market rates rather than the govt's pretend one.

    All in all, crypto >

    I don't buy more of the swivel-eyed claims that many crypto-boosters make. But as an inflation hedge and remittance tool in some countries, it's pretty effective.

    1. I'm an idiot who should read to the end. But, yeah, stablecoin transfers are perfect for me, even with the extra costs baked in.

      Canadians should sue. Your country makes money needlessly expensive (withdrawal fees, really?!).

    2. The advantage of a Canadian crypto exchange is that it is held to the high standards of securities law, so I don't have to worry about bankruptcy, fraud, credit risk, counterparty risk, etc. The safety that Canadian exchanges offer is expensive, however, and I bear it in the form of higher fees.

      On the flip side, if you're using Binance for remittances, you're playing with a ticking time bomb. Sure, Binance users may enjoy low fees but you're paying for those low fees in the form of excess credit risk. As for P2P markets, you've got to worry about scams.

      If I was to rewrite this post, I'd definitely incorporate the credit risk of the remittance provider (in the case of USDC, both the issuer, Circle, and the exchange) as a real cost.

    3. Tell that to QuadrigaCX users

    4. Sigh, I lost a bit on that debacle. The decision to bring Canadian crypto exchanges under securities law only came *after* Quadriga, and was a direct response to it.

  2. It's amusing to see frantic bitcoin justifiers citing lacunae in bank customer services as reason for using bitcoin. Banks, which are positioned to do all these services more cheaply and with less pollution, are a moving target; because competition will force them to exercise their powers.
    This reminds me of the hype about fluidics several decades ago, which sank without a trace when Moore's law propelled silicon far out of reach. If there are high-radiation environments where it is necessary to emplace fluidic transfer-function processing (rather than just the plant-facing hydraulics), I haven't heard about them.