Valued at $3.4 billion, understanding PayPal's web 3 version MoonPay

Original Title: "With a Valuation of $3.4 Billion, Is MoonPay the PayPal for Web3?"
Author: Cheng Tianyi, Overseas Unicorn

MoonPay is currently the most well-known and largest fiat on/off ramp brand in the Crypto/NFT world. MoonPay is commonly referred to as the PayPal for Crypto, but its cool and youthful brand image resembles Stripe more, and its strategic role for customers is more akin to Bolt, also serving as a private bank for some celebrities in Web3. As of the end of November 2021, it had processed $2 billion in transactions (35 times that of 2020), verified over 7 million users, and connected with over 250 partners (a fivefold increase from 2020, including exchanges like Bitcoin.com, wallets like Phantom, and applications like OpenSea). Since entering the market in 2019, MoonPay has remained profitable, with revenue exceeding $150 million in 2022.

Currently, MoonPay is valued at approximately $3.5 billion. In November 2021, Tiger Global and Coatue led a $555 million investment at a $3.4 billion valuation. In April of this year, MoonPay announced an $87 million follow-on funding round led by over 60 celebrities, including Justin Bieber and Snoop Dogg. MoonPay will not issue a token, with the ultimate goal of an IPO.

For a considerable time, we were not very confident in MoonPay, primarily due to its high pricing and cumbersome KYC processes—using a credit card to buy coins incurs a significant premium compared to over-the-counter trading or bank transfers on exchanges (tokens like ETH can be as high as 8%), and the initial KYC can take tens of minutes. This has led to a lot of complaints on social media. Additionally, MoonPay's core payment stack includes various embedded financial providers, and larger exchanges may have the capability to build their own, making the entry barrier for competitors not too high.

However, MoonPay's rapid development momentum (based on its market potential and the speed at which it announces new customers on Twitter, we currently lack the latest data from MoonPay) has recently led us to reconsider it as a "market leader in a Matthew Effect market":

If the market leader's data is growing rapidly and there are many user complaints, it indicates extremely strong demand. At this point, it is crucial to determine whether this market exhibits a Matthew Effect, and whether the leader can benefit from user growth, brand trust, and investor capital aggregation, among other factors. (Indeed, we believe the fiat on/off ramp market has a Matthew Effect, primarily due to the #4 thesis below.)

Whether the fiat on/off ramp is a market with a Matthew Effect and how MoonPay spends the cash it raises could constitute an open discussion. Through this memo, we hope to discuss: despite the issues with pricing, KYC, and stack barriers, why MoonPay is still worth paying attention to.

1: Thesis

Overall, we remain optimistic about the business development potential of this company for the following reasons:

Market Perspective:

• Fiat will flow into the cryptocurrency market in bulk over the next 10 years, and MoonPay may become a 3% tax in this process. Currently, the global circulating market value of the entire cryptocurrency market is only around $2 trillion, which is two orders of magnitude lower than the nearly $100 trillion stock market. More fiat will flow in to drive the overall market value of cryptocurrencies up, and MoonPay will be both a cause and effect of this trend.
• Card-based payments, represented by credit cards, will remain the mainstream payment method in Europe and the U.S. in the short term, and MoonPay is the infrastructure connecting these cards with digital assets. There are nearly 4 billion Visa cards globally, with around 1.2 billion credit cards. In the U.S. market alone, there was a record 196 million credit card holders by the end of 2021, with a historic high of 20 million cards issued in Q3. Although credit card fees are relatively high, users do not have to wait 1-3 days for settlement like with ACH bank transfers.

MoonPay's Competitive Edge:

• MoonPay is a strategic enterprise service product for Web3 applications. A large number of Web3 users (or "non-speculative users") may enter the cryptocurrency world through specific application scenarios, with their essential demand being to purchase a certain NFT or service, rather than buying ETH. MoonPay acts as the shopping cart checkout button for e-commerce websites, saving users the hassle of downloading exchanges, buying coins, and transferring coins to Metamask, thus recovering a significant amount of traffic for merchants. Additionally, MoonPay is available in over 160 countries, reducing the complexity for customers to connect with multiple suppliers.
• Thanks to strong consumer perception and the cumbersome nature of KYC, MoonPay can enjoy the competitive advantages of being the market leader. From providing services for OpenSea to helping celebrities buy BAYC, MoonPay has deeply tied itself to NFTs and BAYC, creating a brand akin to a trendy label, almost synonymous with fiat on-ramps. At the same time, the KYC for buying coins with credit cards includes billing address, credit card information, residence information, passport uploads, and reviews—this process can take from several minutes to an hour. However, once completed, the user's information (linked to their email address) can be used across various clients of MoonPay without needing to repeat KYC.
• With acquiring channels in Europe and compliance licenses globally, MoonPay can continuously seek second and third growth curves. Actions speak louder than words; MoonPay is the only fiat on-ramp player that has seized the NFT explosion and is heavily investing in the NFT ecosystem. From a compliance perspective, cryptocurrency is a quasi-cash asset, and NFTs are currently defined as unique goods. Under this framework, MoonPay can leverage compliance and channel advantages to continuously optimize payment success rates and quickly adapt to new Web3 assets.

Team Perspective:

• MoonPay's team is highly crypto-native and NFT-native, active in the community and possesses market influence. MoonPay's CEO Ivan Soto-Wright is one of the most important KOLs in the BAYC and NFT circles, frequently appearing on Twitter to respond to user complaints. His Chief Growth Officer Zeeshan Feroz is the former CEO of Coinbase UK, leading Coinbase's business across the UK and European markets.

2: What is MoonPay?

Product

MoonPay started with fiat on/off ramps via credit cards and began shifting some of its business focus to the NFT market since last year's NFT summer, rapidly expanding its early single business into a matrix of four products:

1. On- & Off-Ramp

The current digital currency on-ramp market is divided into exchange counters (ACH bank transfers, debit cards, etc.), OTC, and credit card on-ramps. Credit card on-ramps are MoonPay's core business, providing customers with various integration methods such as Widgets and APIs, allowing their users to seamlessly buy and sell cryptocurrencies. Some specific product metrics include:

• Supports over 160 countries and regions (excluding New York State in the U.S.), over 80 cryptocurrencies, and over 30 fiat currencies.
• Over 250 partners, including exchanges like Bitcoin.com, Binance, OKEX, wallets like Metamask, Phantom, Slope, Argent, SafeMoon, and decentralized applications like OpenSea, OneOf.
• Payment methods support credit and debit cards (Visa & MasterCard), mobile payments (Apple Pay & Google Pay & Samsung Pay), and account-to-account payments (ACH transfers & wire transfers & open banking, etc.).
• Obtains liquidity from Coinbase, Binance, Bittrex, Bitstamp, Okex, Kucoin, and Bequant.
• Integrates KYC, AML, and anti-fraud capabilities, covering risks such as fraud and chargebacks.

Why do consumers use MoonPay?

• Saves time: Using MoonPay allows users to purchase without leaving the current application, directly adding cryptocurrency to their wallet; without MoonPay, they would need to download an exchange, register and complete KYC, buy coins, and then transfer coins to a decentralized wallet.
• Supports credit cards: Many users in Europe and the U.S. do not have debit cards or do not use their bank accounts for payments; they are more accustomed to using credit cards for transactions, while credit cards do not naturally support OTC.
• Avoids multiple KYC: Once the initial KYC is completed (for example, by adding funds on OpenSea), users do not need to complete KYC again when buying coins elsewhere (like Metamask or Phantom), while switching to other on-ramp channels would require repeating KYC.

Why do clients want to integrate MoonPay?

• Increases conversion rates: Without using MoonPay, decentralized applications like OpenSea risk losing users at every step; at the same time, MoonPay brings its own traffic—7 million cross-application KYC users, reducing the drop-off rate during the buying process.
• Saves time and effort: Directly integrating a Widget or a few lines of API is sufficient to get started, while MoonPay provides payment and acquiring channels, collaborating with law firms in various regions to ensure compliance with KYC & AML requirements, alleviating concerns about compliance and fund security.
• Generates additional revenue: MoonPay's fees include a 4.5% (card) / 1% (bank transfer) transaction fee and gas fees, and clients can charge an additional affiliate fee based on their needs and compliance levels.

Is this a business with barriers?

• From the perspective of the core payment stack—no, as there are established technology providers for KYC, payments, and anti-fraud (as detailed in "What can MoonPay become"). However, it is worth noting that early Stripe was similar; it did not handle payments itself but directly integrated with Wells Fargo and First Data.
• From a compliance perspective, the licenses MoonPay has obtained will be its advantage over newcomers. Obtaining an MSB license in 47 states in the U.S. takes two years and millions of dollars in legal fees, but this does not pose a barrier for major players like Binance and FTX.

• From an operational perspective, the data accumulated by MoonPay as a market leader and the number of acquiring partners it connects with can help continuously optimize payment success rates. As a UK company, MoonPay can build close relationships with European acquiring channels that are more lenient towards crypto (like Checkout.com). Additionally, as MoonPay's transaction volume increases, it can negotiate lower rates with payment processors and other acquirers.

According to the founder's own statement:

Moonpay improves transaction success rates by collaborating with different acquiring institutions. Cryptocurrency falls under quasi-cash in merchant category codes. Different acquiring institutions and acquiring banks have varying attitudes and handling methods towards quasi-cash, and Moonpay attempts to direct each specific transaction to the acquiring institution most likely to accept it—using card BINs to determine whether the issuing bank is crypto-friendly before deciding which acquiring institution to use.

Some issuing banks are unwilling to accept payments related to quasi-cash; for example, in the U.S., some credit cards cannot be used to purchase cryptocurrencies, and banks will reject transactions upon seeing merchant category codes related to cryptocurrencies, directly refusing certain acquiring banks. Therefore, Moonpay needs to collaborate with many acquirers to improve transaction success rates.

Transaction success rates also depend on geographical location. Moonpay, starting as a European company, collaborates with European acquiring institutions. These acquirers work well with crypto merchants, while acceptance in the U.S. is lower. Whether acquirers are willing to cooperate also depends on the transaction volume of companies like MoonPay; the larger the scale, the easier it is to cooperate.

• From the user's perspective, they are reluctant to undergo multiple KYC processes.

2. Moonpay Concierge

In this business, which started in November 2021, MoonPay acts like an NFT market maker, initially purchasing blue-chip NFTs like BAYC and CryptoPunk using the wallet addresses of MoonPay HQ or its CEO (or in other words, MoonPay is actually one of the behind-the-scenes drivers for them becoming blue-chip), and then selling them to celebrities like Justin Bieber, Jimmy Fallon, and Madonna.

There seems to be some collaboration between Yuga Labs and MoonPay, with the Concierge service continuously promoting BAYC and helping MoonPay establish a strong consumer perception. At the same time, some of the cash raised by MoonPay or a portion of the company's revenue has been invested in purchasing NFTs, and the MoonPay HQ account still holds many high-value NFTs like BAYC, World of Women, Otherland, and Moonbirds:

For celebrities, MoonPay's role is somewhat like a private bank serving their Web3 needs, acting as their "white glove," helping them purchase and match BAYC, safeguarding their NFTs and crypto, and transferring these assets to their decentralized wallets when desired. All of this can be invoiced.

Some people believe that MoonPay's celebrity marketing behavior with Yuga Labs violates the spirit of Web3 and constitutes market manipulation. From an investor's perspective, we see this as a very clever business; these large transactions are significant for MoonPay and have successfully educated high-net-worth clients, transforming itself into a consumer brand closely associated with NFTs and celebrities.

3. NFT Checkout

Although MoonPay integrated with OpenSea in 2021, the Add Fund solution it provided for NFTs at that time required users to recharge their decentralized wallets with purchased cryptocurrency before they could buy NFTs themselves.

In January 2022, they announced an upgrade to their NFT solution, launching MoonPay NFT Checkout, simplifying the user experience to directly purchase NFTs using payment methods like credit cards.

This productization resembles NFT market maker behavior:

• MoonPay is responsible for converting users' fiat into cryptocurrency, purchasing NFTs, and then sending the NFTs to the user's wallet.
• In terms of settlement, sellers, project parties, and platforms will receive USDC settlement after T+1 days.
• Similar to defining cryptocurrency as quasi-cash, MoonPay defines NFTs as digital goods to optimize payment success rates.

MoonPay claims that this smoother NFT Checkout can increase conversion rates by three times compared to the Add Fund model. However, despite this solution being launched for four months and signing major clients like OpenSea and Sorare, there are still very few items on these platforms that choose to support NFT Checkout.

For this solution to achieve widespread adoption, MoonPay needs to collaborate with more primary market artists or creators. Their latest move in April was to partner with Universe NFT to offer this solution on its website.

For MoonPay, NFT Checkout is an interesting innovative business, charging a fee of 3.5% or $3.99 (whichever is higher) per transaction. We expect its current contribution to revenue to be limited and hope to have the latest data to observe the progress of this business.

In terms of benchmarks, the NFT trading platform Nifty Gateway was one of the earliest adopters of this payment solution (long before MoonPay launched this product, allowing customers to pay directly with fiat, even if paying with ETH required pre-funding their Nifty Gateway account, charging a 15% fee per transaction), reaching nearly $100 million in monthly trading volume in 2021. Messari predicts its reasonable valuation reached $1.2 billion in March 2021.

4. HyperMint

This is the latest project announced by MoonPay in April 2022, incubated/funded/supported alongside Manifold, which is invested by a16z, providing services related to minting NFTs. Simply put, it is Shopify for NFTs. MoonPay refers to this business as AWS for NFTs, helping creators reduce the time to issue NFTs from months to days.

The strategic significance of HyperMint is somewhat similar to Stripe Atlas (which helps quickly establish Delaware entities, a service launched by Stripe in 2016), as it can help MoonPay increase its long-tail customer base and improve transaction volume concentration issues. From another perspective, MoonPay seems to be reversing Shopify's path—first Shopify Pay, then e-commerce SaaS.

Currently, HyperMint's early customer base consists of high-end fashion brands and record companies.

This is a track widely recognized as promising, but it may not have a significant impact in the short term. Compared to other startups, MoonPay clearly has advantages in marketing resources and customer relationships, potentially squeezing the space for other Shopify for NFT players to collaborate with trend-related major clients.

Market Opportunity

We believe MoonPay is positioned at the intersection of the Crypto and NFT markets:

• Cryptocurrency: Currently, the global circulating market value of the entire cryptocurrency market is only around $2 trillion, which is two orders of magnitude lower than the nearly $100 trillion stock market. Whether for speculation, inflation hedging, or to use decentralized applications, fiat will continuously flow into the cryptocurrency market, and the demand for small to medium-sized on/off ramps will remain strong.
• NFT: Considering the aggregation of real-world assets such as luxury goods (LVMH), artworks (Etsy), collectibles (eBay), and game items (Roblox), this represents an opportunity with an annual revenue scale of $700 billion, and MoonPay (and the celebrities behind it) is an important driving force in pushing the NFT ecosystem mainstream and achieving this goal.

Clients

We have previously introduced three types of clients: exchanges, wallets, and applications.

As market and funding attention shifts, MoonPay's top clients seem to naturally migrate—its main transaction volume has always been contributed by the top five clients, but the specific composition of these clients has been changing over the past few quarters. We expect that MoonPay's future transaction volume and revenue will still differentiate between top major clients and a considerable long-tail of clients, but the top clients will dynamically change with the evolution of core Web3 themes.

Additionally, MoonPay's ability to acquire top clients has been fully validated, with almost all top wallets across various chains integrating MoonPay. The most important wallet on ETH, Metamask, also announced its integration with MoonPay in April 2022, which is now live.

Competition

MoonPay faces competition from four types of opponents:

• The ecological layout of exchanges, which is more indirect competition, as exchanges aim to better serve their customers rather than socializing these services to seize MoonPay's market space. Competitors include Binance's incubated on-ramp product Bifinity, FTX's self-built on-ramp product, and Coinbase's collaboration with MasterCard for NFT Checkout.
• Traditional acquiring companies entering the cryptocurrency business, such as Stripe and Checkout.com, can indirectly serve long-tail clients through services to MoonPay, so the competition for clients is concentrated among top major clients. Stripe has already secured FTX US, but this was not within MoonPay's range of clients.
• More direct on/off ramp products, including Wyre, Simplex, Transak, Ramp.network, etc. Based on client interviews, the only one comparable to MoonPay is Wyre, which had an overall volume about half of MoonPay's before the NFT explosion; with the explosion of NFTs and OpenSea, this gap should continue to widen in the second half of 2021 (Bolt acquired Wyre at a $1.5 billion valuation, making MoonPay's $3.5 billion valuation seem reasonable). Moreover, Wyre's interest is more in DeFi, while MoonPay is currently focusing on NFTs.
• NFT market checkouts and "Shopify" products, including Crossmint and Manifold. MoonPay's target clients are more inclined towards Web2 migrants, while Crossmint targets a more native audience. Overall, this is a temporarily unclear battlefield, with no one able to predict whether NFTs will still operate the same way in a year.

3: What Can MoonPay Become?

The biggest criticism of MoonPay is that its core payment stack has no barriers; every link in this stack has very mature suppliers:

• KYC and identity verification: MoonPay uses multiple different suppliers in different regions, with Sumsub being one typical example.
• Payment rails: Card networks, ACH, and open banking all have established infrastructure.
• Acquiring: MoonPay collaborates with acquiring institutions like checkout.com, World Pay, and Pay Safe, and this cooperation is not exclusive.
• Digital asset liquidity: MoonPay once collaborated with Zero Hash in the U.S., which, like Paxos, provides Crypto Asset-as-a-Service, allowing clients to provide related services without holding or trading any digital assets.
• Anti-fraud: MoonPay uses Sardine, founded by former members of the risk control team from Revolut and Coinbase, which is almost the best crypto payment anti-fraud service on the market.

In this context, I actually appreciate the strategy MoonPay has taken in the past—not pursuing deep vertical integration of the stack but rather pursuing the breadth of services, quickly expanding from Europe to the U.S. and globally. Beyond the existing on/off ramp, MoonPay's brand perception, NFT ecosystem influence, and cash provide opportunities for it to explore second and third growth curves:

• Market maker for exchanges and NFT markets.
• Web3 buyers for high-net-worth individuals.
• Vertical integration services for NFT projects, from website building, smart contract creation to fiat sales.
• ……

Overall, MoonPay needs/is doing two things:

• Maintain the current momentum, signing as many clients as possible to avoid missing the next wave of capital inflow.
• Race against time, finding new growth curves among clients in the on-ramp business before applications like OpenSea attempt to build their own.

4: Team

The founding team of MoonPay is a concern for us; they have entrepreneurial exit experience but do not fit the profile of top-tier FinTech founders:

• Co-founder & CEO Ivan Soto-Wright: A serial entrepreneur in the FinTech field, before founding MoonPay, he established Saveable, which included the mobile cryptocurrency exchange APOLLO and the automated savings product OINKY, acquired by AI financial assistant Plum in 2018.
• Co-founder & CTO Victor Faramond: Previously worked at Apple and the French SaaS startup Skello.
• Chief Growth Officer Zeeshan Feroz: Former CEO of Coinbase UK, leading Coinbase's business across the UK and European markets.

MoonPay currently has 237 employees on LinkedIn, with the actual team size around 300, which has multiplied several times compared to 92 employees in mid-2021. This team supports fully remote work, distributed globally, to help MoonPay provide 24/7 support services for its clients in over 160 countries and regions.

Feedback from employees on Twitter and Glassdoor about MoonPay has been generally positive. A small portion of criticism is that this startup has not yet formed a particularly strict decision-making process, while also demanding high efficiency and results from work.

Most of the core management team has worked for a while at the London-based venture capital and incubation firm HODL.vc. They have also recruited some very good VP-level managers and advisors, such as regulatory and anti-money laundering advisor James Freis, who was the director of the U.S. Financial Crimes Enforcement Network (FinCEN), and product and growth VP Joseph-Danil Millwood, who previously managed growth teams at Uber, Coinbase, and Curve.

5: Business Model

MoonPay charges a certain percentage of fees for various payments:

At the same time, based on client interviews and our logical deductions, MoonPay can also earn a certain amount of slippage rebates from liquidity providers of Coinbase and Kucoin. (The following image shows the difference between MoonPay's spot prices and the Binance OTC market).

6: Financials & Returns

From a revenue perspective, in Q2 2021, MoonPay had over $600 million in transaction volume in a single quarter, with a Gross Take Rate exceeding 8% and a Net Take Rate close to 4%. This Take Rate is quite exaggerated, almost not on the same scale as Stripe (with a 2.95% Gross Take Rate and under 0.5% Net Take Rate) and is closer to Affirm and Klarna (with a 5.99% Gross Take Rate) when competition was less intense.

From a user perspective, MoonPay is indeed used more for small to medium transactions, with an average transaction amount of about $330, making the Concierge business an effective strategic supplement.

Affirm is a comparable valuation object—MoonPay's current 8% take rate is expected to drop to around 6% in the future, while Affirm's valuation, which has experienced a pullback in the secondary market, may be more meaningful than first-market companies like Klarna. Affirm currently has a market value of $6.6 billion, with Q2 2022 transaction volume of $4.46 billion, $360 million in revenue, and $180 million in gross profit. Meanwhile, it has 11 million active users (adding 3 million), with each active user making 2.5 transactions per quarter.

If we expect MoonPay, valued at $3.5 billion, to contribute a 10x return (if the market remains cold), it would need to achieve a revenue scale 3-4 times that of Affirm, meaning around $1.5 billion in annual revenue (30 times its current revenue), translating to nearly $80 billion in annual transaction volume.

A more feasible breakdown for MoonPay is to increase the average transaction amount threefold to $900, and to increase the number of users tenfold, resulting in around 6 to 10 million active trading users while maintaining the current transaction frequency. We have some confidence in the user count, but the transaction amount and frequency seem to be overly ambitious targets, especially in the foreseeable bear market over the next 1-2 years.

7: Conclusion

After research and discussion, our internal conclusion is: if we still believe that applications under the Web3 concept will drive the development of fiat small to medium on/off ramps and NFTs, then MoonPay is still one of the companies worth paying long-term attention to. However, its current $3.5 billion price has overdrawn too many business expectations, especially compared to secondary market FinTech companies. From a silver lining perspective, its growth in 2021 was over 30 times, and the next NFT Summer-level opportunity could potentially bring another 10 times growth.

In addition to MoonPay, its anti-fraud supplier Sardine is also worth noting, as it provides one-stop anti-fraud services and risk-free ACH instant settlement. In the entire down cycle of the Crypto market, a FinTech company capable of serving different industries while pricing based on software rather than transaction volume may be a more prudent choice.

8: Appendix

Key takeaways from MoonPay client interviews:

• Compared to competitors, MoonPay offers the best user experience, the smoothest KYC, and a high transaction success rate, resulting in strong user retention.
• Most companies have a good experience collaborating with MoonPay, with smooth communication and customer response, significantly better than Wyre and Simplex. However, as transaction volumes surged, MoonPay's demand response was not as timely as before, and the information shared with users was not sufficient or transparent enough, leading to some negative feedback from partners.
• MoonPay faces the impact of exchanges building their own on-ramp services, with the core attack point being fees.
• The future value of on-ramp service providers may also decrease significantly, with core value lying in legal licenses and anti-fraud engines.