This article is reprinted with permission from Mankun Blockchain Legal Services, author: Huang Wenjing, copyright belongs to the original author.

With the continuous evolution of blockchain technology and the rapid development of the cryptocurrency market, market participants have been seeking to attract more capital inflow into the cryptocurrency market. Additionally, users, apart from using traditional centralized exchanges, also hope to complete the conversion from fiat currency to cryptocurrency directly on-chain. However, existing purchasing paths usually involve off-chain payments, cumbersome identity verification, and complex cross-chain operations, which still have certain limitations in terms of user experience, transaction efficiency, and compliance risks. To address this pain point, Chainlink, MasterCard, ZeroHash, Swapper Finance, Shift4 Payments, XSwap, and Uniswap have collaborated to build a closed-loop solution from fiat payment to on-chain asset delivery, aiming to create a safer, more transparent, and convenient on-chain native purchasing channel.

In this new on-chain purchasing mechanism, each participant has clear responsibilities, undertaking different but highly complementary roles, collectively constructing a technical and compliance closed loop from fiat payment to on-chain asset delivery, ensuring the efficiency, security, and compliance of the conversion process from fiat to cryptocurrency:

1. MasterCard: As a global leading payment network provider, MasterCard provides a fiat payment gateway that supports credit and debit card payments. In addition to acquiring fiat currency, its extensive user base and mature payment system allow users of traditional financial channels to participate directly in the digital asset market through familiar scenarios.

2. Shift4 Payments: As a global leading payment processor, Shift4 is primarily responsible for providing card payment processing for users in this collaboration. Through its mature payment network, Shift4 supports various fiat currencies (such as USD, EUR, etc.) for card payments and ensures that the payment process complies with regulatory requirements, providing users with a stable and compliant entry point.

3. ZeroHash: As a regulated digital asset clearing institution, ZeroHash is responsible for the conversion and settlement of fiat to cryptocurrency. It converts the fiat funds received from Shift4 into equivalent cryptocurrencies and executes necessary regulatory compliance measures, such as KYC (Know Your Customer) and AML (Anti-Money Laundering) checks, ensuring compliance in the asset conversion process.

4. Chainlink: As a decentralized oracle network, Chainlink provides real-time exchange rate data between fiat and cryptocurrency. By aggregating multiple reliable price sources, Chainlink ensures price transparency and data accuracy during the conversion process, avoiding malicious manipulation or price distortion.

5. Swapper Finance: As a cross-chain liquidity protocol, Swapper Finance is responsible for bridging the cryptocurrencies provided by ZeroHash across different blockchains. For example, if a user needs assets from non-Ethereum chains like Bitcoin or Solana, Swapper Finance can efficiently transfer and map the assets through its cross-chain technology.

6. XSwap: XSwap is a decentralized trading platform that provides liquidity provision and trade matching functions. In this collaboration, XSwap offers a trading market for newly introduced cryptocurrencies, allowing users to immediately exchange, provide liquidity, or participate in other DeFi activities.

7. Uniswap: As a top-tier decentralized trading platform, Uniswap is responsible for ensuring the final asset liquidity. Through its deep liquidity pools, Uniswap ensures that users' cryptocurrencies can be traded seamlessly on a global scale, providing a reliable trading market for the entire ecosystem.

From the user's perspective, the entire on-chain native purchasing process can be divided into the following steps:

Users pay fiat through Shift4 → ZeroHash executes asset conversion and on-chain injection → Chainlink provides exchange rate pricing → Swapper Finance conducts cross-chain transfer → XSwap matches initial liquidity → Uniswap completes market access and free trading → The exchanged cryptocurrency is paid to the user's wallet.

1. Fiat Payment: Users first initiate payment using a MasterCard credit or debit card through the front-end interface of the Swapper platform. This process is quite simple; users only need to enter their card number and other information to initiate the payment. MasterCard and Shift4 Payments play a role here, responsible for receiving and processing users' fiat payments, ensuring that the payment process complies with relevant laws and payment network regulations.

2. Payment Information Transmission and Processing: Once users submit their payment information, the front end of the Swapper platform transmits this information to Shift4 Payments for processing. Shift4 will perform necessary payment verification and collaborate with ZeroHash to execute customer identity verification (KYC) and other anti-money laundering compliance processes, ensuring that the transaction is compliant and legal. ZeroHash will also provide necessary support for subsequent cryptocurrency conversion and asset clearing.

3. On-Chain Exchange Rate Data: At this point, Chainlink provides critical real-time exchange rate data. As a decentralized oracle, Chainlink ensures that the conversion price is accurate and transparent by obtaining data from multiple market sources, avoiding manipulation by a single market. In this stage, users can ensure that the fiat currency they pay can be converted into cryptocurrency at a reasonable price.

4. Asset Conversion and Clearing: After payment confirmation, ZeroHash will convert the fiat currency into cryptocurrency and execute the corresponding clearing operations. ZeroHash is a regulated institution that ensures all transactions comply with legal requirements while ensuring that there are no errors in the conversion from fiat to cryptocurrency.

5. Transaction Execution and Asset Delivery: Finally, the tokens selected by the user will be exchanged through a decentralized exchange (DEX), ensuring asset liquidity. Here, decentralized exchanges like Uniswap provide the necessary liquidity pools, allowing users to quickly complete transactions and ultimately deliver the target tokens to the user's wallet.

Through this complete closed-loop process, users not only experience a convenient conversion process from fiat to cryptocurrency but also ensure the security and compliance of the transaction. The entire process is based on decentralization and smart contracts, enabling users to quickly, transparently, and cost-effectively purchase cross-chain cryptocurrency assets.

1. Payment Compliance: Shift4 and ZeroHash must comply with the payment licensing regulations of various jurisdictions, especially when processing fiat currencies like USD and EUR, and should implement payment compliance frameworks according to regional requirements, such as FinCEN, MSB registration requirements, or PSD2 compliance requirements.

2. Identity Verification and Anti-Money Laundering: Users must complete the KYC process during the payment phase, and ZeroHash can leverage its regulatory license to connect with KYC service providers and conduct AML checks. This mechanism completes verification off-chain and marks the verification results on-chain, balancing privacy protection and compliance disclosure.

3. Tax Compliance and Information Disclosure: In jurisdictions like the United States and the European Union, digital asset transactions may involve capital gains tax. ZeroHash and Swapper should cooperate to generate transaction reports for users or tax authorities to verify. Meanwhile, the exchange rate data provided by Chainlink can serve as a standard source for assessing the tax base.

4. Cross-Chain and Asset Security: When Swapper Finance conducts cross-chain asset transfers, it must implement strict auditing, signature mechanisms, and risk control models to prevent contract vulnerabilities and asset losses. Additionally, it should connect with insurance protocols or on-chain collateral mechanisms to enhance user confidence.

5. Data Transparency and User Protection: In addition to Chainlink providing data support as an oracle, XSwap, Uniswap, and others adopt on-chain public mechanisms. Chainlink and users can verify transaction records, pricing information, and asset flows through blockchain explorers, minimizing information asymmetry.

Behind this collaboration involves cross-industry cooperation among multiple industry giants, with the ultimate goal of achieving interoperability between traditional payment systems and decentralized financial ecosystems. The on-chain purchasing channel provided by Chainlink and MasterCard for users is not only a technological breakthrough but also an innovation in business models. This closed-loop system not only enhances transaction efficiency but also brings profound impacts to the entire industry.

1. Integration of Traditional Finance and Blockchain Ecosystem

This collaborative approach represents a deep integration of the traditional financial system and blockchain technology, especially at the intersection of digital payments and cryptocurrency. MasterCard's extensive user base and mature payment system enable the rapid expansion of cryptocurrency adoption among traditional users. This cross-industry collaboration provides a convenient access point for traditional financial users, allowing them to purchase digital assets through credit or debit cards without relying on traditional exchanges or wallets, giving more people the opportunity to enter the cryptocurrency market.

2. User Experience Optimization

This closed-loop process for on-chain native purchasing allows users to avoid complex cryptocurrency wallet operations or cumbersome processes of centralized exchanges during payment. By integrating with existing financial infrastructure, users can complete payments using familiar credit or debit cards, thereby enjoying the fast and low-cost asset transfer experience brought by blockchain technology.

3. Dual Approach of Technology and Compliance

In the process of cross-border payments and fiat currency conversion, ZeroHash provides users with compliant clearing and custody services through its compliance framework, ensuring that this process meets regulatory requirements and that cryptocurrency assets are not hindered by regulatory issues at the conversion level.

This is particularly important for traditional financial users, as they often have concerns about the compliance and transparency of the cryptocurrency market. ZeroHash's participation not only provides compliance assurance for this collaboration but also offers a suitable, controlled framework for regulatory agencies worldwide. This framework can help financial institutions guide more traditional users into the cryptocurrency market while complying with the laws of various countries.

4. User Privacy Protection and Data Transparency

Privacy protection and data transparency are two critical aspects of financial transactions. Although traditional financial systems have strict regulations regarding privacy protection, in cryptocurrency transactions, user data transparency and privacy rights often exist in a balanced state.

XSwap, as a representative of decentralized platforms, collaborates with decentralized exchanges like Uniswap to bring its strong market liquidity and trading depth into the on-chain purchasing process. Unlike traditional centralized exchanges, decentralized exchanges do not rely on central entities but automatically execute trades through smart contracts. This decentralized characteristic greatly enhances the transparency, security, and censorship resistance of transactions.

As a decentralized oracle platform, Chainlink avoids the manipulation risks that may arise from a single data source through its decentralized data transmission network in this collaboration, ensuring the fairness of exchange rate data and transaction data, and providing regulatory agencies with effective data tracking and auditing capabilities.

5. Cross-Chain Liquidity Innovation

The integration of XSwap and Uniswap ensures that users can instantly trade cryptocurrencies through decentralized markets after completing fiat payments. During periods of significant market price fluctuations, decentralized trading platforms can also help users obtain more competitive prices and a smoother trading experience through optimized algorithms and liquidity pools. As the decentralized finance (DeFi) ecosystem continues to mature, these platforms are constantly optimizing trading mechanisms to enhance the overall user experience and the security of funds.

6. Market Competitiveness and Industry Outlook

Currently, multiple blockchain projects and payment platforms worldwide are attempting to build similar closed-loop ecosystems, and the collaboration between Chainlink and Mastercard will provide them with strong competitive pressure. With its robust compliance assurance and innovative technical support, this model not only offers users a convenient asset purchasing channel but also lays the foundation for the mainstreaming of the entire digital currency market. As the global cryptocurrency regulatory framework continues to improve, the promotion of this model will become smoother and have broad application prospects.

The collaboration between Chainlink and Mastercard provides a new approach for fiat entry into the cryptocurrency market, creating a complete closed loop from fiat payment to on-chain asset usage for future DeFi applications. At the same time, by integrating emerging mechanisms such as decentralized identity verification (DID) and on-chain reputation systems, the user experience and trust throughout the entire process will continue to improve. This collaboration also presents significant opportunities for emerging markets, where the limitations of traditional financial systems are particularly evident in many developing and underdeveloped countries, such as high cross-border payment fees, insufficient coverage of banking services, and financial exclusion issues. By introducing decentralized financial systems, users in these regions can more easily access the cryptocurrency market and enjoy low-cost, efficient payment and asset trading services.

Related article: Strategy buys $357 million in Bitcoin (BTC) when the price drops to $112,000.

Original text: “A Closed-Loop Solution for On-Chain Native Purchasing from Fiat to Cryptocurrency—A Case Study of the Latest Collaboration Led by Chainlink and Mastercard”

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