The marketplace model for ramps has outlived its usefulness

Many popular crypto wallets, decentralized exchanges (DEXs), and DeFi platforms operate on a marketplace model where users can choose from various on- and off-ramp providers. This model has spread throughout the crypto ecosystem over the last few years and has increasingly become seen as the best way to meet user needs. 

But while I think a marketplace model has served its purpose in bringing cost down, I now believe it’s holding the industry back. 

The model

Let’s first look at how these marketplaces operate. 

Almost all marketplaces look to provide their customers with the cheapest way to buy crypto. To achieve this, ramp providers are usually ranked in order of cheapest first. This may either be presented simply as a list sorted by price, or (in some cases with a stronger nudge) by attaching a “Preferred” label. 

This structure was a crucial stepping stone for the industry over the past three years. Prices were high and competition was needed. While I’d argue that it isn’t difficult to establish the cost basis for any ramp provider (e.g. credit cards are mostly a combination of interchange fee, acquirer fee, fraud losses and one-time KYC costs), competition in a marketplace is a proven price discovery mechanism, and it worked like a charm. 

Price over quality

Unfortunately, helping customers uncover the cheapest provider for every transaction comes at cost. A tradeoff occurs in which price is prioritized at the expense of quality.

Over the last 12 months, for example, ramps have started to exploit ranking mechanisms for their benefit: