This is a cross-post from www.dashcentral.org/p/bsdev-ATMCompliance1
As we have recently completed the development of Dash-compatible ATM software, we have been working hard on the next steps to a strategy to develop a large decentralized network of Dash Terminals (ATMs) that interface cash with the Dash network. We are calling them "terminals" to make a distinction as we expect them in the future to do more than just converting cash with Dash or Bitcoin. Most importantly, we are looking to do this in a way that can be decentralized and promote inclusion of small and independent operators.
What are the main barriers for independent crypto ATM operators entering the industry?
Independent operators desiring to run digital currency ATMs currently face one main obstacle; there is a great deal of legal and compliance hurdles to overcome, and they typically must address different regulations in each of the jurisdictions in which they operate. For example, in the United States, the definition of money transmitters and the regulations with which operators must comply varies by state.
Needless to say, this regulatory burden is significant, especially for the small operators that would like to run one or two machines. Many people just shy away from dealing with the regulatory issues as is prohibitively costly for small operations. This results in only larger, more formal and centralized companies being able to run machines and offer a cash entry into the crypto economy. The cost to maintain compliance is among the largest costs of any ATM operator, and this is one of the reasons digital currency ATMs must charge high fees (which average 6.85%). High fees in turn limit usage, which leads to fewer locations, reduced access, and a loss of convenience for consumers.
We believe that a compliance program designed to share the compliance burden across operators would add tremendous value to the operators themselves and at the same time benefit consumers through the evolution of lower fees and more locations over time. We also believe the only reason why something like this does not exist already is because Dash is the only blockchain that has the ability to create this sort of public infrastructure that can benefit everyone on the network.
How can Dash help, and what are the benefits?
We propose to create a global affiliate compliance program in which operators purchase and operate their own machines, and pay a portion of their fees to participate in the program. This would be similar to an affiliate program like Uber in which the operators would own their own businesses, but pay a portion of their fees for the benefits of participating in the affiliate program.
The Dash network would fund the initial program setup. Once established, the network would benefit in several ways:
After much discussion and planning, we propose rolling out the program in phases. This will allow us to minimize upfront costs, incorporate findings from each phase of work toward planning the next, and enable us to eliminate funding if early results are poor.
We believe the value of a master compliance program would be greatest in the United States, where the potential market is large and compliance costs are the most significant for ATM operators. For this reason, we believe the United States would be the best place to start the program, as operators in the US would see the most to gain from participating.
The first phase would consist of the following:
Phase III of the program would establish additional states within the program and scale the program. It would also include marketing the services to existing operators, and onboarding them.
What are the details for Phase I?
We have been consulting with a law firm out of D.C., called Cogent Law Group, LLC regarding this potential program. We started talking to them while in San Francisco during the d10e conference and are impressed with their depth of experience in the crypto KYC / AML space. They are among a handful of firms with customers running an ATM network and have established digital gold programs. After many interactions with them since last month, we feel confident in their expertise and are confident recommending them for the work.
Cogent Law Group also hosts a startup program called the Early-to-Mid-Stage Initiative (EMS Initiative) in which they provide discounted, deferred fee, capped fee, and even free legal consulting to entities accepted into the program. We are delighted that they have accepted our application to the program, and have benefitted immensely from their advice and research up to this point, all free of charge. They also have assisted us with smaller requests free of charge, such as providing NDAs.
As part of our participation in the EMS Initiative, Cogent Law Group has agreed to conduct Phase I of the program at a discount and subject to a fee cap. This proposal would fund Phase I by providing a $10,000 retainer, which would represent the maximum fees for creating the materials already described for Phase I. Any residual funds can be deployed toward Phase II.
Included in this fee, we will also establish processes with a third-party compliance officer recommended by Cogent. A third party compliance officer is a requirement for the program. BitAML – the recommended partner – is a firm that specializes in Bitcoin compliance, Bitcoin AML, and Bitcoin ATM Regulation.
Further, volunteer operators when we get to Phase II that want to order hardware directly from Lamassu may do so. We would coordinate the ordering of the machines, which will be flashed with the Dash software stack so machines will be fully compliant with the program as shipped from the the factory floor, without the need for modification. We will also explore other hardware options when the time comes.
How long will the program take to create?
Once funded, it should take approximately 3-4 weeks to create all the legal, training, and banking packages required. We will also receive a more detailed plan for Phase II.
How much will this cost in total across all three phases?
The costs beyond Phase I are dependent on the research which will be conducted as part of the work. Because a master compliance program has never been set up before, and the exact functioning of the program will depend on feedback and guidance the states provide us on their requirements, it is impossible to know with certainty the costs of running a sub-scale Phase II pilot. Informally, we expect Phase II will cost no more than $30,000 to conduct, including the services from BitAML. Please remember even at the pilot stage the machines are an income generating service.
How much fees could this program generate?
A typical digital currency ATM volume really varies a lot and depends on the location some can do $100K/month some can do $10K/month, examples of profitability can be found here. In reality we feel that the high fees make a lot of people not use them. If we can offer more competitive fees by decentralizing operations and sharing costs they can become a better alternative to easily buy coins like Dash and Bitcoin. If we take a 1% share of transaction fees for the network depending on volume direct return to the network could be substantial and still leave space for operators to make good returns and be competitive. We will get a more concrete idea of the revenue and profit potential after Phase II is complete.
Summary:
We view this compliance program as a critical first step in researching the expansion of our ecosystem, both in terms of facilitating greater fiat access for users, and in terms of generating new income sources for the network. Additionally, by making it easier for ATM operators to address compliance issues at a lower cost, we can accelerate the deployment of Dash ATMs without the need to directly subsidize machine purchases. The investment is modest and well within the capacity of the network. It also creates a new investment option for community members looking to help the Dash network to expand. Lastly, it will allow us to deploy new ATM-based services faster than any competing networks, and to offer a consistent user experience across the machines of a distributed set of operators.
We look forward to your questions and comments.
Requested funding is as follows for the September 4th budget cycle:
Note: Any unused budget will be applied toward other business development expenses
Manually vote YES on this proposal:
dash-cli mnbudget vote-many 41c6f95adf836b2a517510d1141c00024dbc5c5db7abbb39c123e631397975f8 yes
OR from the qt console:
mnbudget vote-many 41c6f95adf836b2a517510d1141c00024dbc5c5db7abbb39c123e631397975f8 yes
Manually vote NO on this proposal:
dash-cli mnbudget vote-many 41c6f95adf836b2a517510d1141c00024dbc5c5db7abbb39c123e631397975f8 no
OR from the qt console:
mnbudget vote-many 41c6f95adf836b2a517510d1141c00024dbc5c5db7abbb39c123e631397975f8 no
As we have recently completed the development of Dash-compatible ATM software, we have been working hard on the next steps to a strategy to develop a large decentralized network of Dash Terminals (ATMs) that interface cash with the Dash network. We are calling them "terminals" to make a distinction as we expect them in the future to do more than just converting cash with Dash or Bitcoin. Most importantly, we are looking to do this in a way that can be decentralized and promote inclusion of small and independent operators.
What are the main barriers for independent crypto ATM operators entering the industry?
Independent operators desiring to run digital currency ATMs currently face one main obstacle; there is a great deal of legal and compliance hurdles to overcome, and they typically must address different regulations in each of the jurisdictions in which they operate. For example, in the United States, the definition of money transmitters and the regulations with which operators must comply varies by state.
Needless to say, this regulatory burden is significant, especially for the small operators that would like to run one or two machines. Many people just shy away from dealing with the regulatory issues as is prohibitively costly for small operations. This results in only larger, more formal and centralized companies being able to run machines and offer a cash entry into the crypto economy. The cost to maintain compliance is among the largest costs of any ATM operator, and this is one of the reasons digital currency ATMs must charge high fees (which average 6.85%). High fees in turn limit usage, which leads to fewer locations, reduced access, and a loss of convenience for consumers.
We believe that a compliance program designed to share the compliance burden across operators would add tremendous value to the operators themselves and at the same time benefit consumers through the evolution of lower fees and more locations over time. We also believe the only reason why something like this does not exist already is because Dash is the only blockchain that has the ability to create this sort of public infrastructure that can benefit everyone on the network.
How can Dash help, and what are the benefits?
We propose to create a global affiliate compliance program in which operators purchase and operate their own machines, and pay a portion of their fees to participate in the program. This would be similar to an affiliate program like Uber in which the operators would own their own businesses, but pay a portion of their fees for the benefits of participating in the affiliate program.
The Dash network would fund the initial program setup. Once established, the network would benefit in several ways:
- In order to participate, operators would be required to operate the official compliant version of ATM software, which would include support for Dash; this would encourage existing and new operators to add Dash support and allow us to capture a share of new operators entering the space
- Fees collected from ATM operators would be used to pay for the ongoing costs of maintaining the compliance program, and any profits would be returned to the network, or potentially allocated towards further investment in the program if the masternodes support it (e.g., expanding the program to new jurisdictions)
- We would become the first digital currency project to derive a revenue stream besides network fees and inflation, paving the way for the industry once again by creating a new paradigm for sustainability and relevance
- We believe this program will send a signal to potential Dash investors of higher future returns from operating a masternode, and increase the value of Dash accordingly
- Dash will have the unique position of controlling the software on the machines, meaning we will be able to deploy new Dash-specific features to the Terminal network at our discretion; this could include direct connections through to Evolution when it is deployed or rolling out additional services (e.g., partnerships for pre-paid phone top-ups, event ticket sales, etc)
After much discussion and planning, we propose rolling out the program in phases. This will allow us to minimize upfront costs, incorporate findings from each phase of work toward planning the next, and enable us to eliminate funding if early results are poor.
We believe the value of a master compliance program would be greatest in the United States, where the potential market is large and compliance costs are the most significant for ATM operators. For this reason, we believe the United States would be the best place to start the program, as operators in the US would see the most to gain from participating.
The first phase would consist of the following:
- Establish the Principal Compliance program (the compliance program of a legal entity running the service)
- Establish the Agent Compliance program (the compliance program the affiliate ATM operators would need to implement)
- Create Operator Agreement documents to establish the Agent / Principal relationship
- Banking packages which would allow operators to apply for bank accounts in an orderly fashion while meeting all bank documentation requirements
- Creation of a compliance education and training program for the agents
- Assessment of risks and potential mitigation steps
- Planning for Phase II of the program
Phase III of the program would establish additional states within the program and scale the program. It would also include marketing the services to existing operators, and onboarding them.
What are the details for Phase I?
We have been consulting with a law firm out of D.C., called Cogent Law Group, LLC regarding this potential program. We started talking to them while in San Francisco during the d10e conference and are impressed with their depth of experience in the crypto KYC / AML space. They are among a handful of firms with customers running an ATM network and have established digital gold programs. After many interactions with them since last month, we feel confident in their expertise and are confident recommending them for the work.
Cogent Law Group also hosts a startup program called the Early-to-Mid-Stage Initiative (EMS Initiative) in which they provide discounted, deferred fee, capped fee, and even free legal consulting to entities accepted into the program. We are delighted that they have accepted our application to the program, and have benefitted immensely from their advice and research up to this point, all free of charge. They also have assisted us with smaller requests free of charge, such as providing NDAs.
As part of our participation in the EMS Initiative, Cogent Law Group has agreed to conduct Phase I of the program at a discount and subject to a fee cap. This proposal would fund Phase I by providing a $10,000 retainer, which would represent the maximum fees for creating the materials already described for Phase I. Any residual funds can be deployed toward Phase II.
Included in this fee, we will also establish processes with a third-party compliance officer recommended by Cogent. A third party compliance officer is a requirement for the program. BitAML – the recommended partner – is a firm that specializes in Bitcoin compliance, Bitcoin AML, and Bitcoin ATM Regulation.
Further, volunteer operators when we get to Phase II that want to order hardware directly from Lamassu may do so. We would coordinate the ordering of the machines, which will be flashed with the Dash software stack so machines will be fully compliant with the program as shipped from the the factory floor, without the need for modification. We will also explore other hardware options when the time comes.
How long will the program take to create?
Once funded, it should take approximately 3-4 weeks to create all the legal, training, and banking packages required. We will also receive a more detailed plan for Phase II.
How much will this cost in total across all three phases?
The costs beyond Phase I are dependent on the research which will be conducted as part of the work. Because a master compliance program has never been set up before, and the exact functioning of the program will depend on feedback and guidance the states provide us on their requirements, it is impossible to know with certainty the costs of running a sub-scale Phase II pilot. Informally, we expect Phase II will cost no more than $30,000 to conduct, including the services from BitAML. Please remember even at the pilot stage the machines are an income generating service.
How much fees could this program generate?
A typical digital currency ATM volume really varies a lot and depends on the location some can do $100K/month some can do $10K/month, examples of profitability can be found here. In reality we feel that the high fees make a lot of people not use them. If we can offer more competitive fees by decentralizing operations and sharing costs they can become a better alternative to easily buy coins like Dash and Bitcoin. If we take a 1% share of transaction fees for the network depending on volume direct return to the network could be substantial and still leave space for operators to make good returns and be competitive. We will get a more concrete idea of the revenue and profit potential after Phase II is complete.
Summary:
We view this compliance program as a critical first step in researching the expansion of our ecosystem, both in terms of facilitating greater fiat access for users, and in terms of generating new income sources for the network. Additionally, by making it easier for ATM operators to address compliance issues at a lower cost, we can accelerate the deployment of Dash ATMs without the need to directly subsidize machine purchases. The investment is modest and well within the capacity of the network. It also creates a new investment option for community members looking to help the Dash network to expand. Lastly, it will allow us to deploy new ATM-based services faster than any competing networks, and to offer a consistent user experience across the machines of a distributed set of operators.
We look forward to your questions and comments.
Requested funding is as follows for the September 4th budget cycle:
- 743.99 Dash ($10,000 USD @ $13.441 per Dash based on August 20th average rate at https://bitinfocharts.com/comparison/price-dash.html)
- 5.00 Dash reimbursement for the proposal cost
Note: Any unused budget will be applied toward other business development expenses
Manually vote YES on this proposal:
dash-cli mnbudget vote-many 41c6f95adf836b2a517510d1141c00024dbc5c5db7abbb39c123e631397975f8 yes
OR from the qt console:
mnbudget vote-many 41c6f95adf836b2a517510d1141c00024dbc5c5db7abbb39c123e631397975f8 yes
Manually vote NO on this proposal:
dash-cli mnbudget vote-many 41c6f95adf836b2a517510d1141c00024dbc5c5db7abbb39c123e631397975f8 no
OR from the qt console:
mnbudget vote-many 41c6f95adf836b2a517510d1141c00024dbc5c5db7abbb39c123e631397975f8 no
