Even though it’s the 12th biggest DeFi project measured by TLV (Total Value Locked), AMP has been flying under the radar and most people have never heard of it. This may be about to change, though.
This article will explain why the AMP token exists, how it’s used in the Flexa network, and how AMP could drive crypto adoption in the coming years.
The Problem that AMP and Flexa Solve
There are two key parts of the AMP project.
- AMP is an ERC20 token that’s used as collateral in the Flexa network
- Flexa is the payments services company that created AMP. The company's primary responsibility is getting merchants to accept crypto payments via Flexa
Flexa and AMP work together to solve the classic problem in crypto: how to buy a cup of coffee with your Bitcoin.
If you’ve ever sent BTC you know that the transaction often shows up in the receiver’s wallet within seconds, however, the transaction is not confirmed until much later. Most merchants require 30 to 60 minutes (3 to 6 confirmations) to guarantee that they don’t lose money due to a double spend or chain reorg. That long wait time is where AMP and Flexa come in.
How AMP & Flexa Work
In a single sentence: by insuring against loss the Flexa network allows a merchant to accept an instant crypto transaction without forcing the customer to wait a long time. The simplest way to think about Flexa and AMP is as insurance for transactions.
The merchant pays a fee to accept cryptocurrency payments via the Flexa network. The Flexa fee is usually about 1%, as compared to the 3% or higher fee that merchants must pay to credit card companies.
In the event that a customer pulls off a double spend or there is some other problem with the crypto payment, the Flexa network reimburses the merchant. That’s great for the merchant, but what does that have to do with the AMP token?
- Investors buy AMP and stake it
- The staked AMP tokens act as collateral against loss. If a merchant doesn’t receive the crypto they were supposed to, enough staked AMP is liquidated to cover the merchant’s losses
- The 1% transaction fees that the merchant pays are used to buy AMP on the open market and distribute it to AMP stakers
With this model you can see how AMP and Flexa work together to create a decentralized solution to crypto payments. The merchant can accept instant (zero confirmation) payments since they are insured against loss. AMP stakers receive a passive income while accepting the risk that a small portion of their tokens could be sold to reimburse a merchant. Incidentally, this is similar to how MakerDAO and the MKR token work.
The more merchants that accept crypto payments via Flexa, the higher the staking yield. What’s brilliant about this model is that the staking yield comes from real-world use and does not depend on constant token inflation. At least, that’s how it will work in the future. Currently Flexa is propping up the staking yield by distributing tokens from the treasury, however, that will end once enough merchants are using the protocol to support a generous staking yield.
Why AMP Could Succeed
There are three key reasons that AMP and the Flexa network could succeed in bringing instant crypto payments to the world:
1) Regulatory Approval
Unlike Ripple XRP, which is currently facing a massive lawsuit from the SEC, the Flexa payments company has gained regulatory approval. Flexa is registered in Delaware as a corporation (an extremely common practice) but their headquarters are in New York. In terms of financial regulations, NY is the toughest state in the union. By working in New York Flexa has deliberately set itself up to conform to a very strict regulatory regime.
- AMP is New York State Department of Financial Services compliant token
- AMP is custodied by Gemini and Coinbase, both of which are NYDFS approved custodians
- Flexa is licensed via the Nationwide Multistate Licensing System with the ID 1840599
- Flexa is registered as a money transmitter in Connecticut, Georgia, Iowa, Kansas, Maine, Maryland, Michigan, New Hampshire, Oregon and Washington. Money transmitter applications for other states are still pending
2) Staking Drives Flexa Adoption
AMP’s staking yield (currently 3.9%) creates an incentive for investors to buy and hold the token. The more AMP that gets staked, the more payments that Flexa can process. Since AMP’s staking yield is sustainably generated, users don’t have to worry that the value of their tokens will be diluted over time.
3) Merchants Want to Use AMP
High credit card transaction fees cut into a merchant’s bottom line in a big way. Wal-Mart, for example, pays about $5 billion a year in credit card processing fees. Most credit card companies charge a 3% fee for transactions, although the fee can be even higher in some cases. Switching to Flexa, and accepting crypto instead of a credit card, can save a merchant 66% or more on their payment processing fees!
That’s an awful lot of money saved and it means that the Flexa network doesn’t have to force their solution on anyone, there is organic demand. Furthermore, merchants can easily integrate Flexa into their POS (Point of Sale) terminals, in most cases they don’t have to buy any additional hardware.
Flexa Adoption
Whether it’s a family-owned business or e-commerce giant, Flexa is always looking to partner with new merchants. The latest addition is Shopify, one of the most popular e-commerce platforms in the United States. Currently the Flexa plugin for Shopify is in beta testing, however, a full release is expected later in 2021. Once that happens all Shopify merchants will have the option to easily accept crypto payments.
Flexa is also working with Sheetz, a mid-Atlantic convenience store. With more than 500 locations, Sheetz is one of Flexa’s largest partners to date. Sheetz is even planning on integrating Flexa at its fuel pumps so that customers can pay for gasoline with crypto. A cool vision of the near future!
Across the United States Flexa is integrated with more than 40,000 merchants and that number is growing fast.
A World of Crypto Payments
By leveraging its decentralized network of AMP stakers, Flexa gives merchants a way to accept instant crypto payments. Flexa can be easily added to most existing point-of-sale terminals, no special hardware required!
While Bitcoin’s Lightning Network and Ethereum’s Arbitrum and Polygon networks are great solutions to the problem of fast crypto payments, Flexa works right now and it doesn’t require any additional blockchain development.
A rising tide lifts all boats, and the better that Flexa and AMP do, the more people will have a chance to buy that elusive cup of coffee with their Bitcoin.
If you’d like to read more, Cryptomonks has an excellent article that digs even deeper into the hows and whys of AMP and Flexa. Also, Exodus gives wallet users the chance to store AMP in their Exodus Crypto Wallet.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.
