Payments remain the big unsolved use of the Internet. When we buy something online, we generally use a traditional payment method, e.g. a credit card that is not “native” to the experience. Your ability to trade with a dealer is verified by a third party (like a bank), which increases costs and adds a lot of hassle for buyers and sellers.

Despite the enormous growth of online commerce in the last three decades, most transactions take place outside the browser. Marc Andreessen, who created Netscape, has referred to this as the Internet’s “original sin.” “You’d think it was the most obvious thing to do to build the ability to spend money into the browser, but you may have noticed that didn’t happen,” he said in 2019. “I think original sin was , that we couldn’t actually build the economy, that is, money, at the core of the Internet.”

This matters because the costs are enormous and borne by all of us. Economists have calculated the total cost of retail payments in the US at as much as 2% of GDP, which is almost as much as the US defense budget. Merchants often cite the cost of processing credit cards as some of their highest operating expenses, which is why many will ask you to pay extra fees to use a card in a store or set a minimum amount to spend. For all its ingenuity, the US has some of the highest social costs of payments in the developed world, numerous studies show.

We tend to forget that bitcoin was first proposed by Satoshi Nakamoto as a “peer-to-peer electronic cash system” because much crypto today is not focused on this use case. But maybe the next iteration of crypto development will help solve that.

That’s certainly the hope of Tyler Spalding, the founder of Anvil, a new decentralized finance (DeFi) protocol that reconceptualizes credit, which is the foundation of all monetary systems.

How it works

Anvil is a system of Ethereum smart contracts that manage security and ensure credit. It lets individuals and businesses create letters of credit (LOCs) instead of traditional forms of money. You use it by locking ether or USDC inside the Anvil vault and receive a LOC for the specified amount. In reality, the system is very similar to a bank check being cashed into your account, except there is no paper, delays or worries about whether the money will clear.

Spalding sees Anvil as a new form of money secured in crypto. “By issuing transparent and generalizable credit, Anvil provides sustainable liquidity – essentially creating reliable money for the global financial system,” he said. “Permissionless decentralized technologies can transform how collateral is managed by making the process safer and more transparent.”

At the protocol level, there are no fees to transact with Anvil, Spalding said, and the technology is open source. It is community owned with 60% of the management token distribution to partners and users who can vote on operational issues. Spalding, who previously co-founded Flexa, a blockchain-based payments network, sees uses for Anvil in traditional loans, DeFi counterparty credits (to exchanges or liquidity providers), active bridging and payments. Three partners have indicated they want to build services using the protocol: Amdax, a digital asset trading and custody provider; Empowermint, which provides retail cash loans; and Flexa, which uses the protocol to collateralize assets against payments on its network. Because Anvil is open source, these partners use the protocol freely and build their own services.

Anvil has no investors. The protocol was started by Spalding and his collaborators over two years of development. Its systems were audited by Open Zeppelin and Trail of Bits, and Immunefi organized two bug bounty programs to find bugs to fix. Spalding feels comfortable that the system is secure in terms of its ambitious goal of separating banks from payment and traditional credit issuance processes.

“We’ve been doing this for a long time. We love this stuff,” Spalding said of his goal to bring native payments to the Internet and atone for Andreessen’s original sin. “We want to get other people to use this. It’s a use case from the real world. That’s the only thing that matters to me.”