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Crypto Exchange AirTM Targets Troubled Markets With $7 Million Raise

Peer-to-peer cryptocurrency exchange AirTM has raised $7 million in a Series A funding round.

The Mexico-based startup, which seeks to help individuals conduct transactions and bypass traditional banking services, revealed the news Wednesday, saying it will direct the funds toward growing its reach across various markets in South America. In particular, the firm intends to target residents of nations with troubled economies, according to a press release.

Berlin-based BlueYard Capital led the round, a spokesperson told CoinDesk, though they could not disclose the remaining investors.

AirTM co-founder and CEO Ruben Galindo said in the release that the company would continue to provide digital wallets and access to cryptocurrencies for individuals in the developing world.

According to a statement provided to CoinDesk, AirTM, for example, lets freelancers get paid in dollars directly to their AirTM wallet and then withdraw money as local currency. “This is a much better solution than getting paid in devaluing currencies or via an e-wallet that is not connected to the freelancer’s local bank network,” it continued.

Citing growing “distrust in financial and government institutions in many emerging markets” AirTM said its peer-to-peer exchange is “unique” in allowing users to exchange local fiat currency for AirUSD, its U.S. dollar-denominated token.

The company announced earlier this year that it was working with zcash inventor Zooko Wilcox to support Venezuelan residents conducting transactions with zcash and U.S. dollars rather than the hyperinflated national currency, the bolivar (recently replaced by the sovereign bolivar).

The startup claims to allow Venezuelans to bypass banking services entirely, and provided services to potentially as many as 200,000 citizens at the time of the report. The company indicated that Venezuela was responsible for roughly 60,000 transactions per month as of April 2018.

“In May of 2018, Maduro’s government announced Operation Paper Hands (Manos de Papel) on national television, condemning AirTM and other platforms enabling unlicensed bolivar/dollar exchange,” Wednesday’s release noted.

South America on globe image via Shutterstock

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The Anti-Petro? Zcash Is Throwing Venezuelans a Lifeline

Zooko Wilcox received his first plea for help from someone in Venezuela a few months ago.

The founder and CEO of the Zerocoin Electric Coin Company (ZECC) had been closely following what he describes as “a humanitarian crisis of the first order” unfolding in Venezuela when he got that first message, followed by a series of others.

“They said things like ‘Do you see what is happening? We need zcash here now,'” Wilcox told CoinDesk.

As Venezuela’s monetary policy had hyperinflated the national currency, the bolivar, to near-worthlessness, citizens were looking for a way to store value in the traditionally stable, but difficult to access, U.S. dollar.

The trick was converting the bolivars to dollars while protecting their identities.

While the government has stopped short of banning the dollar, the official exchange rate discourages legal ownership, and has led many Venezuelans to buy dollars on the black market and store them under the proverbial mattress.

Which is where zcash, the privacy-focused cryptocurrency Wilcox helped create, enters the picture.

In response to the flurry of requests for help, Wilcox last month partnered with AirTM, a Mexico-based peer-to-peer exchange, to promote zcash as an optional intermediate step when converting bolivars into U.S. dollars.

While adoption of zcash among AirTM’s 168,000 Venezuelan users has so far been slow, the partnership has only just begun. According to AirTM founder and CEO Ruben Galindo Steckel:

“We’re just helping zcash get access to the people who need it most. Not necessarily the people in the States who like privacy, but the people in Venezuela who have been oppressed.”

Seeking stability

Founded in 2015, AirTM is specifically designed to let users in hyperinflated economies such as Venezuela store value in historically stable U.S. dollars.

The company gives users a variety of ways to enter and exit the dollar. For instance, they can send money from a bank or PayPal account, drop off cash at a Moneygram location or zap some zcash (or one of nine other cryptocurrencies) to AirTM. The company then stores the money as USD in an account on the customer’s behalf.

Customers can then withdraw the funds, provided AirTM can find a buyer for the original currency. In exchange for the service, the company usually takes a 20 percent cut of the cashier’s commission. Users can also convert back into the local currency at the point of payment when shopping at a participating merchant.

No underground operation, AirTM, which last month conducted $5 million in transactions worldwide, is registered as a money services business by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). As such, the startup conducts know-your-customer (KYC) reviews to comply with anti-money-laundering (AML) regulations.

By the time the partnership with ZECC began earlier this month, AirTM had already registered more than 168,000 Venezuelans living in the country and as many as 40,000 more living abroad and sending money home.

Venezuelan users now conduct about 60,000 transactions per month using AirTM, according to Josh Kliot, AirTM’s head of engagement and operations, or about 60 percent of its entire business. The remaining 40 percent of its business is scattered across 120 countries, largely including Columbia, Panama, Brazil, Mexico, Argentina, and Spain.

In a related push, AirTM also partnered with four Venezuela-based non-governmental organizations as part of the newly launched AirTM Foundation, aiming to serve a wide range of humanitarian needs with donations through zcash and other supported payment methods.

To make it easier to connect to peers around the world willing to buy the rapidly deflating bolivars with zcash, the partnership between ZECC and AirTM includes a marketing investment from both companies, promotion through their various communications channels, and the waiver of AirTM’s 20 percent cut throughout the duration of the partnership. (AirTM’s $0.30 transaction fee is still in place.)

In addition, ZECC is conducting a review of AirTM’s user experience, and providing feedback about how to make the interaction more user-friendly to non-technical users. Wilcox described the review of AirTM’s interface for exchanging bitcoin, ethereum and other cryptos as “a community contribution about how we can make cryptocurrency more accessible.”

So far, only about 500 zcash users have conducted a total 1,000 transactions in Venezuela on AirTM since the May 8 launch. But Kliot said he expects that to change based on what the partners have learned from the process.

He told CoinDesk:

“The initial 30 days are for us to gauge how best to scale our marketing efforts. We expect a substantial increase in the following 2 months.”

Age of the petro

The team-up comes as the Venezuelan government is looking for ways around various sanctions by launching its own cryptocurrency, called the petro, which supposedly raised as much as $5 billion through a sale in February.

But according to Wilcox, Venezuelan citizens do not trust the petro any more than they trust the bolivar.

“Zcash is an open source decentralized system where the supply and behavior of the network are part of an open global consensus, whereas the petro is part of a construct and under the control of the Venezuelan government,” said Wilcox.

To be fair, zcash is not what many people would consider an ideal store of value either. Like nearly all cryptocurrencies, it fluctuates wildly against the dollar.

But zcash’s privacy features made it an appealing way to move from rapidly depreciating bolivars into U.S. dollars held at AirTM.

“It’s legal for Venezuelans to hold USD,” Kliot wrote in an email. But “they may want to hide their ID,” to avoid being detected buying dollars “by an unofficial means – ie. exchanging bolivars for USD at the free-market rate vs. the government’s official (artificial) rate.”

Underscoring the direness of the situation in Venezuela, a trip to the grocery store can now cost more than the minimum wage, according to a local AirTM zcash user who spoke with CoinDesk via an encrypted messaging platform.

According to this source, a self-identified economist in his 40’s who spoke on condition of anonymity, some citizens have resorted to using cartons of eggs as a store of value.

The source sent CoinDesk a copy of a receipt from last month in which two kilograms of bananas, cookies, a half-kilogram of white cheese, 2 liters of orange juice and 2 liters of corn oil cost 1,981,000 bolivars.

That’s more than what the minimum monthly salary is supposed to be in Venezuela, but only about $10 in black market USD.

Given those high costs of living, zcash’s relatively low transaction fees make it a more appealing cryptocurrency to Venezuelans compared to bitcoin, the economist said.

“People use bitcoin for savings but not for daily purchases,” he said. “That is the opportunity for help on crypto with easy to use wallets and low fees.”

Sanctions evasion?

All this work is taking place against a complicated backdrop of regulations, sanctions and attempts by the regime of Venezuelan President Nicolas Maduro to evade them.

Earlier this month, President Donald Trump forbade anyone in the U.S. from buying or dealing with the “petro.”

But as long as zcash — or any support to Venezuela — doesn’t interact with the petro, with anyone on the U.S. Treasury Office of Foreign Assets Control’s sanction list, or with debts owed by Maduro’s government, the AirTM customer or foundation donor is safe.

That’s according to Michaela Frai, a research associate at the Foundation for Defense of Democracies in Washington, D.C., who specializes in Venezuela policy. But Frai cautioned that it’s the company’s responsibility to make sure those conditions are met.

“Any U.S. company which helps provide funds to Venezuelans, however, would still have the burden of ensuring the funding is not reaching Venezuelan officials,” she said. Further, “the anonymity of the transactions does raise compliance risks.”

According to AirTM founder Steckel, this is exactly where the company’s AML/KYC policy comes into play.

“We’re not touching or establishing a relationship with any Venezuela companies, banks, or the government,” he said. “We’re just working with the people.”

A bigger problem than U.S. regulations may be the Venezuelan government, which may not look kindly on this particular application of cryptocurrency.

When asked about the possibility of losing access to Venezuela, Steckel said:

“We are concerned, but that has been a concern for the last three years.”

AirTM exchange image via AirTM

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.