Inside the Quest at Colossus to Replace Visa and Mastercard With KYC-Less Crypto Cards

Joseph Delong’s desk looks less like a developer’s workstation these days and more like an electronics repair shop, littered with technology that crypto was pioneered to replace.

That’s because the veteran Ethereum developer and former SushiSwap CTO has accumulated what he describes as a “box of goodies” while building a stablecoin credit card network called Colossus—from point-of-sale test terminals to card readers and manufacturer sample books.

“Trying to get my hands on the hardware, it’s like this arcane knowledge that nobody could get access to,” Delong told Decrypt from his home office in San Antonio, Texas.

Consisting of four employees, the company expects its Ethereum layer-2 scaling network to debut in March, and it’s designed in a way that replaces traditional bank settlement with a sovereign credit card rail that treats users’ account addresses as their sole identity.

Colossus has raised $500,000 in pre-seed funding, according to documents shared with Decrypt. Those investments valued the startup at $10 million, Delong said.

In theory, Colossus will enable users to “burn their cards from their home,” but Delong acknowledged that building a service enabling anyone to pay for things with crypto while circumventing incumbents like Mastercard and Visa has been no easy task. And those efforts may present unforeseen hurdles.

Part of that has to do with disrupting longstanding relationships between businesses involved in the settlement process behind incumbent credit card networks, which weren’t built on the cypherpunk principles that Delong is committed to imbuing Colossus with.

“Many of these entities don’t see this as a problem because they’ve established this relatively high-quality trust relationship over time,” he said. “They’re able to settle in between all these different banks on either promises or a little bit of collateral.”

In a traditional swipe, what’s known as an issuing bank serves as the primary gatekeeper, approving transactions after verifying balances and identities in line with know-your-customer (KYC) and anti-money laundering (AML) requirements.

Issuers fit into a chain of middlemen, which includes member associations like Mastercard and Visa that set their networks’ rules, processors that handle the technical messaging, and acquirers that manage relationships with merchants, such as Worldpay and Fiserv.

Colossus is designed to collapse this entire stack by vertically integrating the issuer, processor, and settlement network. Instead of needing a bank to approve the movement of deposits, the firm’s layer-2 network uses cryptographic signatures to instantly trigger stablecoin transfers. In theory, that means a reduction in overall fees.

The arrangement preserves the role that acquirers fulfill for merchants, serving as the critical distribution mechanism for point-of-sale terminals already sitting in millions of stores. They effectively act as a bridge for Colossus, liquidating on-chain stablecoin transfers into the traditional wire transfers that businesses rely on to pay expenses.

“I don’t know who convinced all these crypto people that merchants want stablecoins,” Delong said. “They generally want something that they can pay their suppliers with.”

Not your keys, not your card

Although merchants may not find much use in holding stablecoins now, the firm is using them in a relatively novel way—collecting as little information about its customers as possible. 

When it comes to the company’s interpretation of a regulatory framework for stablecoins signed in federal law last year, Colossus has determined that the GENIUS Act does not require it to adhere to compliance protocols designed to prevent financial crimes by obtaining personal information like issuers do, nor attain money transmitter licenses across states.

Delong said its network’s sequencer, which orders and batches transactions before sending them to the Ethereum network, may have certain design features to comply with sanctions issued by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC).

That would essentially filter transactions through a centralized door, without baking banking rules into the underlying code of Colossus’ network.

Several startups have tried to establish KYC-less, crypto-linked cards before. But those relying on networks from payment incumbents have historically struggled to gain long-term traction, including UnCash, which announced its shutdown abruptly last month.

In a since-deleted announcement, UnCash pointed the finger at Mastercard. An abrupt termination by its card issuers amounted to a “clean, corporate guillotine,” the firm said.

UnCash noted that 90% of its cards ran on Mastercard’s network. The firm was reportedly among those leveraging a common “loophole,” issuing thousands of cards for purported employees under a single business identity, per Fintech Business Weekly.

Most crypto-linked cards are established through partnerships with Mastercard or Visa. While Delong is trying to cut that duopoly out of the loop alongside issuers, he still respects firms like Coinbase and Gemini are taking “a relatively easy road” to build momentum quickly.

“What we’re doing is a little bit more quixotic initially, but it has long-term benefits,” he said. “The idea that you have to KYC or AML for a credit card is a little silly, I think.”

Even so, such products are becoming increasingly popular. Crypto-linked cards facilitated $1.5 billion in stablecoin volume last August, doubling from a year prior, according to a report published by crypto analytics firm Artemis earlier this year.

The report found that firms in Latin America, EMEA, and Southeast Asia were pronounced in using crypto-linked cards as a way to “target populations facing acute financial frictions,” including inflationary local currencies and capital controls.

In the U.S., some lawmakers vocalized concerns that the GENIUS Act did not sufficiently address illicit finance concerns before its passage. Delong described Colossus as a company that could make crypto feel a bit more like cash, while also enabling people to fully live on-chain.

Delong’s motivation for building Colossus is also somewhat personal. He cast off bank accounts as a place to store value years ago, but still liquidates stablecoins regularly to cover bills.

“I really want to make an impact,” he said. “I think this is the last rail that will give us full liberty.”