On-ramping and off-ramping: the crucial link between fiat currency and crypto

What are on-ramps and off-ramps?

On-ramps and off-ramps are infrastructures that form the connection between the traditional financial system (fiat currency) and crypto. An on-ramp makes it possible to convert fiat currency, such as euros, into cryptocurrency such as Bitcoin or Ethereum. An off-ramp facilitates the reverse process, where cryptocurrencies are exchanged for fiat currency and paid out to a bank account. Crypto platforms can act as gateways between both systems and make these conversion processes more accessible and efficient for users.

Key Takeaways

• On-ramps and off-ramps form the essential infrastructure that bridges the traditional financial system (fiat currency) and the crypto ecosystem, by converting fiat into crypto and crypto back into fiat.
• On-ramping covers the entire process of fiat deposits, compliance checks, and conversion into cryptocurrency, after which the assets are assigned to a wallet. Off-ramping follows the same process in reverse through selling and payout.
• Centralized on- and off-ramps operate within existing regulations such as MiCAR and require identity verification (KYC), while decentralized solutions mainly facilitate crypto-to-crypto interactions and only support fiat flows to a limited extent.
• Fiat-to-crypto and crypto-to-fiat conversions in practice still take place almost exclusively via centralized platforms or specialized providers, often integrated into wallet applications.

How do on-ramps and off-ramps work?

On-ramps typically operate through a crypto platform that allows users to deposit fiat currency after a bank account has been linked and verified. Through payment methods such as bank transfers, the fiat amount is credited to the user account. The on-ramp provider processes this payment, carries out the required compliance and identification checks, and makes the deposited amount available for trading. This fiat amount can then be converted into cryptocurrency of choice, with transaction fees being charged. After successful execution of the order, the purchased cryptocurrencies are assigned to the associated wallet. This entire process, from fiat deposit to conversion into cryptocurrency, is referred to as the on-ramping process.

Off-ramps follow a similar but reversed process. In this case, the user sells cryptocurrency, after which the provider converts the proceeds into fiat currency and pays them out via a traditional payment method such as a bank account. In both processes, factors such as liquidity, price discovery, transaction costs, and regulatory compliance play a central role in the operation and efficiency of the system.

Why do on-ramps and off-ramps exist?

On-ramps and off-ramps are necessary because everyday payments generally take place in fiat currency. This means that users need fiat currency to make payments, and digital tokens, which are often characterized by price volatility and are commonly used as investment instruments, must be converted in order to use this value outside blockchain networks.

Without reliable digital bridges, it would not be possible to purchase cryptocurrencies and convert them back into fiat currency, which is an important prerequisite for large-scale adoption. In addition, on-ramps and off-ramps play an essential role in the development of applications that enable the use of crypto in the real economy, for example for payments outside the crypto ecosystem.

Types of on-ramps

There are different types of on-ramps. These include centralized on-ramps as well as partially or fully decentralized on-ramps.

Centralized on-ramps are regulated crypto platforms that must comply with strict requirements, including supervision under MiCAR in Europe. This requires identity verification (Know Your Customer, KYC) in order to use on-ramp services.

Decentralized on-ramps use peer-to-peer mechanisms or smart contracts, where users trade directly with each other without the involvement of a third party. Examples include DeFi platforms such as Uniswap or Orca, where tokens can be exchanged with one another, for example ETH for UNI. Liquidity is provided by users of the network through so-called liquidity pools. It is important to note that these are not traditional on-ramps where fiat currency is exchanged for cryptocurrency. This conversion currently takes place almost exclusively via centralized crypto platforms or specialized providers such as MoonPay. Such providers are often integrated into wallet applications, such as MetaMask.

Types of off-ramps

Off-ramps essentially operate in the same way as on-ramps, but in the opposite direction. Centralized off-ramps, such as the services offered by crypto platforms like Finst, often provide direct payouts to bank accounts. The same strict requirements apply as with on-ramps, including supervision under MiCAR and mandatory identity verification (Know Your Customer, KYC) in order to use off-ramp services.

When cryptocurrencies are off-ramped outside centralized platforms, this can take place through peer-to-peer sales or via specialized off-ramp providers such as MoonPay.

In addition, there are crypto products for both decentralized and centralized off-ramping, such as crypto debit cards, which allow users to make payments in physical stores or withdraw cash from ATMs, usually in exchange for a fee.

On- and off-ramping at Finst

On- and off-ramping at Finst is offered within a regulated and user-friendly platform, contributing to a safe user environment. Users can easily convert fiat money into cryptocurrency and vice versa, with transparency, regulatory compliance, and efficiency at the core. Depositing and withdrawing euros is free of charge and without a minimum amount. For exchanging euros into cryptocurrency and vice versa, Finst charges fixed transaction fees of 0.15%. Thanks to strong liquidity, orders are generally executed almost instantly. Through this efficient integrated approach, Finst lowers the barrier for both beginner and experienced users to participate in the crypto market.

Final thoughts

On-ramps and off-ramps form an indispensable part of the infrastructure that connects the traditional financial system with the crypto ecosystem. By enabling the conversion of fiat currency into cryptocurrency and vice versa, they act as gateways to blockchain networks and make the practical use of digital assets outside a purely on-chain context possible. Without these mechanisms, participation in the crypto market would remain limited and large-scale adoption would be significantly hindered.

In current practice, fiat-to-crypto and crypto-to-fiat conversion largely takes place via centralized parties that operate within existing regulatory frameworks such as MiCAR and require identity verification. Decentralized solutions mainly play a role in crypto-to-crypto transactions and illustrate the technological possibilities of blockchain, but can only facilitate fiat flows to a limited extent. This underscores the ongoing interplay between decentralization and regulation within the crypto domain.