Payment Processing Research

Abstract

This research LP analyzes payment processing architectures for the Lux Network, focusing on fiat on-ramps, credit card integration, recurring payments, and the zero-interest credit system. It examines the current implementations in the Lux Pay and Credit repositories and provides recommendations for building compliant, user-friendly payment infrastructure.

Motivation

Bridging traditional finance with blockchain requires sophisticated payment processing that addresses:

1. Regulatory Compliance: KYC/AML requirements across jurisdictions
2. User Experience: Credit card-like simplicity for crypto payments
3. Merchant Adoption: Easy integration for businesses
4. Cost Efficiency: Lower fees than traditional payment processors
5. Privacy Balance: Compliance without sacrificing user privacy

Current Implementation

Lux Pay Repository

• GitHub: https://github.com/luxfi/pay
• Status: Production
• Features: Fiat on-ramp, merchant tools, subscription payments

Lux Credit Repository

• GitHub: https://github.com/luxfi/credit
• Status: Beta
• Innovation: Zero-interest credit cards backed by crypto collateral

Architecture Overview

// Payment system architecture from repos
interface PaymentArchitecture {
  gateway: {
    providers: ["Stripe", "Circle", "Wyre"];
    supported_methods: ["Card", "Bank", "Crypto"];
    compliance: ["PCI-DSS", "SOC2"];
  };
  
  processing: {
    flow: "Gateway → Lux Pay → Smart Contract → Settlement";
    confirmation_time: "2-3 seconds";
    rollback_mechanism: "Escrow-based";
  };
  
  credit_system: {
    collateral_ratio: 150;  // 150% overcollateralized
    interest_rate: 0;       // Zero interest
    liquidation_threshold: 120;
    accepted_collateral: ["LUX", "BTC", "ETH", "Stablecoins"];
  };
}

Research Findings

1. Fiat On-Ramp Architecture

Current Implementation

// From pay repository
class FiatGateway {
  async processPayment(params: PaymentParams): Promise<PaymentResult> {
    // 1. KYC verification
    const kycResult = await this.verifyKYC(params.user);
    if (!kycResult.passed) throw new KYCError();
    
    // 2. Payment processing
    const charge = await this.provider.createCharge({
      amount: params.amount,
      currency: params.currency,
      payment_method: params.method,
      metadata: {
        userId: params.user.id,
        destinationAddress: params.cryptoAddress
      }
    });
    
    // 3. Crypto conversion
    const cryptoAmount = await this.convertToCrypto(
      charge.amount,
      charge.currency,
      params.targetCrypto
    );
    
    // 4. On-chain settlement
    const tx = await this.settleOnChain(
      params.cryptoAddress,
      cryptoAmount,
      params.targetCrypto
    );
    
    return { charge, tx, status: 'completed' };
  }
}

Optimization Opportunities

1. Batched Settlements: Reduce gas costs by batching multiple payments
2. Stablecoin Rails: Use USDC/USDT for faster settlement
3. Regional Providers: Local payment methods for better conversion rates

2. Zero-Interest Credit System

Innovative Model

// From credit repository contracts
contract LuxCredit {
    struct CreditLine {
        address user;
        uint256 collateralAmount;
        address collateralAsset;
        uint256 creditLimit;
        uint256 usedCredit;
        uint256 lastPayment;
        uint8 healthFactor;
    }
    
    // No interest charged - revenue from:
    // 1. Merchant fees (1.5%)
    // 2. Collateral yield strategies
    // 3. Liquidation fees
    
    function borrowAgainstCollateral(
        address asset,
        uint256 amount
    ) external returns (uint256 creditLine) {
        require(amount >= minCollateral[asset], "Insufficient collateral");
        
        uint256 creditLimit = amount * collateralRatio[asset] / 100;
        
        creditLines[msg.sender] = CreditLine({
            user: msg.sender,
            collateralAmount: amount,
            collateralAsset: asset,
            creditLimit: creditLimit,
            usedCredit: 0,
            lastPayment: block.timestamp,
            healthFactor: 100
        });
        
        // Deploy collateral to yield strategies
        _deployToYield(asset, amount);
        
        emit CreditLineOpened(msg.sender, creditLimit);
    }
}

3. Recurring Payments

Subscription Model

// Subscription payment implementation
contract RecurringPayments {
    struct Subscription {
        address merchant;
        address customer;
        uint256 amount;
        uint256 interval; // seconds
        uint256 nextPayment;
        bool active;
        address paymentToken;
    }
    
    mapping(bytes32 => Subscription) public subscriptions;
    
    function authorizeSubscription(
        address merchant,
        uint256 amount,
        uint256 interval,
        address token
    ) external returns (bytes32 subscriptionId) {
        subscriptionId = keccak256(
            abi.encodePacked(merchant, msg.sender, block.timestamp)
        );
        
        subscriptions[subscriptionId] = Subscription({
            merchant: merchant,
            customer: msg.sender,
            amount: amount,
            interval: interval,
            nextPayment: block.timestamp + interval,
            active: true,
            paymentToken: token
        });
        
        // First payment
        _processPayment(subscriptionId);
    }
    
    function processScheduledPayment(bytes32 subscriptionId) external {
        Subscription storage sub = subscriptions[subscriptionId];
        require(sub.active, "Inactive subscription");
        require(block.timestamp >= sub.nextPayment, "Too early");
        
        _processPayment(subscriptionId);
        sub.nextPayment += sub.interval;
    }
}

4. Merchant Integration

Point of Sale System

// Merchant SDK from pay repository
class LuxMerchantSDK {
  constructor(private apiKey: string) {}
  
  async createPaymentRequest(params: {
    amount: number;
    currency: string;
    description: string;
  }): Promise<PaymentRequest> {
    const request = await this.api.post('/payment-requests', {
      ...params,
      webhook: this.webhookUrl,
      acceptedTokens: ['LUX', 'USDC', 'USDT'],
      network: 'lux-c-chain'
    });
    
    return {
      id: request.id,
      qrCode: request.qrCode,
      deepLink: request.deepLink,
      expiresAt: request.expiresAt
    };
  }
  
  async verifyPayment(paymentId: string): Promise<boolean> {
    const payment = await this.api.get(`/payments/${paymentId}`);
    
    // Verify on-chain
    const onChainTx = await this.verifyOnChain(
      payment.txHash,
      payment.network
    );
    
    return payment.status === 'completed' && onChainTx.confirmed;
  }
}

5. Compliance Framework

KYC/AML Integration

// Compliance module architecture
interface ComplianceSystem {
  providers: {
    kyc: ["Jumio", "Onfido", "Sumsub"];
    aml: ["Chainalysis", "Elliptic", "TRM Labs"];
    sanctions: ["OFAC", "UN", "EU"];
  };
  
  flow: {
    onboarding: ["Email verification", "Identity check", "Address proof"];
    transaction_monitoring: ["Real-time screening", "Risk scoring", "Reporting"];
    reporting: ["STR/SAR filing", "Regulatory reporting", "Audit trails"];
  };
  
  privacy_preservation: {
    data_minimization: true;
    encryption: "AES-256";
    storage: "Segregated by jurisdiction";
    retention: "As per regulatory requirements";
  };
}

Recommendations

1. Architecture Improvements

recommended_architecture:
  payment_gateway:
    primary: "Build Lux-native gateway"
    fallback: "Integrate established providers"
    optimization: "Route based on fees and speed"
  
  credit_system:
    collateral_management:
      - "Automated yield optimization"
      - "Cross-chain collateral"
      - "Dynamic risk adjustment"
    
    revenue_streams:
      - "Merchant fees: 1-2%"
      - "Yield on collateral: 5-10% APY"
      - "Premium features: Advanced analytics"
  
  compliance:
    approach: "Progressive KYC"
    levels:
      - "Level 1: Email only (<$100/day)"
      - "Level 2: Basic KYC (<$1000/day)"
      - "Level 3: Full KYC (unlimited)"

2. Technical Enhancements

1. Payment Channels: Layer 2 for instant micro-payments
2. Privacy Payments: Z-Chain integration for private transactions
3. Cross-Border: Optimize for international payments
4. Mobile SDK: Native iOS/Android payment libraries

3. Business Model Innovation

1. Cashback Rewards: LUX token rewards for payments
2. Merchant Staking: Reduced fees for staking LUX
3. Credit Scoring: On-chain credit history
4. Insurance Pool: Protect against smart contract risks

Implementation Roadmap

Phase 1: Core Payment Rails (Q1 2025)

• Native payment gateway
• Basic merchant tools
• Compliance framework

Phase 2: Credit System (Q2 2025)

• Zero-interest credit launch
• Yield optimization
• Risk management system

Phase 3: Advanced Features (Q3 2025)

• Payment channels
• Privacy payments
• Global expansion

Related Repositories

• Lux Pay: https://github.com/luxfi/pay
• Lux Credit: https://github.com/luxfi/credit
• Merchant SDK: https://github.com/luxfi/merchant-sdk
• Compliance Tools: https://github.com/luxfi/compliance

Open Questions

1. Regulatory Uncertainty: How to handle evolving regulations?
2. Fraud Prevention: Balance between UX and security?
3. Stablecoin Selection: Which stablecoins to support?
4. Credit Risk: How to handle market volatility?

Conclusion

Lux's payment processing infrastructure combines traditional finance conveniences with blockchain benefits. The zero-interest credit model and integrated payment gateway position Lux as a leader in crypto payment innovation. Focus should be on regulatory compliance, user experience, and merchant adoption.

References

• PCI DSS Standards
• Stripe Connect
• Circle APIs
• MakerDAO Credit System

Copyright

Copyright and related rights waived via CC0.

Specification

This LP’s normative elements are the detailed algorithms, structures, and parameters provided. Implementers MUST adhere to them.

Rationale

The design provides a pragmatic balance of performance, interoperability, and security for Lux.

Backwards Compatibility

Additive; existing paths remain valid. Migration can occur gradually.

Security Considerations

Apply standard defenses, validate inputs, and ensure cryptographic operations are implemented safely.