Crypto Exchanges: Keeping Up With Unparalleled Growth @ TOKEN2049

[Music] well thank you everybody glad to be here today I see a lot of friendly faces and friends in the audience and so happy to talk today about the explosion of growth that's really happened in exchanges the last year or two and we're lucky to have a great panel with a lot of folks that have a lot of experience in that space so why don't we just go ahead and jump right in by having them introduce themselves when we start right here hi everyone I'm the founder and CEO of get going we've started in 2013 and launched in 2015 we are the largest diction in Hong Kong when banks are letting our it comes open and we're also the first exchange to listeria more so first exchange to to be involved with icos who am both an exchange or a platform to syndicate and raise funds or voice yours very good hi everyone I am Constantine I came here from Czech Republic I'm the CEO of changeling change lease and instant exchange service so we operate in the worldwide the US markets Korean so Japan that's great hello my name is Obi noise ooh I am the CEO and co-founder of Queen floor we're a group of cryptocurrency exchanges that focus exclusively on institutional and sophisticated investors and traders and we're known in a space with having one of the longest-running exchanges in the UK and also a recent offering which is the first physically delivered crypto currency futures exchange it's great thank you my name is Mike I amore I'm the founder CEO of coin we started in 2014 and or the first global exchange to be regulated and licensed in Japan and it's my great pleasure to share my experience with you great well sort of the thing I think you all share is having to adapt this hyper growth and I'm curious to hear from each of you about how you've had to either change your process or change your business model or even in your technology stack to accommodate all of the new users that have flowed into the ecosystem we've seen a lot of exchanges have trouble keeping up even the biggest and Welsh well founded groups have had trouble keeping up with this wave of newid users and so curious what you can share with the audience today about where you think that technology stack has had to improve and where it's going that's a good question is the regular issue for startups obviously but for exchanges where latency is so critical it's an even more important difficulty so in terms of technologies really matter of having the proper in architecture proper also a good base and tech stack but beyond pure technology technological challenges also all the processes that for instance onboarding I mean on our side we used to have very manual onboarding at some point you can't keep up the pace with the growth on your registrations are multiplied by 50 suddenly you constantly recruit 50 more or 50 times more customer support or compliance officers to to handle the tickets or the registration so you need to also think of automation of those processes using AI using existing solutions it's definitely an important challenge so we further say you've had to move towards automated kyc AML the difference compliance Jack's in order to really scale and same for transfers for instance having to process certainly a few hundred thousand transfers within a day you can no longer rely on banks you used to work with that add a fully manual process you need to find banks with api's or at least CSV for instance fortunately it's not like it doesn't exist yet in Hong Kong so we had to look for other providers to be able to keep on delivering the service now we change that you guys have a different model curious how the scaling is affected the way you operate your business yes actually last year or private here it was a to wave so gross like in the beginning of the year just imagine that the business is growing today you have ten customers and tomorrow you have 100 customers or even 500 customers in a week it was an exponential growth and the main issues we have experienced it as we are an exchange broker so we are trading Beatrix Polonius balance now and experience issues with a API of the main exchanges many stock transactions and also blow it in blog chains and we have grown our support team from like a few people in the beginning of the previous here to 15 people now and actually we are educating the markets because the most popular question in support is like what is Bitcoin and others how I can send bitcoins to my email address or my home address yes yeah and in December we have experiences like 30,000 new registrations on changing every day so it was a huge wave yeah and we have upgraded our stack of technologies we are doing some parallel mentioned transactions for exchange and we have grown our team like three or four times yeah oh oh we have known about coin floor really you guys are one of the first exchanges I remember back in 2013 when I got into the space in 2012 and 2013 so curious you've seen a lot of the whole evolution how that's changed for you guys and how you've adapted the quiet exchange because you're gonna run a long time but people unless you are institutionally you may not know us but it's interesting what we've seen and I think it's similar for a lot of people in this space is that there are two types of issues that you face when you have skating at this one is the technical and the other is the operational now because of our focus we have very demanding rightfully so clients from for many years now and so on a technical front we've had to deal with people who want low latency high frequency trading except high availability so the increase in traffic from a technical point of view wasn't a significant issue for us luckily we have an incredible central limit order book matching engine and so that wasn't a problem however on the operational side there were significant challenges scaling every every week for between November and December and so on we were hiring more people in every department compliance operations customer service etc the other thing we did as well as accelerate our strategy towards but continue our focus on institutional sophisticated investors and traders so some of our offerings that were the remaining retail esque offerings we stopped in December we increased our deposit limits which we continue to do every year so we just focused more as well so that helped us handle the scale there on the other side so by a narrowing your audience to folks that or at the high end of the scale you're able to achieve that but that didn't stop everything the growth was massive so I still had to hire it's a good it's good problem to have yeah Mike yeah so I think I shouldn't be redundant with what everybody has already shared but maybe I can share some numbers right so two and a half years ago or December of 2015 are our largest volume firm at that month was about a hundred million right and last December 2017 December we did close to thirty billion right now transaction volume also being a regulated exchange there's certain areas like governance added risk support that there's certain guidelines that you need to meet B being a registered exchange so the biggest thing that I underestimated so previously I used to work as soft Bank right I used to support hyper growth companies providing them with capital so I underestimated or I probably under appreciated how CEOs manage hyper growth right so from our perspective like a year ago we were about maybe 30 people now we're close to 200 and and this is excluding our support team which is now 24/7 out of Manila three shifts and so full-time equivalent it's close to 100 people there so this is in addition to our team and when that happens and all and like so we brought in a chief people's officer and we have like over 800 positions pipeline of people candidates right now so getting the right leads are important and managing that so when that happens and for anybody who needs to grow that much to cope with your girl it's it's all about people right so now I spend a lot of time other than the regulatory side and all these is how to manage have a shared vision how to manage team delegate to the next sea level and the c- ones and that's what's gonna be the most critical thing because you're only going to be as good as your people that's great in science you know I was I was going to echo Mike's words something that my team get probably very bored of me saying as for P's philosophy people process product and at the CEO level I spend most of my time thinking about the philosophy why are we here why are we doing what we're doing and then people so hiring an amazing group of people to deal with putting in the right processes and delivering the right product that's great well I want to dive into the future as we all know this ecosystem moves very quickly and the term on everybody lips is decentralized exchanges and I'm curious for each of you how you plan to adapt or embrace decentralized exchanges based on your business model based on which use cases you think it'll actually be applied to and go from there I know core businesses I mean for the three of us our exchanges with a high liquidity so on those exchanges you need to get liquidity you need liquidity providers to get liquidity good little quality providers you need to have very low latencies so you can't have a very liquid exchange with very tight spread in a decentralized infrastructure because of the latency as of today at least I mean the project occurs that I'm at improving the situation so to me it's not a direct competition at least at the moment could be interesting to evaluate or to assess it for OTC trade later on but to be able to so it controls what like people that are saying that centralized exchanges are not safe and decentralized exchanges will be safer because so far from what we see smart contracts are not very another science that people are mastering so and since you don't have mechanism to rollback transactions rollback processes on decentralized infrastructure I don't really see a benefit in terms of double security and we okay I mean even on the central rejections you can use multi C you can use already some technology - you can use also hardware what else like what Ledger is doing to enable people to plug directly the hardware wallet - the exchange is to be much better improvement in terms of securities and a smart contract or decentralized exchange interesting so you'd say latency is still the biggest challenge to liquidity and even though you can remove custodial risk by becoming too centralized there are other risks to consider okay yeah so actually it's this year most probably you'll be a year of decentralized exchanges it's but I suppose it's a bit overhyped because now 99% of trading modem we still grow is still going through centralized exchanges and only on centralized exchanges you can trade with high frequency like high frequency algorithms trading and it's impossible for the on chain or the book to trade so fast so latency and liquidity is the main issues of the centralized services but I believe with the centralized services it's useful for OTC trading when you want to trade anonymously and without the counterparty risk its custody free solutions and so I believe in atomic swaps technology for the cross block chain interactions and so we also working on some projects based on that technology so but III suppose it's centralized businesses centralized exchanges will still coexist within you with the centralized services so one of the reasons why we focus on the markets ectomy focus on is because we think there are three different types of exchange one is institutional focus exchanges that allow fear to crypto there are retail focus exchange that allow Fiat scripta and in our crypto to crypto exchanges crypto to crypto exchanges our viewers our faeces is that eventually most of them will become decentralized so I think we don't deal about a sec to the market but if you do they're knots you have to keep an eye on that there are services out there that provides solutions alternative solutions to market making I think for example as a bank or protocol that effectively provides an infinite liquidity in England versus ecommerce solution and I'm sure there are others who are working on that yes so that's the issue so you think it'd all be most relevant to Fiat Bears in the future the centralized exchange centralized oh yes I think if you're going if you're having to touch the if you're a bridge between the Fiat world and the regulated fear world and the crypto world then you will always need some sorts of centralized the legacy economy needs a crypto then it's possible to it's possible to do it in a purely technical way it will be done in a purely technical way got it so so I have a little bit of a different view and I look at it from a customer's perspective right customers want an exchange whether if it's decentralized or centralized that's fast better cheaper there's a lot of liquidity that's what they want they I mean only the purest source I'm gonna maybe from an ideology driven perspective might want to have an argument around which is better or superior or all these things from but but if you look at from an average Joe or someone like my wife who wants to just enjoy a product or buy a cryptocurrency they don't have to worry about whether if it's decentralized or centralized but the people who we'll worry about is the regulators like for example in Japan I shared it with the audience yesterday is they deem cryptocurrency as fiat as a currency which means they will control right they won't want oversight they won't want full kyc they want to make sure that all of these exchanges do customers a segregation do proper custodial services all these things where you cannot say hey because we're decentralized exchange that's not our responsibility you'll go to jail right so from that perspective yes especially if you become big if you're kind of a niche and and you're you're decent that's fine but if you become big if you come large and if you move within your platform or within your protocol a vast amount of store of value they will come tax authorities will come okay and if you're the if you're the platform owner or you're the creator they will come and get you so that's how I look at it one of the governors I couldn't just add something to that since we're all decentralization geez I would like us to solve like Kodak saying digital photography is going nowhere I mean compliance and regulations very good important point so and what you said also about the interface with banks obviously currently with payments having to be processed via bank transfers you have to have a central point of entry probably later on when we have decentralized identification processes and fiat currencies on the blockchain maybe you could have a cryptid crypto exchanges that would serve the same setters that provide the same services as us today but but yeah I mean I guess you can comment on it but I really don't see a decentralized infrastructures being able to provide this is the same latency so I would be remiss if I didn't bring up the topic of the regulatory environment that's really evolved a lot this year we've seen a lot of jurisdictions weigh in on currencies utility tokens security tokens different jurisdictions have defined these things in different ways up until now we've really seen a lot of currencies received a lot of utility tokens now some regulators are saying some of these are securities a lot of exchanges have moved to remove those tokens that regulators in certain jurisdictions believer securities right we've seen a lot of D listings for some of the exchanges I'm curious where you see the path forward for fully compliant security tokens there are a number of platforms that are emerging to issue that follow all the local guidance for kyc AML accredited investors I'm curious any of your platforms you foresee in the next 12 months or do you think it's further out before exchanges are really able and have licenses to list securities among the tokens that are traded on your exchanges or whether you'll stay entirely in the realm of currencies and utility tokens as we really believe in security tokens to me that's where I see or should go like to the kind of intermediary regulatory layer between private and public companies and and then we could have also type of securities not only stocks obviously born any type of asset can be tokenized and truly the transferred on the blockchain which is some jurisdiction that are having a super open framework like Gibraltar Malta - it's it's a very positive development for for the industry but it's not sufficient because to me what's very important with security regulation is a protection of investor and that's really what's necessary like yesterday we were looking at some some statistics apparently 57% of the icos a trace fund in 2017 already there already disappeared so a lot of money and a lot of investors they've got this got screwed and we always talk about market manipulation insider trading and so on to me it's very important for the industry to have framework that would protect those investors and that would help getting even more money flowing into that industry so currently there is a French a lot of debates in Paris and we're part of it actually and so far they look to try to find a really balanced approach me it's very necessary to have something that is balanced obviously not like in the u.s. something that would be intermediary between private public equities maybe something that could be also like several several levels of regulation depending on the size of the investments but in this top protection is real something fundamental to to enable a market to grow constantly as for change early as we are actually it's an exchange broker and we are always looking for our peak partners so if we see okay balance has listed the new tokens and we see that they pass due diligence so they check in like the community and also they asking for some legal opinion so it shouldn't be a security token and also if you are trading and beatrix metrics is the u.s. based exchange and they also asking for the legal opinion so that's why we are not least in tokens security tokens unchanged today and we are still looking forwards for any regulatory frameworks maybe on Malta or Gibraltar or Singapore and it should happen next year assessing because amount of tokens is becoming bigger and bigger and a lot of I see us and many companies are going to issue zero on token okay so disclosure one of our exchanges is CFE hei which is the first I believe exchange in Gibraltar and hopefully the first to be regulated in Gibraltar and we're really excited about what they're doing there they they are really really moving a path forward in terms of regulation in Europe as an exchange we're quite conservative so we're just now how comfortable listing etherium so just to put it in context we had Bitcoin Bitcoin cash and we're and now if areum's old enough and mature enough we're gonna list it so that's the sort of rate we live at that being said security so security tokens and I cos are very far in the future for us before we consider listing them and they don't have enough liquidity for the customer base that we're we're interested in and approaching at this point in time but some of them will do it gives us the luxury of being able to step back see what happens because it's it's quite an interesting space at the moment that other people rush in and then we'll we'll we'll tread in later security tokens seem like an interesting approach and it does seem that to be the way it's going to be going so I'm quite excited to see that we'd want to have a very clear regulatory framework before we enter all right Mike looks like you get the last word yeah so we're in exchange we also did our IC o---- right so we raised a hundred million so we need to step back a year and a half ago i SEOs did not exist and no one really didn't know what i co was right how can people know what's going to be in another year and a half right obviously but one thing which is true is fundraising or raising capital has really changed whether if it's a utility or a security it's truly democratized fundraising right so I had the experience of raising from VCS and also raising as an ICO so when I had to raise from a VC the handful of VCS actually controlled my destiny right so they they could have just said hey you're not good enough right or they can pull the plug they can they can they can they can shut you down but the beauty of an ICO is now you can raise from your community who share your vision who want to support you by buying your token and you can use that capital to fill the platform and then they can use that token as a utility so it's it's a wonderful opportunity for an entrepreneur it's great to have an option to raise capital right that said we do need to be careful because it is money it is thora value that you are raising and in this industry there's no statute of limitation which means if if your token looked and smelled and acted like a security it is a security and a Securities Act is available I mean it's it's in every country and you might be able to raise capital but there's no statute of limitation which means they can come and get you when I say these regulators local authorities can come and get you so again it boils down to what I said yesterday get a good lawyer right make sure that when you do a token raise whether if it's a security or a utility make sure that you're covered why is where it's well I want to thank all of you because you guys have really built the bridges that have allowed people to enter the crypto world and we believe blockchain is going to democratize the world and bring a lot of freedom into existence so thank you for your hard work round of applause for our panel thank you [Applause] [Music]