What's Next for Crypto Markets: The Exchange Perspective

Transcript

Tonight, right now, or I should say this uh early evening here, we're talking about the beating heart of the digital asset industry, exchanges. And joining me are three senior executives from three of the largest exchanges in the world to talk about what's going on now and what the future's like for centralized exchanges. So I'm going to let each of the panelists quickly introduce themselves starting with Tracy. Hi, nice to meet you. Uh I'm Tracy. I work for the Maxi. So I really want to as you know what's the maxi is. So our vision is to be our easiest way to the crypto. So for this region we did a lot of work. We want to give more benefits

to users such we provide the zero trading fee for the futures uh futures trading pairs. The first one we also prepared a very good liquidity as we know as uh whether you are just beginning trading or you are expert trader liquidity is also important for the users. So the last one we do is we provide I think most people know Maxi is about Maxi has a lot of training tokens. We have over 4,000 training tokens. 4,000 tokens. Yeah. Yeah. That's that's a lot. That's a lot of tokens. And we want to do more. Actually we took combined uh as we know there are millions tokens assets on chain. So we also provide uh launch a new product we

called as the DEX plus. So this product user can well let's talk about dexes a little bit later dex. I want to talk about that a little bit later. Okay no problem. Okay so BC tell us a little about yourself. You're the relatively new CEO. Thank you. So uh good afternoon everyone. So BC uh I was appointed as CEO by the bot. So I think the reason is perhaps very simple. I used to be the general counsel of the exchange and uh before that I used to be a practicing lawyer in Republic of Singapore and uh you know everyone knows that now the industry is at the crossroad whereby many regulators actually uh taken some

um you know regulatory actions against various exchanges. I think this is the reason why I was been appointed as the CEO at this time to lead the transmission uh of the platform into a more compliant or a fully compliant exchange. Well, it does sound like something happening in a rapidly maturing industry at the very least and we should certainly talk about regulation on this panel. and Luke, this is our third time at various token 2049 events talking about the future of exchanges and Darabit owns the market. Yes, some part of it indeed. Um, we are I guess slightly different uh versus my neighbors. We are pretty much

institutional. So, we have uh indeed an 80% market share in the option space and options are 80% market share. Yeah. Volume-wise and open interest rise. So, and that's remained stable over the years. So that's uh pretty impressive indeed. But um the traders are slightly different. So where they have millions of traders, we have thousands of them. We have uh typically corporations, institutions globally um and sophisticated retail traders. So the the balance is around 80/20. So 80% of our business is institutional and twothirds of our business is options. So many of the room won't know us because simply they are different audience. We we have 20 25 tokens where they have thousands.

We have we we're the opposite in many ways. For us, the business model is uh Bitcoin and Ether options plus uh an an ever growing um per is one/ird uh often used as a hedge for the option space, but options is what we're known for. That means that the entire model of the platform is different where they need to focus on thousands of different coins. We need to focus on one coin and many linked instruments to that coin. So many market makers sending thousands of updates in the same product versus thousands different ones. So that that has lots of infrastructure uh consequences, lots of uh product decisions which are completely different. We will talk a lot about those today on this panel. So as you've already seen, we have centralized

exchanges is a pretty big and robust category. It's not just one or two things because many of you in the audience probably are thinking there's centralized exchanges and there's decentralized exchanges. And Tracy, you were talking a little bit about kind of this DEX plus product. Why why does it need to exist? Because I've got to say centralized exchanges, they've got the volume, they've got the speed. Why do you introduce this? There are some reasons. The first one, as I mentioned, at Maxi, we have 4,000 tokens, but it's still not enough. As we know on on chain there there are millions. So we want to user can trade that assess easier. Uh as we know if you want to trade on on DAX actually it's not very easy. You need to

have a lot of technology such as how what is the wallet how to your ser uh pro uh save your private key and how to transfer money on chain and how to trade actually the cost for the users actually very high and for centralized exchanges everything is easier. So we want to merge one uh merge both uh user can use the centralized exchanges experience that's easier and user friendly and also can trade a lot of the the millions asset on chain. So this is the first reason. Another one is we also find a painful for the users. The pain point is the liquidity is not good on chain and for for dexes for for dex. Yeah, for

decks for most of and then for example if they were to use something like unis swap is it concerned that on some of these smaller liquidity tokens that you could crush the market with a very small order. Yeah also also user need to pay the slip page it's also yeah not so good for trader. So for maxi we want to change this one. So we developed the product DEX plus so this is user friendly and the liquidity is is very good. So does it is it sourced in part from your centralized exchange order book? Yeah. Yes. Yes. With order book.

But another one is different is there is no wallet. Actually you don't need to save your private key. As we know uh if if you trade on chain uh web three you need to write the write it down on the paper or maybe on your private keys. Your private key. Yes. Maybe sometime you save in your safe box because you are afraid it will be you'll be lost or maybe someone know it but for for the ordinary people we it's very hard for us sometimes for daily life we also ask where's my cell phone where's my key usually we always lost something so I have friend he used the trade on chain and finally he lost his wallet and lost all the money and he have to go back to

work I'm your friend are you oh my god I've done this once or twice Yeah, this one because if you use the wallet you you just work as a war person to against the hacker but you uh work with the exchange actually you need to find a trust exchange. Yeah. So the hacker uh the the team the whole exchange team the IT team security team will work for you and also have some support team to support you. So listen that that's a fair point and and let's talk a little bit about custody BC. So it's it's a complex operation I can imagine especially at your scale and bluntly we have seen even this year alone some pretty large hacks if you want to call it that I I don't even know if that's

the right word but very highprofile times when lots of value from a centralized exchange was lost risking users assets um how are you managing custody you have 40 million registered users um and keeping people's money safe. So uh as cool coin I I'm pretty sure that uh many friend actually sitting here you might know that on 2020 we used to like encountered a very kind of serious uh hacker incident. Yeah we actually lost around like three billion there. How much? Uh I think should be 300 million there. Yeah very a very

large amount. So uh this is a very you know le lesson very very lesson for us to learn that backend construction is very important. It was right after that time we have shifted all our operation and marketing costs to backend construction. Do you think that was a wise investment? Definitely. As of now, as of now, our team, we have like more than 1,000 employees around the world. There are 90% of our employees, they are engineers. Think about it. There's soft aware engineers like uh you know, food stack engineers, security engineers. We Yeah, this is a lesson we have been

learned. We have been spent like five years on the infrastructure building up the real time data system. The We rebuild the entire wallet system. We uh uh reinforce our security environment. We're coming out with the account reconciliation system to make sure that uh we we knows that the money is there. So we really spend a lot of resources of devoting so so much resources and I mean Luke is it enough? Do you think that institutional players or average retail customers, I'm not even talking about just your exchange, but generally is the technology there today where people can generally feel safe about giving their crypto to an exchange? Depends who you ask, right?

So, we we have I'm asking you. Yeah. Yeah. But depends who I ask. So, so, so I guess from a retail perspective, it's it's it's safe for many people trust the platform based on history. uh so all the complexity people don't really delve into and perhaps they don't properly understand but from our side it's institutions so we have billions of dollars in assets and these institutions are let's say asset managers and the assets managers have learned from FTX so they've they've been uh may have a huge fiduciary duty to their own yeah but but after that uh drama back then uh they've changed their policy so they will only allocate in in case certain circumstances matters So, so from my perspective that means ISO

certification, SOCK 2 certification, those kind of things. And we've partnered with I think seven custodians at the moment. So, we have copper since four or five years, but by now we have Fidelity, we have BitGo, we have Comminu, we have Zodia, we just announced Signum. So, if you as an institution want you to put your $100 million with Fidelity, you can. If you another one trusts BitGo or whoever, you can. So the the question is therefore not really how do we solve it. How do we solve it as an industry? Well through partnerships apparently. Yes. Yeah. Many of them are partners leading custodians.

But it's it's a complex product to build and of course there might be swaps often between into hot wallets for example. It's uh and and as the technology gets more complicated with even different types of coins 4,000 coins on all of the same exact same architecture. A lot of engineering hours must go into even creating the internal wallets that your exchange uses at Mexi. Oh, you mean the wallet? Yeah, the internal wallets that you use, let alone what uh your end customers use. Yeah, for this one is I mentioned we want to protect users access. So for this part, I upgrade with BC the security also the top priority for the or exchange I think. Yeah, for Maxi we use the internal wallet and we also work with the hacken is the

blockchain uh the auditor. So uh after we work with this they can help us to improve our process and uh security things. So uh this is actually help us a lot to protect users access. We also consider uh considering uh could we have the wallet maybe user can use with uh other uh decks or not but currently I think at this stage as I mentioned I think we need to protect this for user first and then maybe you can open it later. Well, I mean, you know, users could lose their money if you get hacked. But, of course, one of the issues is that their wallet, right, their own personal wallet on their phone, especially in a non-custodial

sense, that's often the attack vector that many people deal with, whether it's a fishing attack or some sort of social engineering, it's a concern. All three of you, of course, have big operations. And maybe it's just me, but I feel like you all have a responsibility to retail to help educate the mass. So I do want to ask BC, we'll start with you. How is Kcoin educating people about how crypto works and how to keep their own assets secure whether or not they're engaging with your platform? You know, uh if you read our platform, the first page there are a lot of like uh teaching materials as to how you're going to protect your own account.

Exactly. Or or generally do you do you engage in the education of retail? Exactly. Yes. Yeah. we're trying to teaching them and you know uh as a platform right I think the platform's primary responsibility is not to show it is not to make sure every investor can make money yes profits is important right but I think more important is that every penny the users trust us they transfer money into our account we have some either legal obligation or moral obligation to make sure that the money here is in a safe and secure manner.

That is an undeniable obligation. We need to try our best our best efforts to cheese to whatever method how you're going to protect your assets. You know, profits always come to second. That's not the primary concern. It's trust. Yeah, trust. Exactly. Luke, of course, you have a very different audience set. many of your uh customers are extremely sophisticated uh trading firms with elite professionals that came out of Wall Street for example. Um to what extent are you engaging with your I you say 80% of your volume uh how are you learning from your customers?

Yeah, for us it's perhaps slightly different uh again because the the numbers are manageable. So if you have a thousand clients uh the large corporations uh institutions globally you engage them via sales via customer support uh via dinners via drinks here and there via whatever means you can but it's personal interaction so it's not a form but it's just talking what what is it you need um and try to convey your message as well. So we have new products, new features, new security. So security is a good example. So over the years based on that feedback we've changed things. We if you if you add new wallet addresses you can't immediately use them. We delay usage. We have whatever UB key we have multis. So as a

you as a client you can say look I I only want this team to withdraw after approval of that team. Those kind of features where the client is not necessarily the owner of the account. The owner of the account might be the treasury team in a different country and the trader only has limited access. I mean because some that's a rather sophisticated concept. You learned about this possibly at something like a dinner potentially. Yes. But but yeah or here in the states. But the the idea is not to manage 40 million accounts. We we would build it for you perhaps. Uh so if the client has a unique feature which is really important uh we would consider building it. Why not? If it's a large client um significantly adding to whatever needs we have, of course we can

tweak it. So the model is not mass production but the model is is is more uh perhaps targeted continuous iteration in a targeted manner. Yeah. BC you've got those 40 million customers that we were that Luke was talking about. That's a lot of people to whom you must interact. Um you've got customer support agents out there that are individuals. My understanding is you're starting to really take advantage of AI which the last panel was was all about. um but to help I'd say better correspond with your customers today and perhaps improve your product. Tell us a little bit about that journey.

So uh you talk about AI and uh many kind of new products. I think that is a really really a very challenge for each exchanges right just now I've been talking with you actually in the small room that you know just like the sponsor here OKEX they have a very good product wallet did you hear this we just heard a compliment from one exchange CEO to another crypto exchange see this is the cooperation in crypto exactly they have a very good product they have a very good product but Why? What happened one months before? Right? Whenever we coming out now with certain new product, we

need to concern about regulators attitude, regulators way, their view with regards to a particular product. Now I do believe that every participants, every exchange now have the real concern about how we are going to show our web three wallet in the EU market. Right? But at the very first beginning one year before is there anyone think about that? No. Right now we turn to AI. Yes, we have the VI team. We have like more than 20 scientists actually working on it. But when we talk to the regulator, regulator tends to be not that surprised. They simply will tell you, yeah, once you launch that

product, you need to tell me first before you even start developing the product. Not before it's like now you need to tell me first because you know for whatever kind of new product uh which have the possibility to pave the way for future tradings that were inevitably in way involved in certain kind of risk right whether the regulator want to take the risk that's a problem then well look we're here in the UAE and I think we've talked about regulation many times on this stage and others here at the conference And the UAE has been as progressive and thoughtful as any jurisdiction in the world. I'm sure you'd agree. Um, where innovation is

something they really care about and it's it's quite paramount to them while still ensuring investor protection. At Mexi, you know, you were talking about 4,000 plus coins. We've talked about DEX Plus and other new products. You know, is the pace of innovation for you constrained by regulation as well? Uh, actually I want to add on something about the AI and education. Sure. Yeah. So for for us uh for Maxi, we are always looking for the good product and also the talent the web three talent. So for this part we have uh uh $30 million fund Alexa campaign to support the uh the new star starts up such as through the uh scholarship with the university and the

hackon and uh some mentorship something. So we brought a lot of things to find the more talents from the in the industry. Yeah. So also like uh uh like uh in Maxi the team actually we also have a lot of engineers but we're also looking for the talent engineers to join us and support the the industry and that's I guess an everpresent journey for you right because you always have to be looking for new talent new CS graduates every year and then if there's people to come out of kind of the blue um actually I do want to ask where and I'm guessing some of the member people this audience here are looking for s where do you procure talent from? Do you often go to tech companies to try to

take from them? Is it people from Tradfi or is kind of incestuous and you're hiring from other crypto firms? How does it work? Depends on the role. So we have a big office in Amsterdam which is tech. We have tech in Poland. Um we have our platform HQ here in Dubai and we have a team in Panama. So different roles, different uh needs. We work a lot with recruiters. So it's not in Dubai is growing rapidly but uh the talent pool when we arrived um wasn't really there yet because uh the exchanges were just setting up and from a trading perspective there weren't many yet so the VRA framework so we are regulated by viral was new as well so there wasn't a

lot of experience and that's gradually growing in terms of Amsterdam it's pretty well developed so Amsterdam has a lot of trading firms all the traditional trading firms uh that deal in options and futures so optim IMC, flow trades, all those large firms that have been trading on on many exchanges for years and years are based in Amsterdam. So that's for us an easier pool of talent because they have experience. Um so it it it really differs but it's it's and again about security uh it's getting quite problematic. So if you use LinkedIn for example, we have the other day we had 65 people imposing or recruiting on our behalf that we don't know. 65. you go to LinkedIn, they won't uh interfere. So they won't they won't

change anything. So if if you say you work for there, but there's nothing I can do. Oh, I see. So these people are self attesting that they Yeah, but you don't own your company brand on their on LinkedIn. So you can't get these people to uh Sounds like we need a web three version of this. Yeah, but it's it's really terrible because so these people are recruiting on your behalf. Uh they ask them to fly wherever somewhere to bring their their company laptop. So it's apparently Lazarus and those kind of organizations is really bad. So recruiting is very difficult to do on your own because you will get spammed with with uh lots and lots of fake vacancies. Um I heard from another large exchange that they think they get like more than one numerous uh Lazarus

applications on a daily basis. So we're all struggling with that. It's it's it's you see the same thing. Are you seeing these types of fake job applications for example or fake job openings that are being used to try and lure either your talent away and uh and are attack vectors BC similar situations in fact yeah I understand your point I think it's happening everywhere so happening everywhere it's it's it's it's quite problematic because it's very first of all expensive you need more people to defend against that um but it makes hiring also more uh complicated what do you think is the next big thing for centralized exchanges BC? What's the trend that you think is going to take

off maybe in the latter half of 2025? But we haven't seen it just as much above yet. Uh so from my point of view like the industry as I said now is actually particularly for digital asset exchange I think now we're at a crossroad whereby everyone every player need to make a choice either to become a fully compliant exchange and therefore can be accepted by most of the jurisdictions which means you must become a local compliant exchange but not an offshore exchange which is complicated because there's many different jurisdictions and they have very different rules. It's a real yes it's a real challenge there but we have to take it. This is a trend whereby most

of the regulators, the EU regulators, the mainland Chinese regulators, US regulators, they're coming to you, right? I'm the one who actually represent the company to reach the uh settlement agreement with the United States Department of Majestice. When I standing on the court, I realize this whereby, you know, when you say innovation, yeah, it's a very good team. It's a very good term, right? A very f fascinating term. But innovation itself is a swart. It's a swart to pave the road for future maybe trading for future technology. But innovation is not a shirt. It's not a defense. It's not an excuse to basically to help you to avoid

the legal liability. That's a real challenge here. Just now we talked about DAX, right? The difference between DAX and sex. Let me see. Okay. Sex is good because sex Yeah. You have the owner right here from BC. Sex is good. Yeah. You have the you have the UBO. You have the management team. The regulators is able to find you to enforce some certain kind of regulatory actions against you. Right? Then how about sex? Sex do not follow the rules. Do not follow the KYC rules. Is that possible? Of course not.

Sex is DAX is not a way for you to avoid the strict liability whereby you don't need to do KYC. Impossible. Think about it. I I'm I'm I'm tell you this. I am completely convinced that KCoin is all about regulatory compliance as complicated as it may be. But you also do have 40 million customers to serve and compliance is is maybe the essential. Yeah. But you have lots of customers who are looking for a great product each and every day. Um, and you have how many employees do you have at this point? You said over a thousand. Yeah, over a thousand. Over a thousand employees. Um, a lot of those are engineers. How do you incentivize your engineers to build the best products in the world?

Okay. So, generally we basically separate products in two different groups of products. Okay. One is the infrastructure which means other exchanges they have it we need to have it like can you give me an example that's very basic like for example are you talking about like order matching engine for you mean exactly matching engine co system like risk control system I mean not only talk about the front end system whereby users can see it but also including the back end system the real-time data system risk control and internal control system from the the the front desk system all the way through the back end system everything it's the infrastructure you must have it and so that's one one half

or less you definitely you must have it otherwise you don't need to do business it's kind of zero your business is starting from zero zero times three still zero right so another category of products is the products which might pave the way for the future trading because just now we have a panel basically discussion about AI trading right this is a very good product whereby everyone need to think about it how to use AI kind of technology to reform our basically customer service kind of you know system or to like content generation system every system right that's the product to pave the road we always encourage our engineers

to coming out with the ideas or product like this kind of product you know for like the first category ories of of product, it's like just an obligation. You have to do it. But the second category is a product is the one you should fight for it and with a lot of creativity it sounds like to build those types of innovative products especially since there is a lot of competition and you know we were talking backstage and you mentioned that five years from now trading is going to look very different than it looks today. Yeah. What do you think Tracy? What could be different five years from now than today?

Uh I think the two uh they two have talk about about the innovation and the products for Maxi we looked on another side. Uh for the future I think the technology is changing and the vol you know the price maybe ups and down but never change is the people everything is created from the people from team. So we want to focus on more on the on the on the culture actually we want to empowerment empower the team uh maybe sometimes they make some mistake but we need to encourage encourage them I know everyone has the good part and maybe it's not not good at part so we want to uh people can do what they can do better so that the first one uh is we import

the our employees another one is actually we also work with outside such as the uh we work There is a lot of ecosystem such as Aptos, Ethena, Mento. So this is also important for the future. Everything is changing but the cooperation I think is now change. You're partnering with these innovative firms like you mentioned Aptos and Mantle. I mean these layer ones or layer twos. Yeah. This I work with the layer one the top and the top ecosystem but we also such as we have the 30 million pound. We al uh this is for the campaign for uh looking for the talent but host has another $300 million dollars to support the new uh new projects maybe they are only on the early stage and we found they maybe have the potential uh

maybe on AI maybe on on DP something so we also support the small project maybe they will be the future so in the next five years I think the key point is how to make their product easier for the user and how to work cooperate with the uh internal or external partners and empower them. You know, Luke, we saw in the United States some pretty sweeping changes thus far this year. And of course, we had Eric Trump here earlier today, um whose father has been implementing many of these changes in the United States. Uh and it seems, at least this is what I've been gathering at this conference, like many jurisdictions around the world are going to either follow suit or at the very

least closely watch what happens in the US. And that's made some people, some pundits say that the second half of 2025, we might see some all-time highs. Now, I'm not asking you to make any price predictions for Bitcoin, but I do want to ask, how are you preparing for what might be a new bull run? We we we're always preparing. So, did the people in the room always preparing? Yeah. No, essentially true. Uh because we have products that that that that pave the way for uh benefiting from bull runs, right? So and options are the easiest one uh the most capital efficient one but in terms of of future adoption and and that's what's essentially what the bull run means more users more trading uh we look at

platform performance and the services offered so the platform is always becoming faster throughput is going to be higher new market makers are joining so that means if you trade options you need if you have five more market makers they will trade let's say $5,000 per second more so in terms of platform capacity over the years we've seen this and if what you're uh predict icting is happening um it means much more of that. So in terms of let's say developers and how do you uh incentivize them to build cool stuff if the people that work for us their goal is to process many times more than uh we do today to make the platform which is now uh milliseconds latencies uh make it microsconds so it needs to be faster we launched multiccast which is like the fastest

data feed out there no one else has um we're launching these kind of features we launched block RFQ so if you want to trade a thousand contracts is difficult in the books you get big size uh in in in in directly approaching counterparties. We're launching broker solutions where brokers like institutional brokers can properly manage trades and allocate them to to one or many counterparties at the same time. These features uh will go hand in hand with with your predictions. More users, more especially traditional users, the the banks and brokers, asset managers, hedge funds, they demand all of this stuff. So, if they already come in 2025, we have to rush. I was going to say, well, it sounds to me like all of your engineers need to be on overtime

because we're going to need even more capacity, even more speed, even more great customer support, and even more education. Well, thank you folks very much. This has been an extraordinary panel. Great talking about exchanges with all of you. And once again, thank you Dubai for Token 2049.