CV VC Global Report - Crypto Exchanges

Welcome to our first panel discussion from the CBBC Global Report. Now before we start, let me introduce ourselves and the report to you guys. I'm Nicola Reinbold, incubation and ecosystem manager of of CVLabs and CVVC. CIVVC is a venture capital investing in blockchain startups from incubation stage to growth stage. Then we also have a brand called CVLabs. CVLabs, I like to call it the ecosystem where we have co working spaces, where we run the incubator, where we do events, meetups and so on. Now the new report, CVC Global Report is the first of its kind. We kind of mapped different sectors of the top companies in these sectors. We for all the reports for all the sectors, we're doing events like this one here and we will do in depth panel discussions. Now I would like to hand over to our moderator Roche Darin. Brochure I think you muted.

Right.

Apologies for this. Good evening everyone. It's a pleasure having you all and I'm excited to moderate this panel of exchange experts, Steven Stondon, Darren Pollock and Josh Goodsbuddy. I guess it's best to kick off with a brief introduction from the panelists themselves. Let's start with Stephen. Why don't you say a few words about yourself?

Sure. Happy to be here today. I work with Bittrex Global, which is the non US part of Bittrex. We have an office in Baduz where we're in the process of applying for our regulation under the Blockchain act under the fma. And we also have an office now in Hamilton in Bermuda where we just announced last week that we got a digital assets business license. So we have two jurisdictions where we operate outside of the US with full regulation, full kyc, AML in both jurisdictions. And we have unlike some of the other exchanges, we have quite a few tokens. We probably have about 300 altcoins, we have fiat on ramps, credit cards, sort of the whole gamut. And we're now looking to expand into some new things like into derivatives, securities, etc. Which we can do because we're completely regulated. My background before 25 years in financial services, I worked in banks like Goldman Sachs, JP Morgan, Deutsche bank and some pretty well known hedge funds.

All right, thank you very much, Stephen. Let's move over to Darren. How about you and your background?

Yeah, thanks for having me here. My name is Darren Pollock. I'm the Chief Communications analyst at Huabi Global. I'm kind of charged with expanding and growing our global business and reaching out to our global audience and keeping everyone up to date with what Huabi Global is doing. My own personal background is a very journalistic one. I studied journalism. I've written a number of articles across different platforms on cryptocurrency. And I've been very vested in it since 2015. And now obviously taking that experience and coming to Huobi to kind of spread the message that Huobi has for its global business.

Excellent. Thank you very much. This leaves us with Josh, Josh Goodbody of finance. How about yourself?

Thanks, Roger. Good to be here. So my name is Josh Goodbody. I'm the director of Growth for Binance. So I look after international business and growth for the Binance Group. My background is very much from the traditional markets. Spent the last decade or so working as a financial markets advisory lawyer, mainly on the sell side, a little bit on the buy side as well. Moved into Fintech a few years ago to work in the commodities fintech space. And that's very much where the blockchain bug bit me. And I haven't looked back since, nearly three and a half years later. So really excited to be here. Very happy to be talking about all things exchange related. We've had a pretty stellar year Binance this year. So we're very pleased to talk about that and share that with your audience.

Yeah, thank you very much for this brief introduction. Now, this stream here is hosted by Cointelegraph, and I'm sure you guys check Cointelegraph on a daily basis as well. But today there were two articles that I found particularly fitting for tonight's discussion and two headlines that I think may or may not have something to do with another. The first One was titled 75 crypto exchanges have closed down so far in 2020. And then the other headline that caught my eye was Japanese financial Giant SBI Acquires Taotao Crypto Exchange. And obviously the first question to the panel is, what do these headlines mean for the industry?

I'm happy to kick off. I think what we're seeing is a general consolidation of the centralized exchange space. We saw a wealth of exchanges rise and fall over the past couple of years, and it's increasingly getting difficult to sustain smaller exchanges with relatively thin liquidity, because really what consumers are looking for is that selection of different assets, but with a real depth of liquidity. So this fragmented liquidity scene that we've experienced over the past few years is slowly transforming into a more concentrated suite or set of exchanges that have the majority of the trading volume on them. And they are on this panel today. Some of them. So I think this is a natural evolution of the. The digital asset space that we're seeing. Crypto exchanges really kind of reducing in their overall number, and we're seeing liquidity and volumes moving to the more established venues. There are various drivers for that. One could be regulation, another could be trust. Others are simply down to which regions are adopting digital assets quicker. And naturally those businesses are growing much quicker as well. So I think this is a general trend for market consolidation when it comes to centralized exchanges. We expect that it will continue. There will be, of course, divergences from that, and I think decentralized exchanges are a great example of that. But generally what we're seeing at the centralized exchange level is a real consolidation of liquidity within some of the core crypto exchanges.

So I think I'd echo that. I think stepping aside from just crypto, I'd say this is just a classic sort of case study you'd see in any new industry. You have a lot of new players and you can look back to the Internet in 94. There's tons of examples like this. And I agree, there's just, you have a lot of players and as the industry starts to mature, you start to see a lot of the players getting weeded out, which we're seeing now. There's higher barriers to entry, there's cost of running these and obviously keeping the liquidity, the marketing, the staff. So it naturally lends itself to the larger players. So that's clearly what we've seen to date, I think, and I know you're going to talk about this a bit more in some of the other questions, but the news with BitMEX, that's going to be another weeding out of players. So as the regulators have only just started cracking down, which they are going to. And let's not go into it now, I'll leave it to when you want to talk about that, but you're going to start to see a whole raft of other players. And that was one of the biggest liquidity players that's now just about to disappear because they're now under US Federal felon charges. One of them is arrested and the others are all at large. So it's pretty difficult to run an exchange when one of the founders is in prison and the other three are wanted by the U.S. government. And I think you're going to see a lot more of that in this industry, actually.

Yeah, I must agree with both the other panelists here. It's obviously there's a big sign of maturation, like Stephen said that any kind of emerging industry is going to have that as the startups and the little businesses came with the innovative ideas, so the bigger companies took those and ran with them a lot better, provided a better quality of service and provide what people are looking for. And then obviously with the regulations that have come in, because you're in a financial technology space, the regulations are still a little bit ambiguous and perhaps that leaves loopholes that are slowly being closed off now. And that's also going to see a lot of consolidation happening, as Stephen again alluded to. So I think it is the kind of natural progression of things and probably the correct progression of things. I mean, everyone loves a good startup and a good story like that, but they always either build into something great down the line or bought out, like we see in that cointelegraph headline.

Yeah, I mean, you point to the inevitability of this regulation. The, the, the cost of maintaining proper regulation is probably increasing. You need to have anti money laundering things in place. There's a technology stack you need to keep up. So I get the economic, economically, how this makes sense. But me as a client, is this a good thing? Do I benefit from this? Or is this consolidation just to fill the pockets of those who survive in the end?

Well, I think, I mean, there's two things. There's safety and as a client, I think you certainly want to have your assets just like you would with banking. You'd like your assets in a bank that has a bank license and it's regulated. You clearly wouldn't put your assets in a bank that had no regulation or no KYC or aml. And I don't think we see that yet in crypto. I don't think the clients know how to discern. So I think that you're going to see that trend going forward. I mean, do we see, even with the industry consolidation, there's a lot of choices in crypto exchanges and we're also going to start to see regular financial services backward integrate into this industry as well. So you'll see, you know, even if there's a smaller number of crypto exchanges, you'll see new players. And Fidelity is already announced there in the space. J.P. morgan, Goldman, they're all moving into it as well. So I think you'll have more choices.

Yeah, I fully agree with that. I think, you know, choices is absolutely something that will continue in this space. But really this consolidation, as the panelists have already touched on, is a natural part of this kind of cycle from a startup culture driving the industry to maturation, moving exchanges forward. And part of that comes with things like regulatory environments, advancing the overall market, being more receptive to crypto assets and being adopted by traditional financial market players. So with this consolidation, the Darwinist elements of course comes into play. Survival of the fittest. And these smaller startups find it more challenging to compete if they find their edge, like a lot of, for example, decentralized exchanges and DEFI products are finding their edge, they will succeed. But in the centralized exchange space, people, they vote with their feet, right? They will move to venues and exchanges that have the most liquidity, that have the most product offerings, have a breadth of services that they can use. And it is natural that the larger players would be moving quicker to build those products and services and hence they consolidate volume and their users within these larger businesses. So hopefully, I think the evolution of the cryptocurrency market will be a positive thing for consumers because it will bring a better caliber of actor into the crypto space. And overall, I believe that'll be a positive thing for everyone.

That's why we take regulation very seriously. We only operate in a regulated basis. Right now all of our clients are going through liechtenstein under the FMA which is an EU level bank regulator. So again, full KYC AML for everybody under EU MiFID standards. Again, I would encourage a client of an exchange to sort of ask that question. Just because it's easy to onboard doesn't mean you should onboard or trade there.

Yeah, I think there's obviously a lot of, there was and still is a lot of choice out there. But some of the bigger exchanges, they offer more than just choice. It is about the regulation, it's about the work that is put in behind that secures funds, that secures so they aren't hiccups down the line and all of a sudden the exchange is taken down because of not properly following regulations. So to have a consolidation and a survival of the fittest, as I think Josh mentioned, is positive for the consumer because it sets the groundwork out now and then when you do get the likes of JP Morgan, Fidelity coming on board, they are building that foundation on exchanges or third party services that have kind of done the hard work rather than just provided what they think everyone in the space wants at any cost.

Right? So all right, I get, I have more safety, I have more security, I have more liquidity concentrated on fewer places, breadth of services. This is good for me as an investor, as a trader, as a user of the exchange. But let's flip it around. When I Have a project and I want my coin to get listed listing on like a top 5 or top 10 exchange. I can't afford that, or I could not afford it when fees were high and there were always some exchange, they could list it. And if the coin took off, then the exchange was happy, I was happy. The people that traded it were happy. Now, I understand that the business model is changing. Not all exchanges charge fees these days to have a coin listed, but it does get increasingly difficult. So will this stop the grassroots movement when we have a consolidation that ends up with just global top 10 exchanges and no one else?

Well, so the listing process, I mean, again, it depends on where. Let's, let's step back. Where is the exchange located? So our exchanges in Liechtenstein, we require a legal opinion for every single token that's going to list. The, the token team will typically pay for that. So again, for a project can't even afford a legal opinion, then they probably shouldn't be listed, nor would we want our investors investing in something like that. So I would say, as an investor, do you actually know what jurisdiction the exchange is in? Are they actually operating in the jurisdiction they claim to be in? We've seen some exchanges claiming to be in one jurisdiction and they're actually not. And said jurisdiction then comes out and says, no, you're not actually here. So there's a lot of nonsense that goes on. So. And then does your exchange actually have legal opinions you can look at for the token that says it's not E money, that it's actually done within EU law, it's actually a utility token. So I think that's the sort of first steps that we look at. And if a project is immature enough to actually be able to afford those things, again, just like with an equity offering, do you really want investors to actually be invested in that? Then obviously you have to make sure that the token team that's going to issue the token can support it, has liquidity facilities set up for the trading. So I don't think that everything that wants to list should list. I think there should be some sort of filtering and vetting. It's up to the token team and the exchange. And that's what you as a client of the exchange are looking for. It's sort of like the policeman to make sure that you're not going to be involved in money laundering or having your funds investing in sort of sham projects.

Yeah, I tend to agree with that. I think the exchanges are a bit of a filter for projects that are being listed and being offered to their client base. And there has to be an element of due diligence that's done. Now what gets more complicated in this space is where a token is, for example, listed or created by a decentralized centralized project. And this is an area that the industry, I think, is grappling with at the moment. You know, how do we deal with these projects that pop up, that get very, very popular very quickly, but they don't have a central creator or a central creation team. So, you know, there are lots of decentralized projects out there that kind of work on a crowdsourced basis. The real question exchanges grapple with is do we want to list those assets if we can't, for example, contact a central point person? So there are all of these kind of challenges that pop up as technology develops. But one area I do want to just highlight quickly is we're seeing this self listing happening at a DEX level. So decentralized exchanges, the volume on these exchanges is growing and growing month in month, month out. And with decentralized exchanges, lots of projects can actually list their own asset there for trading. So actually what we're seeing this year is an emergence of an almost autonomous listing process, which is quite different obviously to what's been happening on centralized exchanges to date. But we're seeing, with the rise of DEXs, the ability for the community to almost list an asset themselves and via automated market makers, provide liquidity in a decentralized way for that project. So we've got different shades here in terms of when we talk about listings. And I just wanted to highlight decentralized assets as one area, which poses a challenge as much as an opportunity for the industry.

But do you think I have a question about decentralized exchanges. At the end of the day, it's all about form over substance. The regulators is going to look at a decentralized exchange and say it's an exchange. So if they decide that those aren't operating within their parameters, they're not going to care what you call it. They're going to look at whoever's operating the nodes and then just regulate it and they can shut them down. So do you think that there's any risks posed to investors in decentralized exchanges because they're so new and just because you say it's decentralized, the SEC or whomever is just going to do whatever they want, regardless of their own view?

Yeah, there's always a risk in inherently new technology, absolutely no doubt. And there is always, especially when you look at the temperature right now coming out of the US Regulatory community, we see much more appetite for enforcement there. That's quite clear. We've seen that over the last couple of weeks with all kinds of interesting stories coming out of the courts and from various regulators. So I think to your point about style over substance, in many cases, if something gets styled so big that it either has a systemic effect or is used BY Lots of, for example, U.S. persons, regulators that are the same ilk as U.S. regulators will always try and find a hook of some kind. I don't have the answers to that, but I think there will be challenges popping up in the future where decentralized exchanges do face headwinds from regulators. Because does a regulator fully understand how one decentralized exchange works versus others? They come in different flavors and different shades. So that's going to be a really interesting space to watch evolve. I think as with any kind of investing, people should only invest in what they understand. And decentralized products and services are a little bit riskier than others. So people should obviously act and invest with caution.

I've always found the space as it's evolved. It's such an interesting one. Obviously we look back at bitcoin when it first started having a use was on the dark web and it worked in the shadows and the regulators knew nothing about it. And that was where it lived. When it did start getting mainstream traction and people wanted it to come out into the light, everyone, including the centralized exchanges like ourselves, we realized that there's no beating the regulators. We weren't going to be able to operate this product, this coin behind their backs or through them and overtake the banks like the cyberpunks wanted back in the day. So bitcoin has become much more regulated, much more controlled, much more looked at and appreciated by both sides, the cryptocurrency community and the regulators. Then once we start looking at what's happened with the Dexes and like you guys have alluded to, there's a lot that is still going on in the shadows there and the regulators haven't quite caught up to yet. And if they want it, and this is my opinion, if they want that to carry on how it's going now, they won't be able to get as big enough where the regulators do step in, because if it gets to that stage, they're going to have to comply or they're going to have to die off. And that's kind of where I see it now. You have all these different options and opportunities, but they come with their own risks because essentially it all comes down to regulation. If you want this space to succeed, be it any sector of the space, regulation has to be a huge part of it and there is no getting away from that.

I agree with that. I think the big dichotomies industry and you know, coming into crypto from like very regulated financial services, I just see crypto, it is financial services. There are already rules. If you have a token, it's, well, if it's a security, well, then there's already very well established securities laws. So you can't just because you call this thing a digital asset think the rules don't apply. To me, the rules are there, so you're in them. And then lack of knowledge of them is not an excuse like Bitmex and others are going to find out. That just doesn't work. So I think there's a level of naivete and just lack of understanding. The regulatory framework is there. You either decide to operate this new world of financial services within it or without it, and you're risking your employees and customers, I think if you don't adhere to it. It's black and white, there's no gray.

Yeah. I guess this brings us to BitMEX a bit more. BitMEX tried to block out US customers. At least there was some gear filtering in place. Obviously that wasn't enough. Is it even possible to comply with regulations in your jurisdiction and your jurisdiction alone? I mean, is everything subject to US Jurisdiction the end of the day?

Well, I think it depends where you operate. I think the way that again, in a US Regulator, and like it or not, the US Dollar is still the world currency. So you have a world regulator in the US and if you touch dollars and if you touch US Clients, I think the again, established banks understand this. If you set up a bank in the Cayman Islands and then you have a client in the US you don't operate in the Cayman Islands, you're operating in the United States. The minute you touch a US Customer, I think, and I'm not an expert on this, I think Bitmex did have US Clients at one point and then they shut them down. Just because you got rid of them doesn't mean you still operated in the US For a year. So for whatever time that you had US Customers onboarding, you were operating in the United States, it's form over substance. Just because you live in country X, your exchanges in country Y, you touch a US Client and or touch US Dollars, you're operating in the United States, you're violating the rules. And just because you don't think you are. Well, they can extradite you as these guys are going to find out. It's not something that you wish to have. And then obviously if you look at the asset flight from the exchange, the fact that there's regulatory action means that the clients are all just going to leave. So I think the other problem you have too, and I've seen this with some of our competitors, they'll leave the US which BitMEX did, and then they'll say, oh, use the VPN and you can still come onto our exchange anyway. Well, okay, then the regulators read Twitter so then they can kind of see that you're not again, form over substance. So I mean, you're basically soliciting Americans to basically break the law and they go trade on a non US exchange where they're not supposed to be. So I can't speak to competitors for our non US business. And Bittrex also operates a separate US only exchange. But we bifurcated the businesses mainly because we want to for our non US clients be under EU law, which is much more succinct with what a utility token is. So we don't want to encumber our non U.S. projects and non U.S. investors with U.S. law. So we are following the law, just we are separating. And then in the US we have full, like we have a whole team there, we're complying in 39 states and we have all the sort of licenses you need to operate there. We separated out the two businesses. So I think for Bitdragotic Global you can access the website, but you can't become a client if you have a US passport, regardless of where you live. And we don't take US residence, regardless of passport. Just be very strict with the business.

Right.

Yeah.

So.

Sorry Reg, I was just going to interject quickly and kind of agree that you know, if you are, if you are, you know, within the nexus of offering products, the US persons, there is this extraterritoriality that comes with that and that is at all levels of U.S. regulatory appetite. It will be either the SEC or the CFTC. It could be, for example, the attorney's office in New York. It is just the way things are done. And the financial service industry has, the traditional financial services industry has learned that lesson over the past few years, that extraterritoriality of either regulatory censure or certain law enforcement action. And the crypto asset industry is learning that lesson now as well. So for any business that really wants to de risk itself, the best way to do it is either you bifurcate your business, you have a US business for US Persons, then a global business based somewhere else, or you simply don't touch US Persons. It's very difficult to try and find a happy medium around that, because there isn't one. Simply, that's one of the reasons why Binance worked with Binance us, our local partner in the US to set up a US Business, because you have to really build these separate environments in a very strict way. It's simply not worth running risks with US Law enforcement. And people have learned that in the financial services sector since day one. But I think the crypto asset industry being built by individuals that haven't necessarily come from a financial background, are learning this lesson as they build. And it can be a painful lesson, and it is unfortunate that we see this having a negative impact in sentiment or in consumer trust in the crypto asset industry. But nonetheless, it is a bit of a learning lesson for the wider industry, I think.

Just building on that, I think. Again, Roger, to go into your first question about Bitmex, in addition to sort of soliciting US customers, and I didn't read the whole suit, but the coconut comment was quite funny for those who've actually read the lawsuit. But they're selling derivatives as well, not actual utility tokens. And derivatives are considered securities in a lot of jurisdictions. So for instance, they can claim its reverse solicitation into the Seychelles. But if a German client goes onto Bitmex's website, the German authorities, once they catch up, are going to say, no, you're doing business in Germany, you're illegally selling securities into Germany. There's also leverage rules around securities. So on Bitcoin there are rules from Baffin. You can sell two times leverage on things like Bitcoin. Well, Bitmex is selling, was selling, or I don't know if they're still in business. They're 100 times leveraged Bitcoin debt. So you're doing 50 times the EU law on leverage and you're selling something that's a security without a securities or a bank license into Europe. There's other competitors that are doing the same things and even higher leverage. I don't know how they're doing this. We would never do this business, this. But it's interesting. So I think there's a whole raft of regulation. So again, I think what you've just seen is the canary in the coal mine. There's going to be a lot more of this.

A lot of this regulation is under the pretext of protecting the investors now, Bitmex services were still in demand, right? High leverage. Not Everybody was doing 100 times, but maybe you want to leverage 10 times still. You comply with regulations, you do what the government wants. It's not exactly what the people want in all cases. So it's regulation holding centralized exchanges back the way that, I don't know, thinking back to times when courts would target Napster, for instance, for music sharing, people wanted to do it, they were not allowed to do so we moved to torrents. And that really then triggered the music industry as we know it today with Spotify and streaming music. That gives people access to what they initially wanted, which was music at your fingertips. So is the same thing maybe happening with crypto exchanges and defi space?

From my side, I wouldn't say so. I think what was holding the industry back was the lack of regulatory clarity. So where we didn't know what the state of play was in Europe, for example, or what we didn't know how, for example Korea was going to regulate crypto assets, it's quite difficult to build a global business in that regulatory kind of lack of certainty. So actually regulation can be a bit of a spur for innovation, for investment and could be a net positive for the industry. Of course, it poses challenges for existing businesses to get licensed in certain jurisdictions to set up the right kind of business structures that are needed to operate in certain countries. That's a challenge. Of course it is. But at the same time it has brought with it the, should we say more risk averse segments of different markets that are now starting to get involved in the crypto asset space. So now that, for example, let's take Germany as an example, people understand what crypto assets are licensed as in Germany. They fall within the financial instruments definition of the German Banking Act. That suddenly means that existing financial institutions in Germany can offer those products under their current regulatory license. They can hold those products for their clients. And we're seeing an ecosystem of products and services being built around that reality popping up now in Germany. So actually regulatory clarity comes with a fantastic tailwind of building and innovation and investment that comes with that certainty. So I think what was holding the industry back was not having the certainty. Now there is more certainty, not 100% certainty, because there are still, even within pan European regulatory frameworks, that is into Europe, there is still divergence in the way that nation states regulate crypto assets. So there isn't full clarity. It's not as simple as it is for traditional assets yet, but we're getting there. And with that comes an element of certainty that is pretty much a net positive for everybody.

Well, I think that clarity you're talking about is around utility tokens, I'd agree. But when it comes to things like derivatives and futures which are securities, that just falls under security flaws. If you don't have a securities license, which typically is a banking license in Europe, you can't really sell those instruments. So again, that didn't stop Bitmex and others from selling into those countries. But I think absolutely, which is why we're only really focused on Bittrex Global on utility tokens right now. Because that's where there is clarity. We chose Liechtenstein because there is, it's, it's EEA member state, but it's EU for banking. But the Blockchain act gives 100% clarity and it's very consistent with the boffin approach as well. So we wanted the highest level of.

Regulation I think as well, just to.

Look from a client side of things. There is all these fantastical things you can do, hundred times leverage. It is available out there with its massive high risk. But having that door open and having that available to everyone at a stage when like Josh was saying, it's still, people are still learning about the crypto space, how to invest in it, how to handle the ups and the downs. If you just open that door, you are going to get people who get stung and lose their pensions and their life savings. And that's what the regulators don't like to see. And that's where they do come in. And again that rebuilding thing. So to cap it off quite heavily, let's say it's heavy handed regulation globally to allow building, to allow the, again the example of the German banks to come in to provide the solid foundation where you can get that building up again. And then in 5, 10, 15, 50 years time maybe then the doors are wide open once everyone knows how to handle it, how to do everything in a safe and well regulated space. But there must obviously be a cap to it. You can't just let people run wild, especially when it comes to financial instruments.

Yeah. The other day I've come across a little graph which shows trading volume from the top tier exchanges versus everything else and everything else included, the entire defi space. And there seems to be a trend to move into this defi space. We talked about it a bit before. Is this just a flash in the pan or is defi competing with the centralized exchanges maybe taking over one day? I mean the whole movement was about cutting out demand in the middle in a way, right?

Yeah. I mean, there's a philosophical, underlying philosophical movement in the crypto asset space. And one of the panelists use the word cyberpunks. There is a large amount of people that believe in the inherent kind of freedom and utility that crypto assets bring to them. And decentralized exchanges very much chime with that. So I think this development and this recent, I would say, surge in engagement with decentralized finance, whether it's services or decentralized exchanges, very much chimes with that segment of the community that is really, really into that. Personally, I'm really enthused to see the decentralized space building. I do think there are challenges that come with decentralization. You can't avoid regulation, unfortunately, because the long arm of the regulator is, is very much creeping into the decentralized space. And they've been explicit about it. But I do, you know, I love seeing the level of innovation that comes out of the decentralized space because it really disintermediates a lot of the established players by allowing you, as a crypto asset holder who holds your assets in your wallet, you hold your own private keys, you can then trade in a trustless environment with somebody else and have it settled over the blockchain and have it settled then back into your wallet. So that is a pretty powerful piece of technology. Now, what this will mean in the long run is yet to be seen. Will Dexs start to outperform centralized exchanges? I don't think so, frankly, because usability is one of the core areas as the, the market of participants grows and grows. The majority of market participants want a simple and easy user journey, and that really comes with most centralized exchanges at the moment. If a decentralized exchange finds a way to create a very similar user journey to a centralized exchange, we might see some movement over there, we might see people moving into that space. But I think decentralized exchanges will give some centralized exchanges a run for their money if they're easy to use and if they're cheaper than using a centralized exchange. But I think the innovation is fascinating to watch.

Yeah, I think just the idea of decentralization is what is so key at the moment. The world is kind of looking for it. You look at the 2008 banking crisis, people were shocked to know that banks could fail and lose their money. If you look at things like the social media data hacks, and that happened with Facebook and Cambridge Analytica, again, people have lost trust in major centralized spaces. So the want for a decentralized social media platform, banking System is there, it is growing in people's minds. They want to take back control. Are we there yet? Is this going to happen by the end of the year and everyone's going to be decentralized? It's not. But is it going to happen down the line when like Josh says, it's much more of an easy process. It's. It makes sense for everyone to use. It's not too difficult or too out of the reach of the everyday person, but still maintains that decentralized core then yeah, that would be probably a great thing. Just in terms of the general world evolution to head down a more empowered route rather than relying on just centralized anything really.

Defi is exciting and like any new technology it has, you know, there's obviously room for abuse. I mean look at the sushi swap example and that, that's not really a great poster child for, for Defi and I, and I do think again, so it's a great technology that can be abused, which I think you're seeing a bit of that in the short run and then longer term unless there's no escaping the regulation, like whatever you think about it, so you know, if you can somehow enforce AML and KYC and make sure that there's no money laundering going on with it, great. Then I think again it's a great technology, but it's too early to see how it's going to sort of pan out.

All right, in the meantime, I would like the audience to encourage the audience to post few questions on the chat. We're going to pick them up in a little while. Until then, one more topic I want to to touch on that is new exchanges sit on a treasure chest of data. There's lots of things that you can see and I was wondering whether you see some changes in trading behavior amongst your clientele one way or another and maybe we can conclude from that what it means for where we are head.

Yeah, I'm happy to take that. We this year have seen a massive surge in crypto derivatives volume. There are a number of factors that have been driving that, but really we've seen a lot of large institutional players, large proprietary traders, hedge funds, getting more involved in the crypto derivative space. And with that has come a kind of a renewed interest in the evolution and development of products. So we've seen success in the options market across the industry as well. And that is absolutely seemingly a product that people find extremely useful for various reasons. So to your point about sitting on a wealth of data, you know we have obviously a lot of Proprietary insights into the way the market is evolving and crypto derivatives. One area that's particularly interesting, it's a very useful tool for people to hedge their risk to be able to also speculate. Of course, there are various utility elements to crypto derivatives that for example, the mining community use. So that's been a real success story. And Binance was relatively late to the party when it came to crypto derivatives. We launched our product just about a year ago now and we've seen that growing from success to success. So derivatives are one area that we've seen renewed growth. Another area that has grown quite quickly is really stablecoins. People have been utilizing stablecoins more, they've been holding their assets in stablecoins coins more and more. And that kind of concentration of stablecoin holdings has continued to grow this year. And we've actually seen a bit of a convergence of stablecoin holdings moving away from having a more fragmented market of stablecoins to a slightly more smaller pool of stable assets that clients are using. So for example busd, usdc, tether, et cetera. So we see a couple of core trends, but those are just two very, very high level ones that we'd note.

Yeah, we're pretty much in the same boat. Derivative markets have exploded, really, especially with the institutional growth. If we look back since about early last year, we've seen probably three to four times growth on our institutional trading platform. We've also, with the launch, we launched perpetual swaps in April and that kind of shot off really well for us. And part of the reason behind that is that around 40% of our trading volume comes from institutional traders. And they picked up on the petrol swaps and obviously did the derivative market as well. And I mean it's clear to see just in the news in general you hear about Paul Tudor Jones talking about Bitcoin and investing in there. And those are all guys who know derivative markets and how to operate them. I think it's a lot to do with the interest there, but as well as the providing from top tier exchanges like the ones in the panel today.

I would agree on the institutionalization point. We're seeing a lot more, more institutional interest. Especially we've had a lot of mainstream institutions coming to us and saying that the fact that we're in a jurisdiction like Liechtenstein, they can take our counterparty risk and we have regulation, so we're the type of exchange they would want to do business with. I think crypto is going mainstream. People are looking for safety and security and they want to just like with a traditional financial institution, they don't want unregulated crypto exchanges. They're looking, they know the regulator can come and shut it down. And, and just like with Bitmex, it doesn't matter how big your volumes are, especially in things like derivatives, you're very vulnerable. It can just disappear in basically a day the minute the regulator comes in.

In the light of this, how do you guys see the move by the British FCA moving against derivatives? Is that a good thing because it's regulation or is it a bad thing because they're killing a little, little flower here?

It's a challenging piece of news from the FCA which was particularly interesting because they consulted prior to this. So they did an industry consultation, reached out to different market participants on various topics related to crypto derivatives ranging from should there be a leverage cap, should there be kind of an opting in? That is a self certification that you're a sophisticated investor. Yes, you're a retail investor, but you're sophisticated enough to be able to invest in crypto derivatives and in exchange traded notes that have crypto underlyings. So the fruit of this consultation has been that the FCA has decided to ban retail client access to crypto derivatives. And that's very interesting because that's I think going against the grain for over 90% of the participants in that consultation. So over 90% of participants who responded and there was a very large number of respondents because the UK has a very large concentration of crypto asset business, they overwhelmingly disagreed with the proposal and there were other ways that were suggested to de risk this sort of. I think the industry was a little bit disappointed in the UK that the FCA took this broad brush approach, but nonetheless it comes down to consumer protection. So I think in the industry we understand where this concern is coming from, but I think there are lots of concerns in the community around the way that they've done this because they have essentially left other alternative investment instruments outside of the scope of this, which present equally large risks to consumers. So it was an interesting development, not particularly surprising, but nonetheless quite impactful for UK operators of crypto derivatives businesses.

Does anyone else chime in?

Yeah, I think it's Again, we've talked a lot about the regulations and obviously what they are out there to achieve. But we've also seen in the past heavy handed, broad regulations come in and then things gradually change from there. Again, like Josh is saying, it is kind of against the grain and what everyone's expecting, but it could be, you know, the Ground zero where things will be relooked at. Perhaps this is an optimistic view, hopefully that this regulation will be something that can probably evolve to suit more. If there is more legitimate pushback from crypto businesses who want to run this and they have good reason why it should be allowed, perhaps there can be a dialogue that is brought up and things can find the medium. I think the FCA has gone very much one way and it has been quite a heavy handed approach. But you can't argue against what they try and achieve, which is consumer protection in the end. But I think it's about striking a balance.

I think from Bittrex's perspective we don't offer derivatives, so this doesn't apply to us, nor do we operate in the uk. It's a shame the guy from Kraken isn't on the call because they bought a futures exchange in London. So it'd be interesting to hear their feedback on how this is going to impact their investment there.

Yes, indeed. I mean if the prohibition told us anything in the US 90 years ago than it is when something moves against 90% of the people, that people will find a way to, to do what they want to do. And this heavy handed approach by the FCA is the consumer protection maybe just a pretext, is maybe the financial center as a whole opposed to crypto growing in the uk? Or am I too much on a conspiracy train arguing this way?

I think overall what we've seen in the UK is the regulator has been quite open and communicative about their expectations that relate to for example the registration and licensing of crypto asset businesses in the UK. There's a framework that was in place since 10 January this year. There's a clear path towards licensing for existing crypto asset businesses operating in the uk. So the regulators overall been actually pretty, pretty clear and commonsensical in their, their approach to this. Now crypto derivatives are a particular, I would say bugbear that the regulator has because they represent highly leveraged instruments that consumers frequently don't understand the risks associated with them, just like CFDs. So in Europe and the UK, CFDs and highly leveraged products have always been at the forefront of regulators concerns. So we're not overall surprised that the regulator focused on crypto derivatives and retail consumers. But I think the regulator perhaps has moved a little bit quickly because one of their justifying arguments for this ban has been that crypto assets cannot be valued in a justifiable or particularly accurate way. One of the core areas that they identified within consumer protection was a crypto derivative product is obviously based on a reference price of some kind. It's valued off the back of an index or off the back of some kind of pricing methodology. Their view is that the crypto asset market hasn't been able to demonstrate that crypto assets can be valued in a way that is justifiable to allow retail clients access to instruments that are derived from those valuations. Now, I think most people would in the crypto asset space would disagree with that, especially the operators of exchange traded notes that in themselves are regulated, that are operated and sold in regulated markets. The valuation methodologies are pretty robust and clear there. So that was one area of the FCA's report that we were very surprised about. It was pinpointing on the valuation methodology not being fit for purpose. And that is what drives the overall consumer protection element. So that in itself was quite surprising.

Yeah, I think what Josh is saying, well, what is happening there is, it's a bit sad in its own way that the kind of crux of the matter is that there's still this mistrust on cryptocurrency in general. The consumer protection isn't based on a derivative product which has its own regulation. And it can work. Obviously it depends on the leverages and all the numbers around it. But it goes back to the core fact that there's still a mistrust from regulation regulators on what cryptocurrency is, how it's valued, how it derives its value, what it is essentially even to the point of how it operates as a taking Bitcoin as example, as a decentralized coin. You know, they can't pinpoint anyone to make changes or to make it become compliant. So I think there is still this fear around it which does make it a lot harder for products to work on top of it for the regulators.

Right. Thank you very much. We have a few minutes left so I would like to move to some questions from the audience and one is I have a favorite petcoin and my telegram group. Every few weeks there is someone saying it will get delisted on Exchange xyz, since you guys are on the panel, what actually does make a coin getting delisted? Assuming it's not a scam and doesn't turn out to be something Security, I.

Think trading volumes, there's not enough trading volume and typically we reach out to the team and give them opportunity to basically work on the trading, but if they fall below a certain number of volume, it's basically not even trading anymore. There's no point in having a listing. And those are the cases where we would look to delist.

Yeah, same. Same here. You know, if there's extremely thin liquidity, if there's no volume, that would be cause for us to look at that asset and try and work out with that team whether or not it makes sense for there to continue to be a listing. Simple things like if there's thin liquidity. People can't really execute orders if there's no one providing liquidity. So there's no market makers for that market anymore because it economically doesn't make sense for them to provide liquidity. People simply cannot execute orders without there being massive slippage. So simple things like that that really play to market dynamics and market integrity drive decisions around what assets are delisted and when they're delisted.

Yeah, liquidity is obviously one of the major ones. We also like to look at risk to users, take into account user safety. A lot of coins can start to become lose their transparency a bit and perhaps they aren't operating how they were or how they should. If we start to get a bit concerned about how they're operating and we can't derive what they are trying to achieve or where they're trying to go, it does start to raise a few red flags for us and it can lead to delisting as well. It's a lot of it is got to do with user safety for us.

Yeah. What is the future of exchange coins? Cryptocurrencies that serve as a utility token at the same time for the exchange? Is that. Do you have a view on that that you want to share?

I'm happy to give a very high level answer that. I mean, no surprise, I'm sure to anyone watching this. We're massively bullish about exchange tokens. Binance has BNB and for us and for our community, it's been a massive success story. And really BNB is incorporated into absolutely everything that the company does, whether it's our incentive programs, whether it's in, for example, burning BNB to further decrease the supply of bnb, whether it's utilizing BNB as a means of payment within our various products and services. It's a core part of our company. BNB really represents the equivalent of our share price. I guess, you know, people see BNB as a bit of a bellwether of how well Binance is doing. So we're going to continue supporting our exchange token, bnb. We're going to continue incorporating that into as many areas of our business as we can. We've been very fortunate that people have found BNB to be a useful utility when interacting with our exchange environment. And for us, the challenge is really to continue to find ways to make BNB more usable and more spendable. And give you one great example. You can spend your BNB on our Binance card, so you can use it as a means of payment now as well. So we're bullish about it and yeah, we're hoping to see it grow and grow.

I think exchange tokens, again, like any other affinity token, I mean, they're like a frequent flyer model. So I think they will do well. I think at the end of the day, if the airline's about to go bankrupt, they're probably not very good. And I think the exchange token is as strong as the exchange. Like, I don't think Bitmex had one, but if they did, I'm sure that wouldn't be doing well right now. So I think it's good as long as the exchange is doing well. It's actually right now, Bittrex Global doesn't offer a token. We have something called Bittrex Credits, but we're actually thinking of also issuing our own exchange token as well. So, again, I think I would agree the sentiment. Exchange tokens are probably a good thing, but be careful of who's issuing the token if you're an investor.

For us, like it's been mentioned, the exchange token, Huobi token in our case, is part of the whole roadmap of our future plans. It's been integrated in what we do now and how it's used across the platforms, and it will be integrated into later projects, from Huawei chain to other things that we grow upon. It becomes an integral token. We've seen tokenomics across the cryptocurrency space and how it's used in different projects. It's the same thing for the exchanges. It offers another level, another part that they can offer clients. And yeah, it can be used in so many different ways. And I do agree that it is a good bellwether for how the company's doing as well. If the token is doing well, the company is probably doing well. And it's a sign that people are interested and invested in the company. They are in the token.

I think we have time for one more question before I hand back to Nikolai. There are plenty of questions, but one I've been wondering as well, and that is the Robinhood model. You're familiar with it. Robinhood executes trades for free. They get paid on the other side for the order flow. When will exchanges, if ever, move to a Robinhood model?

Well, I think to sell. So Robinhood selling securities, so they're borrowing, I think Citadel's securities, you need a securities license to sell securities. That's not negotiable. So I think that's the biggest impediment. So if you're running an unregulated exchange, even for crypto, it's pretty hard to get a securities exchange license. And which country do you want to sell equities into? So that's every country is a different. So if you want an EU license, you would need an EU banking license. If you want to sell securities in the US you would need a US securities license or you would need a partner in all these different jurisdictions. So I would absolutely. I think that is the direction of the market. You know, we being regulated, we're actually looking at getting some sort of securities license or working with somebody. So I think it really depends on the exchange and their ability to operate in a much more heavily regulated space.

All right. The other panelists do agree with it, I guess.

Yeah. The Robinhood model works really well for a brokerage where you know, they are being paid by the liquidity providers that is commission free for the end user, but they're getting paid from the liquidity provider that will work for brokerages. And I'm sure there will be some crypto brokerages that will find that model. But at the end of the day, they're going to be sourcing their liquidity from the venues and the exchanges, just like everyone on this panel. So I don't think that will change because exchanges will be the central source of liquidity.

Right. Well, our hour is already over, I'm afraid. I would like the three panelists, Steven Stonberg, Darren Pollock and Josh Goodsbody for your valuable time. I'd like to thank the audience for your patience bearing with us. Even though this is a video meeting, it's not exactly the same as meeting in person. So there probably no after here discussion. But I understand a number of places have had live streaming events where people can now go stand up and have a drink. Thank you all so much and look forward to seeing you again soon in real life. Cheers everyone.

Great. Thank you so much.

Sa.