Tag: crypto assets

Crypto Exchange Market: Top Issues to Consider

If one wants to trade, he/she mostly relies on crypto exchanges. But we should remember: nothing is flawless in our world. And the exchanges are no exception.  We’ve already been focusing on their problems and trends, rivalry with over-the-counter market and the issues of scalability. Now it’s high time to make a kind of a conclusion to our research. Today we’ll talk about principal issues crypto exchanges face today, the way they influence and are influenced by users and the entire crypto market. Let’s get it started. Trust and security  As of now, market conjuncture doesn’t allow new exchanges to cut through the noise. Firstly, it’s all about the users’ bearish behaviour. Alex Strześniewski, a Business Development Director at CoinDeal (coindeal.com), says the following: “It's difficult to attract users for a new exchange. It's difficult to convince new users to involve because the people who entered the bull market a year ago, they have already got their favourite exchanges which they are not likely to give up using”Alex StrześniewskiBusiness Development Director at CoinDeal   And it’s hard to argue with that. Community has become much more skeptic and experienced than 2-3 years ago. New projects are now perceived with a pinch of salt and, as a rule, cannot break through, thus not creating the healthy competition on the market.  Here’s what we’ve got: new projects die on the vine, ‘whales’ and ‘old boys’ make the exchange market monopolised. As a result, the environment becomes stagnated, with no essential updates and changes. And how the practices of Mt.Gox, Bithumb and Coincheck have shown (those exchanges have suffered severely from hacker attacks), the changes have long been a must. That’s why new exchanges should find unique ways to involve skeptic users. Community should trust you in every aspect of the trading process, and that’s what Jason Wang, CHAOEX CEO, is talking about: “To build trust is never an easy task. We at CHAOEX fully understand that we need to consistently deliver information about us, to let user know everything about our team, platform, know what we are doing. We have our own channel, which help us show that we do not only live in the moment, but also have eventful past and promising future. We try to keep users updated with the problems we face and always take their advice and comments into our consideration. Our community is our friends – and one of our key goals is to make them feel it”Jason WangCHAOEX CEO   According to Max Grain, a Product Management Executive of Bitlish, trust is underpinned by the variety of factors. He adds the following: “Trust is based on operational history, openness, and even pricing policy. We at Bitlish have one of the lowest commissions for Visa/Mastercard operations in the world. Other factors have less impact, but it’s never stop trying to improve the user experience”Max GrainProduct Management Executive of Bitlish   Scalability Another equally important issue of new exchanges is the way it keeps up with the pace of its own development. In simple terms, it’s scalability. Through the prism of the time, the issue of scalability has been pursuing the crypto market since its birth. Naturally, when Bitcoin emerged in 2009, it was not initially designed with the idea of widespread use and adaptation in mind. As the number of daily transactions continued to rise, an increasing number of issues were popping up. The same thing is with crypto exchanges. Ilya Bere, Changelly CEO, shared his experience with us:  “After the hype of 2017, we realized that scalability was one of the critical factors for long-term market survival. In particular, one of our focuses in 2018 was the increasing of the technical scalability of our project. Meanwhile, since our partners are exchanges, we still see some of them facing scalability issues as demand increases. We hope that in the nearest future all players will be ready for a new crypto wave”Ilya BereChangelly CEO   A suitable scaling solution is an optional way out, which could already become useless in several months. A team behind the exchange should follow a well-thought-out strategy and play long-term. Here’s what Andrei Popescu, a Co-Founder of COSS.IO, explains: “Even a small exchange should be ready for large-scale trading. Such trading implies high volumes and scrutiny that even the most popular crypto asset exchanges today may not be prepared to handle.”Andrei PopescuCo-Founder of COSS.IO   Self-regulation  Regulatory measures, both internal and external, play a lead role in exchange’s success. Users want their assets to be fully protected, and that’s what reliable and complex regulation contributes to. A textbook example of how to comply with law is KuCoin. Its Co-Founder and concurrently a Vice-President stated his position on the issue:  “We work with several external AML institutions. They are quite matured in terms of service package setting and implementation. As an exchange, we aim to better serve our users, if there are AML services with higher quality, why shouldn’t we integrate them for users’ sake? Plus, we also have internal team in charge of AML procedures. Backed by the internal-external collaboration, we believe that the efficiency of our work will improve, without sacrificing security and privacy.”Johnny LyuKuCoin VP   Wrapping up  The race “to Become as Trustworthy as Possible” is going on. And that is amazing: the harder competition is, the more approaches and alternatives appear. Users must have choice, because where there’s the choice, there is also a great room for the further development. We are already in history, operating in the fastest-growing environment, with no end in sight. But still, there’s a lot to do and bring here.    *This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO; Johnny Lyu, KuCoin VP; Srdjan Mahmutovich, Kriptomat CEO; Jason Wang, CHAOEX CEO;  Ilya Bere, Changelly CEO; Max Grain, Product Management Executive of Bitlish, and Alex Strześniewski, Business Development Director at CoinDeal.

Articles/February 1, 2019

KYC & AML: Designed to Resuscitate the Crypto Market

Crypto market stagnated. And let there be no obscuring of that. We are now in a ‘buffer crypto-zone’, waiting for turning points to occur. The entire 2018 was mostly bearish, and today, everyone, including investors and crypto-related business initiators, is expecting the year 2019 to be more crypto-friendly.  New regulations, combined with KYC and AML procedures, are designed to contribute to the flourishing future of the crypto world.  Many critics say that abovementioned ‘duo’, besides being a calling card of company’s credibility, also acts as a ‘double edge sword’ and kills users’ anonymity.  But we have something to say in return: the absence of KYC and AML can kill the entire crypto space. Illustrative statistics of 2017 demonstrates a pretty obvious thing. 2 years ago, when KYC and AML were in their infancy, only 24% of ICOs worldwide had an official legal status. And one more study prepared by Statis Group shows that more than 80% of ICOs conducted in 2017 were identified as scams.  This leads to the conclusion that the appropriate legal support does not protect investors, and does not allow ICO initiators to carry out an ‘exit scam’ scenario.  We must admit that we live in a harsh world, and it’s far from utopian. Users with contrived and malicious intentions have always tortured the crypto world. That’s why regulatory measures must not be neglected. Crypto field has been and, actually, is the great ‘bait’ for fraudsters and criminals, especially when this bait is not essentially regulated.  Let us take, for example, an ICO model, where the money laundering is deplorably flourishing. In simple terms, an ICO takes one’s asset and redeems it for another - a token. These tokens can be freely traded for other crypto or fiat currencies on exchanges worldwide. This system presents a major risk for ICOs. They could easily be used for laundering proceeds of crime.  Many within the industry believe that the future of ICOs may instead lie in security token offerings (STOs). In a nutshell, the STO is an ICO-like investment model. The key advantage of using this route is that token holders are fully protected by the very same financial regulations as used in traditional security-based projects. Self-regulation is needed, but is still hard to be implemented. Max Grain, a Product Management Executive of company Bitlish, explains:  “Scaling brings its own changes and challenges, and a company’s team has to be ready to adapt. Procedures that worked well when you were small may have to give way to a more defined systems and procedures over time as the company grows” Hopefully, not only self-regulations are coming to the crypto market. For instance, in March 2018 the US Department of the Treasury published a letter summarizing its interpretation of the Bank Secrecy Act as it pertains to ICOs. The letter stated that: “Generally, under existing regulations and interpretations, a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements” Last year, European Union also introduced crypto anti-money laundering regulation. Here the regulation applies not to ICOs, but to exchange services between virtual and fiat currencies, and custodian wallet providers which don’t comply with the AML directive.  These businesses become “obliged entities” under the new AML/CTF legislation, similar to traditional financial institutions such as banks. They are obligated to implement measures to counter money laundering and terrorist fundraising, such as customer due diligence (including KYC) and transaction monitoring. They are also required to maintain comprehensive records and report suspicious transactions. The only problem which these regulations entail is that they are not standardized. Andrei Popescu, a Co-Founder of COSS.IO, says AML should be harmonised worldwide: “Despite calls for the adoption of global AML standards for crypto assets trading, no such uniform rules have yet emerged. Differences in national regulations include the existence of special licensing requirements for Crypto Exchanges, the extent to which AML rules also cover administrators and wallet services, the extent to which ICOs are covered by securities laws or equivalent regulations with AML regulatory implications, and the extent to which a crypto-to-crypto exchange is treated differently from crypto-to-fiat exchange. In many cases, the regulatory status of these activities is either ambiguous or case-specific, or is otherwise subject to pending changes in law and regulation” The other side of the crypto-coin is trust. Market needs some time until community will get accustomed to every new regulation and legal improvement. Srdjan Mahmutovich, Kriptomat CEO, states on the issue:  “Crypto space is so fresh and new that no one knows where it all finishes, as we are at the beginning stage. One thing is clear - we do need to put in place more regulation; otherwise we won’t be able to attract all the masses of users to come here. People trust banks. Generally speaking, they do because they use their services on a daily basis. Time will show how much regulation should be put in place in order to secure the user and prevent abuse. Some people, if there`s no KYC, are actually worried, asking whether their assets secured. And that’s what KYC and AML will solve” Evolution is a long-term process, and the crypto market is no exception. We are standing on the verge of a new era – ‘Era of Regulation’ – a crucial period for the crypto world. Backed by harmonized regulation, cryptocurrency will be a great instrument for those who are keeping the interest of the society in mind as a top priority. AML and KYC will help keep it, and what’s more – will help meet it in a fully secure and trustworthy manner.  * This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO, Srdjan Mahmutovich, Kriptomat CEO, and Max Grain, a Product Management Executive of Bitlish.

Articles/January 24, 2019

Will 2019 be the year of STOs?*

It is past the middle of January. Time of the World Economic Forum in Davos, time of skiing, time of January blues and Siberian frosts, time of sitting by the fireplace with a good book and a glass of hot mulled wine… or, on the contrary, time of meditating under the shade of palm trees somewhere in Vietnam…  Hope you have had great winter holidays, because after the November market meltdown when bitcoin lost 36% of its value, we all needed some relaxation. But now it is time to look at the crypto market with a sober glance. June 2018 was the last month when the ICO market demonstrated stellar performance, and investors fueled more than $5.8 billion. For the rest of the year the ICO projects raised from $450 million to $1 billion per month. "The crypto gold rush has left behind too many casualties; many non-accredited investors and speculators were victims to really bad ICO punts. So many ICO projects performed so bad, exasperated the recent bearish market conditions, with some even reporting over 99% losses from their all-time high prices”Andrei PopescuCo-Founder of COSS.IO   “And we have warned you!” say regulators to thousands of investors who are nursing their wounds. To be fair, they did warn. ICOs are "vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raise in a short period of time," said the Monetary Authority of Singapore (MAS) as early as in August 2017. Still, so far regulators have done little to protect companies that deal with crypto assets and institutional investors that are ready to invest in them. An investigation carried out by the WSJ shows that $88.6 million has been laundered through 46 crypto exchanges since 2016. Few of the market participants noticed an event that may have far-reaching consequences for all of them. In November 2018, during the market meltdown, the first security token exchange, OpenFinance Network, was launched. It listed two of the earliest security tokens: Blockchain Capital (BCAP) and SpiceVC.  This launch marked the beginning of the new era of the security token industry. STOs are often defined by the formula: “ICO + Legal Compliance = STO” The basic difference between ICO tokens and security tokens is that the latter represent investment contracts. Paradoxically, but the very idea of such tool might be proposed by the SEC chairman Jay Clayton who said once: “I believe every ICO I’ve seen is a security”. Security tokens are digital assets that are subject to federal and global security regulations.  "I’m confident that STOs will be hugely popular by 2019 as they offer a familiar path for traditional investors to enter the space and an array of benefits compared to both the traditional finance sector and ICOs"Andrei PopescuCo-Founder of COSS.IO   Strangely enough, but STOs might be a by-product of the insufficient regulation. STO sales give some legal rights to investors. If an STO fails, its investors will be able to get some money back, because the issuer has some legal obligations. Besides, security tokens are traded on compliant trading platforms only. “With more than $256 trillion in real-world assets that have yet to be tokenized, STOs present a real alternative for companies and investors. Hosting an IPO is undoubtedly expensive. With an STO, companies can allow for investment through tokenization, which significantly cuts admin and legal costs while keeping the company and the process transparent. With improved regulations, STOs will become the more desirable choice for investors as increasing amounts of VCs and Family Offices eye-up the space, hoping to capitalize on the distribution power of ICOs with a legal, secure method of investing.”Andrei PopescuCo-Founder of COSS.IO   To put it differently, market participants decided to take the matter in their own hands, while regulators are trying to find a way to tackle money laundering in the crypto sector.  While the industry is experiencing barbarian growth, self-regulation takes the major role in terms of customer protection, and that’s risky, says Johnny Lyu, KuCoin VP. “After all it will be the market that’s the most powerful. And where there is a market, there are rules, and regulators. There is nothing wrong about regulations, it is to clean up the market.” In October, 2018 the Paris-based Financial Action Task Force (the global watchdog for money laundering) promised to set up its first rules on oversight of cryptocurrencies by June, 2019. “There is an urgent need for all countries to take coordinated action to prevent the use of virtual assets for crime and terrorism”, FATF says. Meanwhile, at least one country that has already legalized STOs. It is Uzbekistan. In 2018 Uzbekistan President Shavkat Mirziyoyev created Digital Trust fund to invest in blockchain-related startups and research and development. Now the Digital Trust is looking at STO and starting to build the framework for it, said Bobir Akilkhanov, its investment director. The Cryptonomos Blog wrote about the three Middle Asian countries (Kazakhstan, Uzbekistan and Kyrgystan) as they attempt to position themselves at the forefront of blockchain technology adoption.     * This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO; Johnny Lyu, KuCoin VP; Srdjan Mahmutovich, Kriptomat CEO; Jason Wang, CHAOEX CEO; Max Grain, Product Management Executive of Bitlish, and Alex Strześniewski, Business Development Director at CoinDeal.

Articles/January 22, 2019