Interview with Cao Jing: Compliance, Localization and Traffic Integration, Exchange Status and Future

On October 19th, at the 1st anniversary of the exchange, Jingwei China Partner Harry, Sequoia Capital Partner Wang Hao, and FBG founder Zhou Shuoji appeared as investors and attended the round table. Cao Jing, co-founder and CEO of BitMax Exchange, and Ni Kuang, partner of DFG Crypto, discussed the current status and future of the exchange development. There are many wonderful ideas in the discussion.

The digital currency exchange is in a pivotal position in the entire industry. Unlike traditional financial exchanges, it integrates financial institutions such as brokerage, custody and asset management, and has developed very fast in the past two years.

Talking about the development trend of the exchange, Zhou Shuoji said: "French currency channels, pricing, and aggregation may be the future directions. But the trading platform will still have the survival of the fittest, the winners will take all the time, and the head exchange will do everything. Others have a hard time competing."

Ge Yuezhen believes that there are three trends: “One must be more compliant, both to protect the exchange and protect investors; second, the role of the exchange will be more clear, hosting, trading, matching and customer service. It may be as different as traditional finance; third, in terms of quantity, there will be only two or thirty exchanges in the world."

In the digital currency exchange industry, two phenomena can be seen. One is that the exchange continues to perform functional expansion, from spot trading to leveraged derivatives, borrowing, and mining pools; the other is to separate certain functions of the exchange. The service providers who came out to do it slowly appeared in this industry, including the aggregation platform and the lender platform.

In response to these two contradictory phenomena, Harry said: "A variety of functions exist in an exchange. The core reason is that the industry is not mature. When this matter is lengthened, I believe that everything is still With its uniqueness, more professional service providers will emerge in the industry."

Wang Wei also said: "In the early days of the industry, small white users will want a complete and simple solution. But as the industry develops, more and more organizations with the ability to integrate different solutions will make these work at a single point. A good company wins. Another trend is that regulators will require it to separate the entire service into subdivisions and professional development."

Ni Kuang looks at this from two dimensions: “The first dimension is market capacity, and it can be said to be anti-risk. Today’s market capacity is not that big. If you eat 20% or 30% of the market, Earn some small money. If there is a fierce turmoil in the market, this business may hang. From this dimension, if the market capacity of the blockchain can go up a lot, I think there will be more and more businesses to do.

Another dimension, can be understood as Xiaomi put all the toC business in one, the mixed industry is definitely the most profitable, the brand only needs to hit once, the customer's money is deposited in it. But in the long run, this kind of thing is too profitable and must not be sustainable. There will be some changes in both regulation and competition.

At the celebration, Babbitt reporter also interviewed Cao Jing, co-founder and CEO of BitMax Exchange. He is a Ph.D. student at the University of Chicago. He has worked for Knight Capital and Barclays Bank, and founded the quantitative trading fund Dehua Capital in New York.

The entrepreneur who has many years of experience in quantitative trading and venture capital on Wall Street has been involved in the field of digital currency exchanges for a year. What understanding and understanding of specific issues such as sharing depth, platform currency, compliance, globalization, and DEX?

Babbitt: Today is the anniversary of First, please ask Dr. Cao to summarize the main achievements of in this year. User volume, user distribution, transaction volume, transaction depth, main products?

Cao Jing: I said that "the currency is one day, one year in the world". Although BitMax only has one year, it seems that it has been going on for many years, and the things it experienced may be more than ten years before I used to work in the traditional financial industry.

When was first launched, only a few people traded, and the daily trading volume of several hundred dollars, there are now 500,000 users, and the transaction volume of over 100 million US dollars. Looking back, I think is most proud of bringing a lot of new things to the digital currency trading industry. From the beginning of the more innovative mining and mining mechanism, to the first launch of the full warehouse leverage products, and later the first to introduce volatility products. Our team has brought the experience of traditional finance into the digital currency market and achieved certain results. Babbitt: Trading mining is a marketing tool for during the cold start. Now the mine is transformed into a common exchange. How about feedback from users and the market this month?

Cao Jing: After the mine was stopped, it was obvious that there was a transition period. Before that, many of the coins held the dividends. Since the dividends fell out of the market, there are also many users based on deflation expectations entering the market. But the exit is all of a sudden, and the speed of entry is slow, which is why everyone will see a substantial adjustment in the price of the past month. From the transaction data of the recent period, the whole market's orders are balanced, much better than the last month of mining implementation. At that time, there were almost 2 million platform coins per day, and the market continued. Throwing pressure, now slowly reaching an equilibrium state.

Babbitt: Regarding the depth of integration, Dr. Cao said in an interview with the media at the beginning of that he wanted to promote the Global Exchange Alliance and share the depth of the transaction. How is this going? We can see that several head-to-head exchanges are facing each other on a daily basis. Is the depth of shared transactions only a strategy for small exchanges to warm up? Once you grow up in the stock market, there is no way to divide the cake?

Cao Jing: First of all, the trading volume of digital currency and traditional financial ratio is a fraction, and may not even be 1% of US stocks. In this case, we have so many digital currency exchanges, there are dozens of names that can be called, and there are thousands of names that can't be named. This is very unfriendly to the trading user because the depth is not good and the liquidity is not good. Then a market maker may have to dock dozens of exchanges, which is also a huge waste of resources. That's why we want to integrate depth between exchanges and become a more friendly pattern for traders.

But there are great difficulties in actually working. For example, who is doing this? Because of the lack of supervision of the entire digital currency exchange, it does not have a liquidation mechanism. Let me give you an example. The A exchange and the B exchange are connected. If the transactions are executed at the B exchange, then the A exchange and the B exchange. The settlement between the two cannot be carried out in real time, so it involves the issue of the credit line and the risk of the opponent's family. If the B exchange is down, the A exchange must also be maintained and so on. The industry's success in integrating traffic is Bittrex and Upbit, but they have recently separated. I think this is a step backwards. When we pushed forward the integration of the exchanges, we did dock some small exchanges, but it was difficult to promote the integration with the big exchanges.

The first one is the difficulty of liquidation, and the second one is the question of who is here. I think this general direction will not change, and the situation may change. I think that in the coming year, we will see the integration between many exchanges. It may not only be deep integration, but also mergers and acquisitions of exchanges, including the acquisition of JEX by the currency. M&A between different exchanges may be more and more, because this market can't support so many exchanges, traffic in the general direction will still be integrated, but the form may be different, so our original intention has not changed. Babbitt: As far as compliance is concerned, you have said before that BitMax is a combination of three exchanges. is operated in compliance with Singapore. How is the compliance situation in the US and Canada going now? Did you encounter any problems?

Cao Jing: The compliance between the United States and Canada has basically been completed, but we have not found enough technical resources to invest in the transaction because the entire digital currency industry is developing too fast for us BitMax. For io, the current product line is not yet complete. Compared with the head exchange, we still lack futures contracts, Staking pledges, and OTC deposits. In this case, we will judge the priority of these things, which means that we currently feel that the priority of futures contracts is higher than that of US compliant exchanges. There is no problem with the legal aspect, just the issue of prioritization of technology.

Babbitt: With regard to globalization, relevant data shows that the source of users of 30 mainstream exchanges in the world is highly concentrated in several countries, but users are more inclined to trade on local or established exchanges. What do you think? ?

Cao Jing: We have seen many exchanges doing global layouts, currency security, fire coins, and many second-tier exchanges are doing this. I think localization is an inevitable trend. Regardless of which business sector, retail, e-commerce, or even automobile manufacturing, localization is a process that cannot be avoided in order to succeed in different cultures, economies, and customs, so digital currency is no exception. If I want to advance this, I will tend to invest in local teams and integrate traffic to us instead of running on our own.

Babbitt: I have always had doubts about the platform currency. It is undeniable that the platform currency brings user traffic and stickiness to the exchange. However, the original exchange may pay more attention to the stability of the server and the rationality of product design, but now it puts a lot of energy into how to benefit the platform currency price. One of the contradictions is that due to security, stability, and compliance considerations, exchanges should be cautiously expanding new products and new businesses, but now, in order to continuously stimulate the price of platform coins, the pace of first-line exchanges is getting faster and faster, leveraging, Contract, financial management, IEO… How does Dr. Cao see this problem? How to use the platform coin to protect the blade without being pinned by it?

Cao Jing: I think that this problem is not only in the digital currency market, but also in the traditional stock market. The volatility of stock prices will put pressure on the company, and the pressure on the digital currency market may be even greater, because everyone is pursuing a short-term return. I think you are right. The pressure on the platform currency price exists in every exchange. People in public opinion or pressure will inevitably be affected by emotions and affect the normal operation of the platform.

But I think the platform currency is a double-edged sword. It is a financing method when there is no capital operation in the initial stage. Then, if you think of this as a platform, if you pay back the investor, you may feel better. Because there is no investor support in the early days, you may not be able to do this brand at all. Afterwards, it is also responsible for the investment of the investor. But you are right, how do we balance the pressure between platform coin investors and platform operations? This is a very important thing. First of all, we must do a good job in user education and tell them that only the platform is good and the platform currency can be better. Secondly, we should not promote the platform currency price too much, but introduce the platform currency as part of an evaluation ecology. Babbitt: About the data rollback under abnormal trading, due to hacking, quoting server problems, or abnormal trading caused by price manipulation, whether the exchange has the right to roll back the data, in the digital currency market that promotes decentralized thinking, It is a controversial topic. also rolled back the data in August due to abnormal transactions. How does Dr. Cao see this? Under what circumstances can I roll back the data? What is the criteria for determining abnormal transactions? What can the exchange do to reach the maximum consensus of the users?

Cao Jing: Yes, our team is all from traditional finance, so many practices refer to the practice of traditional financial exchanges. For example, the NYSE's known rollback this year is four times as of August, and data errors and cancellations are often common.

So how do you judge whether a data transaction is abnormal? First, if the price deviation of a stock on two exchanges is particularly large, this is the data anomaly; second, the pushed data is abnormal, for example, the price I push is one hundred because of network transmission problems or system reporting problems. The result of the push becomes ten yuan, resulting in an abnormal price transaction. Third, because the order is too large, the market depth can not bear large price fluctuations in the short term, it will also be a trading anomaly.

To some extent, the exchange is a semi-regulatory entity. He is a self-regulatory process. He has the power to make his own rules and has the power to determine whether the transaction is abnormal. We also refer to this rule. In August, this time because the currency of our platform trading is too different from other platforms, so we decided that this is an abnormal transaction. We are not rolling back, but canceling these transactions. Our user code is also very clear, the transaction ownership cancels the abnormal transaction we have decided. I think this is a protection for the user, because any transaction has a counterparty, maybe you are very happy to buy it at an abnormal price, but if you accidentally sell it, it will be a big loss, this is not a market price. We have a responsibility to protect investors. Babbitt: The user's biggest question may stem from the fact that it is not clear how much the spread will be treated as an abnormal trade, but is suddenly told to cancel or roll back. Do you think the rule itself should be pre-positioned?

This is a very good question. If you look at the rules of the NYSE, it does have a stipulation that it is an abnormal transaction. But all the rules will eventually add "and other things that the exchange thinks", because you will never know what the market is like, and if there are new abnormal transactions, it is impossible to tie your hands and feet, say this Not an abnormal transaction. So in many cases, this is based on common sense.

Babbitt: Regarding DEX, the centralized exchange is still the mainstream now, but the head exchanges are all in the layout of DEX, Coinbase acquires paradex, Bibox acquires, and the currency has released the dex test network, Okex also released its Will the trading company's public chain test network, cut into this track?

Cao Jing: I have never been a fan of decentralized finance. All the finances, because they involve everyone's assets, must be centralized, must be supervised, that is, I have always been the view. That is to say, all things related to money must be regulated and there must be laws to protect investors. Decentralized finance may exist in some fans. Because of their ideas, their beliefs, I think it is normal, but this will never become mainstream, and the transaction volume will never go up.

Babbitt: The head effect of the exchange is very obvious. When the overall market is not good, small exchanges face the test of survival. In the past two months, nearly 10 small cryptocurrency exchanges have closed down. I would like to ask Dr. Cao, what is the difference in the overall layout?

Cao Jing: If you asked me two years ago, or a year and a half ago, I think we have a lot of places that are different from the currency and the fire. There are many places in this industry that are not doing well. We can Improve. But this year we are progressing, and the head exchange is also improving. They have introduced leverage, futures contracts, derivatives, and what traditional finance can do, basically have been moved to the currency. So if you ask me now what is strategically different from the currency, I don't think there is a big difference. So why do we have to do this direction? It's not that we can beat them in futures, but we can't compete with them if we don't make futures.

So where do we compete with them? It is to consider how many exchanges an industry needs. I think there should be 4 to 5 heads in any industry. Mobile phone operators and car manufacturers are like this, and there may be some other second-line. So the more reasonable worldwide exchanges, I think it is about 20, then in addition to these 4 to 5 heads, there is a large enough market to prop up enough differentiation.

Is there a difference in the product? There must be some. For example, we are the first to launch a full warehouse leverage model, and the volatility product is also the first. But it's not that fire coins and coins can't do this, but they have different choices. It's not a product model that applies to all people. It's also the charm of the world. Everyone has diverse needs, so it needs to be different. The exchanges to meet their needs. Therefore, we feel that there are differences in products, but we have always been clear about the whole strategy. The difference is not too big. The homogenization is indeed an indisputable fact.