HashKey is trying to change the current crypto industry landscape dominated by unlicensed crypto exchage.
Written by: Zhou Zhou, Foresight News
"After I saw the internal email, I found out that I had been appointed as the new CEO." HashKey Exchange CEO Livio (Weng Xiaoqi) said.
On January 3, 2024, an internal letter from HashKey officially announced Livio as the new CEO of HashKey Exchange. For this reason, Foresight News contacted Livio and conducted a public interview with Livio on Twitter Space.
In this exclusive interview, Livio comprehensively reviewed the many challenges faced by HashKey Exchange in 2023 and revealed the macro goals of HashKey Exchange in 2024. In addition, he not only talked about his journey in cryptocurrency, but also shared the relevant business progress of HashKey Exchange on potential encryption tracks such as RWA, ETF, and stable coins.
Weng Xiaoqi believes that "new tracks" and "new narratives" such as RWA, ETF, and Hong Kong dollar stablecoins are inherently opportunities and stories for licensed crypto exchage. It is difficult for non-licensed institutions to participate in them. This is also a turning point for licensed crypto exchage. Overtaking opportunity.
Is a licensed crypto exchage a good business?
Foresight News: Happy new year, welcome everyone to Foresight News ’ first Twitter space of the new year. This time we invited Livio, the new CEO of HashKey Exchange. This is also HashKey’s first appearance since Livio officially announced on January 3 that he would become the new CEO. First of all, congratulations to Livio.
Livio : Thank you, and I wish you all a happy New Year. This year is considered to be a bull market that can be expected (in the cryptocurrency industry). I wish you all a good harvest this year.
I actually found out that a new CEO had been appointed after seeing our internal email. In the past, I have actually been supervising various tasks of the exchange as the group COO. In the past 2023, HashKey Exchange has made a lot of progress, and thank you for your continued attention.
Foresight News: Previously we mentioned Coinbase, a US-compliant cryptocurrency exchange. Its success largely stems from its good fundamentals as a US-based cryptocurrency exchange and its ability to reach hundreds of millions of US users. However, Hong Kong only has a population of about 7 million. Will this become the ceiling for HashKey Exchange? What has HashKey Exchange done to expand into the international market?
Livio : In the past year, I have actually solved one of my own confusions, that is, whether licensed cryptocurrency exchanges in Hong Kong can make money. The phased results we have made in the past year have answered my own questions one by one.
First of all, our current customer structure is about half from the Hong Kong market, and the other half comes from users around the world.
There are two types of Hong Kong market, one is retail users, and the other is large institutional users, such as listed companies in Hong Kong stocks. We have disclosed many such cooperation to the outside world, as well as traditional financial institutions in Hong Kong that are friendly to cryptocurrency, such as funds. companies, securities companies, etc.
The other half are users from all over the world, a large part of whom are Chinese from around the world. Western crypto exchage are not completely friendly to Chinese people, and their service types are more focused on the experience of Westerners. For example, if you have any development problems and send him an email, you will only receive an email reply a week or two later. The Chinese are accustomed to having an online customer service system. If users have questions, they will be answered immediately. Therefore, overseas Chinese constitute the other half of our market.
Of course, there are also users from regions such as Southeast Asia and India. The markets in these regions are relatively active and they are also an important part of our user group. Therefore, we have actually deployed internationally in the past, directly supporting participating transactions from 16 countries and regions.
In addition to the Hong Kong license, HashKey already has a Japanese crypto exchage license, and we are also actively planning in Singapore. In addition, we have actually obtained another license that is very important from a global perspective, but due to regulatory reasons, it cannot be disclosed yet. It is expected that we will officially disclose it in the next two months. Let me make a preview first.
Foresight News: Licensed cryptocurrency exchanges are considered a new generation of cryptocurrency exchanges. What are the differences from previous unlicensed cryptocurrency exchanges?
Livio : The main differences may lie in these points. The first difference is whether crypto exchage rely on people’s credit, or on mechanisms or legal systems. In the past, non-licensed exchanges relied on the credit of institutional agents. The safety of users’ assets depended on the founder’s credit and the founder’s ability to resist risks.
In the past, we have seen many exchanges run away, many of which were due to failure to resist risks, such as SBF. Then there are many unlicensed cryptocurrency exchanges, which actually have risks and certain exposures. If they encounter some situations, they are likely to explode.
The user assets of a licensed exchange must be independently managed with a license and have an independent TCSP license. At the same time, its operations are fully transparent and must be audited by an independent third-party audit agency. For example, HashKey Exchange has received audits from three of the Big Four accounting firms. KPMG is responsible for our external independent audit, PwC is responsible for our group internal audit, and Ernst & Young is responsible for our technical audit. The entire operation process is fully transparent. In this way, any activities of the company cannot be fishy, otherwise it will violate Hong Kong regulations and may even lead to imprisonment if pursued.
In the past, various exchanges had many different tricks in their operations, which often harmed the interests of users, but licensed crypto exchage would never do so. Because we are a licensed institution, the entire financial industry treats licensed institutions differently. One of the biggest differences is that, as a licensed institution, the banking industry in Hong Kong and the global banking industry can easily accept us, so the cooperation is very smooth. We have opened custodian accounts in various mainstream banks and can support bank cards. The deposits and withdrawals of the balance are legal and compliant. There is no need to worry about the card being frozen when depositing and withdrawing funds from unlicensed cryptocurrency exchanges, and there is no need to worry about going through OTC.
Another difference is that we can directly open legal currency trading pairs. Because of policy changes in 2017, everyone is forced to use stablecoins such as USDT. But there is a problem with using stablecoins. Whether the asset allocation behind it is 1:1, everyone will be worried about whether the stablecoins will collapse. On HashKey, you can directly purchase cryptocurrencies through Hong Kong dollars and US dollars, such as BTC/HKD and BTC/USD. In this way, many users who are afraid or concerned about stablecoins can avoid the risks of stablecoins.
Of course, what we just talked about are some of the benefits of licensed cryptocurrency exchanges. It also has some practical aspects, that is, it is relatively troublesome to open an account, and the selection of assets is relatively small. It can be said that licensed and unlicensed exchanges have different There are good and bad. However, for mainstream currencies, especially crypto-assets such as Bitcoin and Ethereum, people with stable preferences are very suitable for trading on compliant exchanges.
This is to understand it within the existing framework. Outside of the existing framework, compliance exchanges may play a very different role in the next few years. For example, the RWA track, which has been very popular in the past year, is essentially The above is the issuance of security tokens, which can only be done by compliant exchanges. If it is not done by a compliant exchange, it is called illegal issuance of securities. This is a criminal offense in every country.
The license enables licensed cryptocurrency exchanges to do a series of things that traditional financial institutions could do in the past, and derive new business forms from this, so there is a lot of imagination in this area.
Foresight News: Unlicensed cryptocurrency exchanges have many sources of revenue and considerable income. They can make contracts and derivatives. These can be said to be hugely profitable businesses, but licensed cryptocurrency exchanges have many opportunities in this regard. Due to restrictions, many businesses cannot be launched. Will this put a lot of pressure on revenue and profitability?
Livio : This is also another very real problem. All licensed cryptocurrency exchanges in Hong Kong may face the dilemma of struggling for several years without very good income. Many teams discovered during this process that their income could not fully match their expectations, and then gave up. So currently we may be the only one to get out of the predicament.
We expect to be able to break even on costs this month. There is indeed marketing pressure on us, but we are optimistic that we can get out of this difficulty, especially in the foreseeable bull market, reap the dividends brought by this round of bull market, and enter the next new stage.
HashKey Exchange in 2023 and 2024
Foresight News: What challenges did you encounter in 2023 that once gave you a headache?
Livio : All the hardships I endured in the past year are still vivid in my mind. You must know that HashKey itself is not famous for its exchange business. HashKey Capital and HashKey Cloud (ETH staking) are both very advanced in their respective fields, even leading the industry. However, in the past, there was not much business in the exchange business. of precipitation.
So the first question I encountered was an internal one: whether the team was up to the task. Because of my arrival, I attracted a large number of very core talents from leading exchanges. Of course, there are also many talents who joined HashKey because they believed in the compliant future of cryptocurrency, so they quickly solved the problem. One problem is that the team does not have the capabilities.
The second is that our technical system does not have it , because in the past, more system research and development may have been done by traditional Internet companies, or from traditional financial markets, so there was too little accumulation of our own technology, so we quickly established a A technical team used the latest engines and technical solutions to quickly install a system. The system has been verified for more than half a year and runs very smoothly. It has also experienced billions of dollars in transaction volume a day. Challenge, no accidents, which exceeded our expectations.
The third is the lack of external environment, especially supervision. This is a brand new track, and supervision often looks at the industry from a conservative or steady perspective. We worked with the supervision to cross the river by feeling the stones. Finally, through hard work, we gained each other's trust, and then we gradually began to gain trust. The more green lights, the more things can be done. So running-in is also very important.
In fact, many participants, including some of our investors and partners, have put a big question mark on whether early licensed exchanges can have market influence. In particular, there are currently no particularly successful cases in licensed exchanges around the world. For example, Japan, Indonesia, and Thailand do not have particularly successful licensed cryptocurrency exchanges. And everyone generally believes that compliance is a slow progress and does not make money. The goals and data we achieved last year actually gave our partners a strong confidence.
Of course, there is a difference between a legal track and a licensed track. For example, Coinbase in the United States has achieved relatively great commercial success, but they can only be called a compliant exchange, not a licensed exchange. Because they failed to obtain a federal-level license in the United States, they mostly followed the regulations in the past Commodity Futures Management Act. This is why many of their assets have been accused by the SEC of being securities, essentially because they are not licensed. We hope that by the end of 2024, we can say with more confidence that the industry’s stereotype of licensed cryptocurrency exchanges has been completely broken.
Foresight News: I just mentioned some good data performances and achievements. Which ones do you think are of great significance?
Livio : After we obtain the license at the end of 2022, we will enter a stage of preparation and official product release in 2023. There are several key nodes that I think are worth paying attention to: On February 28, we began to officially implement our trading service system, and on November 1, we released the APP of Hong Kong’s first licensed virtual asset exchange. Two nodes are very important.
Looking back on the achievements we have made throughout the year, one is that we released the first licensed virtual asset exchange APP, becoming the first and probably the only cryptocurrency trading APP in Hong Kong that is actually running. We also encountered similar difficulties as other institutions applying for licenses, but we finally overcame it through various efforts, so it was not easy. We became the first truly dynamic institution in the market, and after a period of time Through our efforts, we have accumulated and accumulated to a relatively good state.
Second, we have formed a team that can fight tough battles, which is not easy either. As I said before, for a compliant exchange, it needs talents whose ability map needs to understand both finance and Web3.
We used very fast speed to organically integrate the operations team from Web3, the R&D team from major Internet companies, and the compliance finance team from Hong Kong, organically combining people with three different backgrounds. . We will find that we want to combine people with different backgrounds, especially teams with different cultural attributes, so that everyone can implement complex problems with the same culture or the same values, and finally get a good result. It's not easy.
We have multiple data indicators that have exceeded the growth of more than 10 times. For example, the transaction volume in December was hundreds of millions of dollars per day, which was beyond our expectations, and our fiat currency deposits and withdrawals increased dozens of times. In August, we carried out some operational activities, such as we had a relay race. Originally expected to have 30 professional investors, we finally attracted hundreds of professional investors to participate, which also exceeded expectations.
In the beginning, it may take several days for users to open an account on our exchange. Now we can usually complete all the information within 10 minutes. At the beginning, there were only 5 currencies on our exchange, and now there are about 19. Currencies can be traded.
Foresight News: What goals do you and HashKey Exchange have for 2024?
Livio : We hope that the exchange business will be quite large in 2024. Specifically, we hope to enter the top three licensed exchanges in the world, become the number one in the (cryptocurrency) compliance track in the East, and enter a situation of rapid growth.
Foresight News: It is quite large. What are the specific aspects? For example, how many users are expected to reach in 2024, revenue targets, and each large exchange has its own ecological development focus. For example, OKX has done very well in wallets recently, and Binance has been developing relatively strongly on the public chain. , the Solana ecosystem supported by Coinbase has also been launched. Can you also share these specific goals, as well as some of your personal specific goals?
Livio : We have very clear goals internally, but as commercial secrets we may not disclose them directly. The second reason is that generally speaking, the effect of the bull market often exceeds people's expectations. The current design is likely to deviate greatly from the original version, so we also use it as a reference internally.
A new generation of crypto exchage and its CEO
Foresight News: Can you tell me about your previous experience in the cryptocurrency space? After so many years in this industry, what are the things that stand out in your mind?
Livio : I have experienced bulls and bears three times and have been involved in the cryptocurrency industry for more than 10 years.
My personal choice has always been cryptocurrency exchanges. Whether it is currently or in the future, I think crypto exchage are the king of business models in the entire Web3 track, so I will always work on this track.
Foresight News: What are the necessary requirements to become the CEO or core executive of a compliant cryptocurrency exchange in Hong Kong?
Livio : The Hong Kong cryptocurrency industry is a compliance industry regulated by the Hong Kong government. In addition to being appointed by the company's board of directors, a general CEO or core executive also needs to be licensed by the Hong Kong Securities Regulatory Commission to become an RO (Responsible Officer, licensed person in charge of a financial institution). As a CEO, not only must you become an RO, but you also have a high probability of becoming an OMO.
To become an RO, you must not only be familiar with Hong Kong's financial industry and have experience in managing cryptocurrency exchanges, but also need experience in investing in cryptocurrency, strong experience in Web3, and understanding of Hong Kong's laws and regulations. These conditions must be met at the same time. , I estimate that there are no more than 30 people in stock. At present, RO is difficult to recruit in the market.
Foresight News: Will cryptocurrency exchanges that do not embrace compliance have the same future prospects as before?
Livio : Exchanges will all move toward compliance, so the difference is whether you are passively compliant or proactively compliant. HashKey Exchange is a representative of proactive compliance. Other exchanges that apply for licenses are also proactively compliant.
What does passive compliance mean? Those exchanges that have not taken the initiative to lay out compliance work in the past few years are being passively pinched by regulators. The U.S. SEC will send commissioners to supervise various behaviors of the exchange. This is passive compliance.
This is actually the fact that the two largest economies in the world are using proactive methods to crack down on non-compliant exchanges, and these non-compliant exchanges must be forced to comply. Countries such as South Korea have also begun to issue high fines to platform exchanges.
This is also because the epidemic and U.S. interest rate hikes in recent years have made liquidity shortages a major problem in various countries. Various countries are looking for such non-compliant players from industries with abundant liquidity, and then squeeze out the liquidity. This will become a trend and even escalate into a competition. Under such a situation, crypto exchage will eventually become compliant. Compliance is an inevitable result of history, so no matter how large an organization is, there may be no way to resist such an inevitability.
More directions in crypto finance: stablecoins, RWAs and ETFs
Foresight News: Hong Kong’s VASP license has given a relatively clear answer to how cryptocurrency exchanges will develop. But there are many other tracks in the cryptocurrency industry, such as stablecoins, which are considered as big as the exchange business. What do you think of the market prospects of Hong Kong dollar stablecoins? And once stablecoins appear in the Hong Kong ecosystem, what kind of ecology will it affect, and what interesting institutions will appear in these ecosystems?
Livio : Yes, there are two particularly big tracks at the moment. The exchange we shared earlier is the king of business models in the crypto. Then the other "business model queen", the queen, is stablecoin. My judgment is the same as yours. These are two proven businesses. Model, stablecoins have also received widespread attention in the industry in recent years.
Regarding the Hong Kong dollar stablecoin, frankly speaking, we still have a lot of question marks. Because U.S. dollar stablecoins like USDT and USDC have been developed for many years and have a great first-mover advantage. Compared with subsequent stablecoins such as TUSD and PUSD, stablecoins such as USDT and USDC have first-mover advantages.
The demand or fundamental value of the stablecoin itself comes from the value of the local currency. The market prospects of the Hong Kong dollar stablecoin are related to the Hong Kong dollar itself and the overflow value it brings as Hong Kong becomes a global digital economic center or supplier center in the future. . Because Hong Kong is a free port, its demand for the internationalization of the Hong Kong dollar is relatively strong, so it has a certain market foundation.
USDT, currently the largest stablecoin, now has a volume of more than 90 billion US dollars. The money supply of Hong Kong dollars in December 2023 should be around HK$2 trillion. Hong Kong dollar stablecoins have the opportunity to spawn a large enough stablecoin market, but mainly in the usage scenarios of Hong Kong dollars, such as some Hong Kong dollar retail users and local institutions in Hong Kong. From a global perspective, USDT still has a great advantage.
Hong Kong hopes to become a global Web3 center, and to match its goal and obtain a pricing power for this mainstream virtual currency to a certain extent, it needs such an infrastructure to help it complete this mission. From this perspective, it has a certain degree of imagination and significance, but how big the space will be depends on our observation and judgment of a market in the next few years. Of course, there are still opportunities, and we are also actively participating in the issuance of stable coins.
Foresight News: I just mentioned stablecoin, which is currently the largest application scenario of RWA. Since last year, the market has been paying great attention to RWA. However, compared to Singapore, which has a relatively clear RWA regulatory framework and regulations, Hong Kong currently does not have particularly clear regulations in this field. What do you think of the prospects of RWA? , and which RWA asset issuances do you think have great potential?
Livio : This is a very forward-looking question. We have seen that many institutions have talked about doing RWA in the past year, but in fact the real effective participants of RWA may be very limited, and it is likely to be the main position of crypto exchage.
Because the license of HashKey Exchange is an upgraded version of license No. 1 and No. 7, this license itself can issue securities or security tokens. The basis of RWA issuance is legal security tokens. If there is no license, it is an illegal issuance of securities, which is a criminal offense in various countries and regions. In other words, RWA is born as a licensed exchange.
We are also actively deploying this area, and currently we are also a leader in the industry. In addition to stablecoins, we are very actively participating in the tokenization of some financial products that are more liquid and have stronger real demand. This demand lies in the fact that in the past, because of the interest rate hikes in the U.S. dollar, we have seen many people in the old crypto sell their stablecoins before this round of market conditions, or exchange their USDT and BTC for U.S. dollars. Then go to the U.S. dollar market to buy other financial products, such as U.S. bonds, etc.
However, the emergence of RWA allows funds, for example, after the end of the next bull market, to participate in the traditional financial market by purchasing tokenized products of traditional financial products without leaving the Crypto market. This should be an important direction in our layout for the second half of the bull market.
Not long ago, we have a cooperation with China Asset Management, which is exploring this direction and is expected to enter the market within a period of time.
Foresight News: The U.S. Bitcoin spot ETF is the biggest hot spot in the industry recently. What are the differences between Hong Kong’s current cryptocurrency ETFs and U.S. ETFs? And what impact will the approval of Hong Kong’s cryptocurrency ETFs have on Hong Kong’s cryptocurrency market and financial market?
Livio : Coinbase played a very important role in the development of Bitcoin spot ETFs in the United States. Including hosting services, including SSA (Supervision Sharing Agreement), providing a full set of infrastructure.
At present, the spot ETF market is currently booming, and HashKey also plays a role as an infrastructure service provider to promote the development of the entire track.
At present, it seems that these funds may first need to conduct underlying asset custody on a licensed exchange represented by HashKey, and provide them with trading, clearing and other services. We have seen that Hong Kong’s policies have significantly accelerated before the holidays. Hong Kong hopes to follow the pace of the United States in terms of cryptocurrency spot ETFs and not to fall behind, because Hong Kong and the United States have a similar status, that is, the status of a global financial center.
We now see that regulation includes many traditional financial industry-related fund companies that are very active. The major participants in the Hong Kong Bitcoin Spot ETF have all established particularly pragmatic and practical cooperation with us. Currently, several companies that are rushing to apply for ETFs have chosen HashKey as their infrastructure provider, and have even formed a consortium to apply for funds together.
We have entered a stage of implementing the actual plan and are currently in close consultation. Today we also held a meeting with two fund companies to discuss the details of the plan.
Foresight News: This is also a source of future income for the licensed crypto exchage just mentioned. What is the current custody fee for the Hong Kong Bitcoin ETF?
Livio : I think the entire income structure may be similar (to Coinbase). Coinbase's Bitcoin ETF custody service market size is the largest in the United States, so we may have a similar effect in the future and become a dominant player in the market where we have advantages.
