Thor Chan Explains AAX Technology - Ep. 18

Bobby Ong (00:02):
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Bobby Ong (00:39):
Welcome to the CoinGecko Podcast. For today’s episode, we would love to welcome Thor Chan, CEO of AAX. Thor was among the first to join AAX and has been the leading force behind the platform's product development strategy. He draws from experience in building global order management systems, global settlement systems, and low-latency trading platforms for professional traders. Welcome to the show, Thor.

Thor Chan (01:00):
Hello. Hi.

Bobby Ong (01:02):
So tell us a bit more about AAX, for example, when was it established, where is it based at, what is special about AAX compared to other centralized exchanges?

Thor Chan (01:11):
Sure. So after Bitcoin all time high in late December, 2017, we saw that the market was maturing. So this was before Fidelity digital assets and services, Facebook, Libra. And then that's the time actually like, we thought of like a moving from trading crypto into like running a platform in cryptocurrency exchange. So like that's why we want to build AAX with mainstream adoption in mind, strong technology, robust security, protection against market manipulation with the partnership with a trusted financial institution London Stock Exchange Group Technology. So like we are now based in Hong Kong, we have offices around the world. So like this is how we run the company.

Bobby Ong (01:55):
Tell us more about this technology that you guys licensed from the London Stock Exchange.

Thor Chan (02:01):
Yeah, so like AAX is the only exchange powered by London Stock Exchange Group technology. We are also a member of London Stock Exchange Group's Partner Platform. This is unique. It's familiar to institutional investors and LSE is a trusted brand with more than 200 years of history. So for retail customers, it means we are able to handle large order volume with super low latency, aggregate and manage deep liquidity and offer a stable and fast trading connectivity that many financial institutions are familiar with. But the technology stack was really like selected with an eye on the future. So our systems enabled us to scale up significantly to handle even much larger trade volumes in future. As we see that the crypto market is growing and growing. So like when also, and also like a lot of mainstream financial institutions are coming so they are looking for something more advanced and on par with what they have in the traditional financial markets.

Bobby Ong (03:05):
And are you guys planning to go down the regulated licensing route for your exchange or do you guys kind of plan to stay in the non-regulated space in the crypto sphere?

Thor Chan (03:15):
Yeah, so I think as the crypto goes mainstream, regulation cannot be avoided. The game has changed, I think. So we don't see regulation as something negative or like something blocking what we are developing in cryptocurrency industry. So it's very important for exchanges to self regulate, to offer investors a safe and trusted environment. And also like, a lot of like institutions, when we talk about institutions coming into the crypto space, regulation is something that they first to consider. So like this is actually necessary for them to have. So we currently hold a transitional license in Malta and also we are exploring more options like Singapore for licensing purpose. So we can continue to expand globally.

Bobby Ong (04:02):
What are your thoughts about institutional money coming into the crypto space? Do you see it coming now, soon, maybe five years from now? Yeah, would just like to hear your thoughts about that.

Thor Chan (04:11):
Right. So if we look at the reporting around Grayscale and the news around Paul Tudor's move to Bitcoin, or like recently listed company like Microstrategy buying more than 21,000 Bitcoin as treasury reserve assets. And we know that institutions are already on the fence and more are on the way. But for real uptake in mass adoption, there's more work to be done around like, liquidity, [inaudible], compliance, transparency in terms of like transaction transparency, market transparency, and then market infrastructure, especially technologies, and also like public perception by both retail and institutional side. Right now is still like a very, very small share of the whole financial market. And a lot of people, they want to try it, but they still don't know how to get into it. So it has to be changed. So like with AAX, we built an institutional grade platform in terms of technology. So, but to get liquidity, we need to have strong retail user base as well. So it's consistently balancing between institutional needs and community trends. That's what we do.

Bobby Ong (05:25):
I'm just curious to hear from you, right? Like there are so many centralized exchanges in the world. I think the last count on CoinGecko, we have close to 400 centralized exchanges that we track. And actually there's a lot more that we don't really track. I'm just curious to hear from you. Why did you and your teammate at AAX decide to start yet another centralized exchange?

Thor Chan (05:42):
Yeah, so there are so many exchanges and so many like, and some of them have become very big in the industry. But I think that we are still in the early stage and a lot can still develop and change in terms of market dominance. So when we look at the crypto market, when we compare to the stock market or like other asset classes, it's still very very small. So like, that's why I say it's early stage. It's not, it's not like, they, and also when the market is growing, actually like everyone, they have tendencies to capture the new shares of the market. So like, there are a lot of things we want to do. And we can do like from peer-to-peer exchange to OTC, to spot market, futures and then like lending, borrowing and saving so that the space is evolving very, very fast.

Thor Chan (06:33):
And there's still a lot of room for growth and differentiation, we believe. So AAX vision is to be rediscovered what it means to serve investors in a new type of world, where traditional and digital market mix together, a new generation of investors coming to the space. So this is what we believe that like the new generations, the new asset classes to invest and then market is growing. So the opportunities that they have, so we try to have our new technologies and also like our very easy on boarding product to capture the new users. So we actually, we have like two sets of users that we try to capture. We need a retail user base. And then that's why we really need a very, very easy onboarding process on app and web. The first time user experience is something that we care most about. And also for the institutional side, there's actually, we have very, very robust and strong technologies powered by London Stock Exchange Technologies. So that's something that like, no other platforms that can provide for the institutional side of things.

Bobby Ong (07:37):
You mentioned that you need a retail users on the platform. Why do you need retail users? Why not just focus on institutions?

Thor Chan (07:46):
Yeah. This is always a chicken and egg problem for cryptocurrency exchange. So sometimes like, you say like, if we have a lot of institutional users on the platform, and then we don't need any retail customers. But for cryptocurrency exchanges, listen, this is a little bit different from the traditional financial industry, say like, some platform or some companies, they only work with institutional side. They work with maybe trading companies, brokerage firm. They don't touch retail at all. But you see, like in crypto space, we don't have a lot of brokerage. They don't have a lot of brokerage firms. Actually platforms they act as some function of brokerage firms. So like they, they serve the type of retail customers directly. And for the institutional side users, they actually, they look for some certain level of liquidity and trade volume so that we can tap into them. It's actually easier to build at the retail side step by step. And then there is no barrier and when you acquire users, you've got a great [inaudible]. For institutional side, a lot of institutions we talked about and then probably they need daily trade volume to meet certain numbers or like, liquidity or like, slippage requirements. So these are all the numbers that they care most about. So like, we want to like strike a balance between them. And then if we have more retail users base, more institutions, they are ready to come as well.

Bobby Ong (09:08):
What do you think about the DeFi trend is happening right now and the surging popularity of decentralized exchanges like Uniswap. Do you think this is a big threat to centralized exchanges, like AAX in the near term or longer term? Just wanna hear your thoughts about that.

Thor Chan (09:22):
Yeah. So I think DeFi is very important and is delivering on Satoshi's vision, especially with negative interest rates right now and the global economic outlook. It's good that people are exploring new ways to generate and preserve value. It's very important to remember that now DeFi is still largely a retail space. For now institutions still prefer centralized exchanges and base assets such as BTC or ECH, or like stable coins. Centralized exchange have an opportunity to serve as a bridge between these communities. And I think like for the DeFi space, especially for techs decentralized exchange, it's going to take a very long journey to really get people to be comfortable to trade in a very, very efficient way in trading. So like, we are very positive about that, but like, don't think that like in very, very near future, that we can see that it's going to take over centralized.

Bobby Ong (10:20):
Yeah. I agree. The user experience of a decentralized exchanges or any DeFi protocols that at this point in time is just, it's really hard for any average guy to use. It's just, there's a lot of improvement that needs to be done before the average Joe on the street can come on.

Thor Chan (10:33):
Exactly. It's not just about the, response time is definitely a big issue, and then another big concern is that like a lot of users or newbies or new retail users, they just want to trade crypto. And then like, they just want to go to a venue, very easy on-boarding process. And then now if you ask them to go to a decentralized exchange and then they ask for, "Okay, I need a wallet. What is a wallet?" And then for them, [inaudible] account and buy some coin and trade. Right. So I think that would be easiest [inaudible]. But I think, it's all about education and also like how do they first get in touch with this kind of asset.

Bobby Ong (11:16):
Yep. I agree. And what do you think? I mean, centralized exchanges like Binance and FTX, they are, I would say sort of scrambling to get their DeFi strategy in place, sort of, I guess DeFi kind of took everybody by surprise this quarter. FTX recently launched Serum, their DEX on Solana and I'm pretty sure Binance is planning something on Binance Chain as well. Are you guys at AAX planning something similar on the DeFi space or is this something that you guys are not going to focus on because you're more focused on onboarding retail users onto the centralized platform?

Thor Chan (11:44):
So AAX has a DeFi strategy in place for sometime now. On our content and strategy side and then we actually, in our academy, we've been exploring a lot of DeFi for about a year now in our education and as part of our listing strategy. We've now list a number of major DeFi tokens, such as LINK, COMP, LEND, ADA, KNC, ZRX and more. And we are also offering some perpetual futures contracts for a number of DeFi assets. Every two weeks we are listing new tokens and contracts now. And we are also offering a number of saving products now for some DeFi assets too. And indeed for at product level, we actually like looking for discussion actually with some partners to have some DeFi projects together. For us, we are not really like trying to build it all on our own but actually we are trying to identify the right partners to build it together. So like when we look at the project of Serum, like build by FTX in partnership with a DeFi chain, it's actually something very exciting. And then like, I think like for us, we focus on user onboarding and education and we partnered with this, DeFi partners to have different kinds of DeFi applications.

Bobby Ong (13:02):
Crypto market is very dynamic. Initially all spot exchanges, initially, all exchanges were only offering spot markets and last year, many small exchanges started offering perpetuals and futures markets. This year, many exchanges that are offering leverage ETF and soon I believe many will be offering options. What do you think would come next after these products?

Thor Chan (13:22):
I think like the progress of the markets is actually the copying what is happening in the traditional market. So if you look at that, we have like a spot and also like derivatives, including like futures and now like in crypto we have perpetual contracts too. And then like options and then ETF. These are all the products that we can see in the financial markets. And I would, I would expect that more and more instruments in traditional market will be copied or like will be, will happen in crypto market. So I think like ETF, leveraged ETF is something that are very popular and have a very growing interests. And I think that like, especially like, you know, in Hong Kong, the foreign market, or like a, some institutions they actually like kind of an ETF product. So like a leverage.

Thor Chan (14:12):
So this is actually like a very, very great interest in the retail side. We see that like, this will be the things that getting more and more attraction. And I think like what next would be like, maybe some structured products because you have all of these structured products there. And then for the institutional sides, they may look for some structured products to trade. That's something what we have already in the financial markets. But I think like, even though like we have a lot of this kind of products and instruments in the market, it's gonna take time for the whole market to learn and also trade.

Thor Chan (14:45):
I mean, like this year you see options or like the volume is growing, but not growing as fast as like the perpetual contract and futures. And the other aspect like how we saw from platform or like a market perspective, I will say that, like now is all about gamification, building communities and trading competitions. This is about serving a new generation that's comfortable with moving their assets online and even converting them into crypto, but they have to feel that they're part of something bigger and exciting. And they need to see that crypto space is more interesting and lucrative than conventional money management. And I think we will see a lot happening around savings, money management and gamification that's more for the retail side. For this reason we have now launched Rewards Hub at AAX. Here our users can earn crypto by performing simple tasks, just like you play a mobile game. And we are also working hard on upgrading our trading competition experience and we will be launching some lucrative competition very soon. So we can enable more teams to compete with each other. So stay tuned!

Bobby Ong (15:52):
Yeah. What are your thoughts about the leverage that is being offered in the crypto markets? I mean, crypto is famous for having 100 X leverage or some, yeah 100X leverage. I'm just curious, like how much leverage do you offer at AAX? And do you think that 100X leverage is too much, or you think that this number will go up in the future?

Thor Chan (16:09):
I think like, personally that I feel, if you say like trading with a hundred times leverage is very, very risky. But for us, we are a platform we offer different kinds of instruments to fulfill different needs of the users. And also some of them, they have very high risk appetite. They love it. So that's why we try to give them big leverage. As long as we can control the risk of the platform and we try to fulfill the needs of the users. But I think that like the trend is that, like, you look at some new platforms, they are trying to provide even higher leverage for the platform. And this is actually something, what we, what we saw in Forex trading platform. At the very beginning, like they are offering, I think that many years ago, 20 times, and then a hundred times, and then now, like you see like, 500 times. The craziest one I saw in, they are offering, 888 times leverage for Forex trading. So that's actually very, very exciting thing to see. And I would see that like a for crypto when the liquidity is going better and also the trade volume and everything, more users coming in, platforms can bear more risk or like they allow to provide more, they can provide higher leverage for users. And now, like basically you can provide even a thousand times, 2000 times leverage. But if offer a very, very high leverage, then there will be a very, very spotty for the platform. And what if like 1000 times open position got liquidated and then like, where they can get the market equity to close it and that's the problem. So like now I think like the market is still, it's just small when compare to traditional market. So offering super high leverage is very risky for platform.

Bobby Ong (18:01):
Probably the last question for the podcast for today. What are your plans for 2020 and beyond?

Thor Chan (18:07):
So like, I think like this year because of COVID, things happen so fast, seems was like, it's already August. And then, so now, AAX, we are going really fast. We recently doubled our user base. Trade volume have also spiked from below $10 million per day, right now, $200 million per day. Later this year, we will be expanding our FIX and API user base to target our institutional customers who want to place maybe hundreds of orders per seconds, so we can do it. And also we trying to open up to institutional prime brokerage business, to serve them. We provide the institution more services and we also intend to launch a unique trading platform program that we believe will be a big hit but we cannot share too much about this now. But for now, what shall, what we have AAB, our platform token, Summer Flash Sale. And we have also more Flash Sale upcoming. And then like for the gamification part, we have Reward Hub and also we are adding more and more new saving products and new listings that's focusing on DeFi.

Bobby Ong (19:13):
Alright, sounds very interesting. I'm looking forward to hearing about the unique trading program that you guys will announce because can't share too much today. But yeah, looking forward to it. Thank you very much for taking the time to explain to us what AAX is about. Very glad that we have you onboard the CoinGecko podcast.

Thor Chan (19:13):
Thank you.

Bobby Ong (19:16):
All right, that wraps up the show. Thank you for listening to the CoinGecko podcast with Bobby. If you like our show and want to know more, check out podcasts.coingecko.com or please leave us a review on iTunes. If you have any feedback, do drop us an email at hello@coingecko.com. Join us for more next week. See ya.

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