The Wolf Of All Streets - Jack Tao, CEO of Phemex, on Building The Fast Growing Cryptocurrency and Derivatives Exchange In The World

Episode Date: July 14, 2020

Jack Tao, CEO of Phemex began his career in high-level traditional finance before entering the crypto space. After 10 years with Morgan Stanley, he discovered bitcoin and crypto and set out to develop a superior exchange. Since Jack's recent arrival to the crypto space, his expertise in legacy markets has resulted in his trading platform's meteoric rise through the ranks, all while setting new trends around the ways traders pay fees and interact with derivatives.  Scott Melker and Jack Tao further discuss the transition from the traditional financial sector to a non-traditional sector, lessons learned interning at Morgan Stanley right before the 2008 crash, who is behind big price movement, the interactions between an exchange and a whale, how many Bitcoins it takes to be a whale, common misunderstandings around leveraged positions, the chaos of the American political climate and the origin of the name ‘Phemex.’ --- ROUNDLYX RoundlyX allows you to dollar-cost-average into crypto with our spare change "Roundup" investing tool, manage multiple crypto exchange accounts in one dashboard and access curated digital asset content and services. Visit RoundlyX and use promo code "WOLF" to learn more about accumulating your favorite digital assets when making everyday purchases and earn $4 in free Bitcoin. --- VOYAGER This episode is brought to you by Voyager, your new favorite crypto broker. Trade crypto fast and commission-free the easy way. Earn up to 6% interest on top coins with no lockups and no limits. Download the Voyager app and use code “SCOTT25” to get $25 in free Bitcoin when you create your account --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe.This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

What's up, everybody? This is your host, Scott Melker, and you're listening to the Wolf of All Streets podcast. Every week, I'm talking to your favorite personalities from the worlds of Bitcoin, finance, trading, art, music, sports, politics, and basically anyone else with an interesting story to tell. So sit down, strap in, and get ready, because we're going deep. I'd like to thank my sponsors, Round the X and Voyager, for making today's episode possible. We'll hear much more about them later on in the episode. This podcast is powered by BlockWorks Group, the only events and podcast production company I trust. For access to the premier digital asset conferences and in-depth podcast content, visit them at blockworksgroup.io. I promise you will not be disappointed.

Today's guest is the CEO and co-founder of Femex, which is one of the fastest growing companies in the crypto space. It is now ranked number six in volume for derivatives exchanges. After a 10-year stint at Morgan Stanley, he decided to make the jump to crypto and I can't wait to hear why he made that decision. So without further ado, I'd like to welcome Jack Tao to the show. Jack, thank you for being here. Thank you, Scott.

I'm really excited to be here. So as I just touched on, I really love to hear why you made the jump from, I guess, Wall Street, even though you weren't technically on Wall Street, from Morgan Stanley over to the crypto space. It's a long story. You can tell. I started to get to know about blockchain in early 2017. And my friends keep asking me to look at blockchain technology. And I started to look at and read the white paper from Santoshi.

And then I read the white paper for Ethereum. They were amazing. So I didn't stop reading for the entire weekend. Then I started to love it, and I started trading a little bit on Coinbase. And for me, my background is I worked for brokerage business for 11 years, and there are so many regulations regulations and you see big companies become even bigger like JP Morgan after financial crisis. After 2008 financial crisis, right?

And we still experienced very bad customer service from the bank and the transfer of money between the accounts is super hard and even harder and there's a lot of restrictions so with all those experiences that I suddenly find that there is a blockchain technology and it's like it's it's almost designed for a new financial system as I can see so it's kind of instinct I will start to love this blockchain technology and look into more and more. And my friends and I started talking about a business. And two years later, in 2019, we formed a team and built our product.

It's interesting. So like me, I got into crypto in late 2016, early 2017. So you were kind of late. It wasn't something that you were interested in in 2012, like some of the people here. But you actually, you know, I came in as a trader and was here for the volatility and the money, but you actually fell in love with it for the real use case because of the, you know, it's as a safe haven asset, all of the decentralization and the real reasons that people are passionate about the space. Is that accurate? That's very accurate.

I actually heard about Bitcoin back to 2011, but I didn't take this serious. We know there's a lot of game coin and video games at that time. And I know I didn't read the white paper. So I just guessing that this is another like a centralized coin. I don't know what, I totally have no idea what a decentralized was at that time. And until I read the paper. So it's good. Yeah. So you decided to start an exchange, which is a very crowded and popular space.

Why did you decide to do that? And I guess, how has that process been for you? I found Wall Street and it's kind of related to the background of our partners from Morgan Stanley. So Morgan Stanley is one of the biggest institutional brokerage firm. It serves mostly for institutional clients, but as well as for the retail clients. If I remember correctly, that the trading volume on the stock market,

Morgan Stanley reported volume is like 50% of the market. Yeah. Sometimes more. market, more than the reported volume is like 50% of the market. Yeah. Sometimes more. And I build in trading engines for customers and we build algos for them. It connects almost to all the exchange around the world. And so it's kind of my technology background. I feel that we probably can build something new and simple in the

crypto space as well. So exchange is kind of a natural idea for us. And also the exchange business model is very simple, right? So you provide a service, you charge fees, and it's very straightforward. You can provide more data to the clients. It's not complicated at all for us. We believe that once this industry keeps growing, there is definitely a high demand for users to exchange the coins between each other and discover the values and also capture opportunities. So that's, we think, exchange will play a critical role in this space for a long time.

Right. So as I mentioned before, there are some big players that have captured a ton of the attention in the market before. So what differentiates Femex and how do you grow that business with all the competition? So Exchange right now has lots of responsibilities and you can see lots of Exchange have different products. They almost provide all different services, right? But we are mainly focused on trading, including diverse trading and sports trading. And we want to, our goal is we want to not just serve it for the criticals. We want to build a financial service onto the blockchain, which means that the products we want to deliver is not just for crypto holders.

We want to create the holders to be able to invest almost all kinds of different assets around the world, including traditional financial products. So that's why we have a gold USD pair. That's the first pair that I offer 100 times leverage. So we want to, this kind of sign, we want to show our users that that's our mission, that's our vision, and to provide a well-rounded and more comprehensive service. And that's the future we think that's coming five or ten years. Yeah, some of the major issues that I think a lot

of the other derivatives and even spot exchanges have had, especially in 2017, before they were optimized to any degree, you know, the overloads, the exchange freezing, all of these, you know, extremely slow orders, slippage, you know, obviously, there's this laundry list of issues that people complain about that exist with crypto exchanges that don't generally exist if you're trading on like TD Ameritrade or E-Trade in the legacy market or something. So how do you resolve those issues and create a better product? Yeah, that's also one biggest problem that back in 2017 that I almost used all the exchanges available, Coinbase, GDEX, then later GDEX. And yeah, almost everyone. They all have some problem here and there, mainly because one thing is the technology. The tech team, I checked their backgrounds. They don't have Wall Street experience, right?

They don't know how to build it. Some developers mainly focus on the webpage or database, right? They don't have Wall Street experience. They don't know how to build it. Some developers mainly focus on the web page or database. They don't have enough knowledge how to build the architecture with this non-stop exchange. The second thing is that it's kind of experience. Building exchanges is totally different than building other applications. The reliability and the speed has high demand, and people want to trade, they want to close their position on those peak times. So, this is very critical. Even for now, they have this latency issue. Even for top three exchanges, they have almost outages every month.

So the way how to build an engineer team to deliver good quality of service, it's not easy. It's not easy. It's like maybe people used to use Google, but I only remember once that Google services went down. Ever. Yeah. Yeah. It almost never went down.

I only remember once. But that's only certain regions. So people don't know how to do this. It's very difficult to build a kind of service that you trade for 24 by 7, and you want to treat it anytime, anywhere, and the user base is global. So that's, yeah, we think that's our advantage compared with other teams that we have the technology, we have the experience, and we know finance.

Can you talk about the difference between the different kinds of contracts that you offer and that other exchanges offer for people who might not understand the difference, I guess, between spot futures contracts and perpetual contracts? So yeah, it's kind of similar. And so we have a perpetual contracts. So we have two types of perpetual contracts. The first one is BDC USD perpetual contracts. So it quoted by the US dollar and settled in the Bitcoin, right? The US dollar is nominal, right? It's a pair that is similar to BitMEX and other exchange. And I think that's the very first financial perpetual contracts in crypto world. And we have another set of perpetual contracts which quoted in US dollar and set

to the US dollar as well, like Ethereum USD and Gold USD. So those contracts is easier to understand because the calculation is simpler and that we support both isolated margin and cross-margin to the users. So that's our future contracts, perpetual contracts. And the other thing is the spot trading. So the spot trading is very straightforward, and the special thing in our exchange is that we offer zero fee to our member. And so if you pay only very small membership fee, you can trade without any transaction fees.

If you compare with this, this is a huge difference compared to other exchanges. Yeah. Yeah. I mean, most derivatives exchange don't offer spot trading at all from what I've seen. And then those that have no fees generally have a large spread, but you've somehow found a way to have basically no spread, accurate pricing and no fees for a low price. Why do you think you're the first to have come up with that idea? It seems kind of obvious, but nobody else is doing it. As you may know that last year, I think around October, and Charles Schwab announced that they go zero fee and all the other retail brokers.

Yeah, they had to. It's almost a trend globally. I know that even in mainland China, they start to reduce fees as well, especially for retail clients. So basically for a brokerage business, we have two groups of clients. One is retail clients, one is the bigger and institutional clients. They have different needs, right? If you look at retail clients, the fee is one of the biggest part of their cost. Right. Right?

They may not realize, but that's the truth, right? And for institutional clients, and the fee is relatively smaller, right? They're willing to pay for the fees to exchanging for better service, data service, client support service, et cetera, right? So we think it's a natural need for customers that we have the responsibility to reduce their fees.

Besides that, when we start, we start perpetual contracts first, and the company already start to make profits. And so we are in a good position to offer this service to improve our usability and our user experiences. A lot of people, I guess, who started in crypto and maybe don't understand the way the stock market works and the way options and derivatives work probably don't understand the importance of derivatives in general to the market. Can you talk a bit about why derivative contracts and options contracts, which I know is a different conversation, but why those are actually important for a healthy market yeah the relativist is uh is is huge it has so many user cases like um like if if you i just talk about a little bit background that's if you're a farmer right if a farmer and uh and you

you you you you sell corns right but the coin price is not stable. So you can use the future to make sure that six months later or nine months later, you can have a predictable price to sell your products instead of selling a low price at that time. For the crypto market, we see that in 2017, the price is rock and roll and not looking back. That's mainly because there are no derivatives. The only way to invest in this industry is to buy, to long your position. Right. There's no sell. No one can sell. If you want to sell, you have to borrow, borrow from the exchange,

then sell and pay for them more fees. It's more risky for them. So, Papertree Contract is one of the very first successful derivatives in the crypto world. And it provides the leverage and makes it sell much, much easier. Right? So this is more balanced than we compare to

we only have the spot markets. Right. Spot markets. But the price is still going up and down, going up and down, kind of volatile. And the market situation is totally different from 2017. And the market situation is totally different

from 2017. And we're hoping that when the market keeps growing and the price will be more stable. So what effect do you think that the derivatives market has had on the crypto market in general? Because obviously it started more heavily as a spot market. And I think through the rise of BitMEX and the bull run in 2017, that's when I think retail traders really got excited about trading on these exchanges. I think they were trading altcoins generally to compound their Bitcoin. And then they kind of learned about leverage and derivatives and started trading. So how much do you think that it affects the price, what's happening on these markets versus

how the markets operated before? Yeah, that's a good question. So as we can see, since 2017 and 2018, usually the big price movement is driven by spot exchanges like Coinbase, sometimes some Asian exchanges. And now, from this year, we see more and more, maybe half or 60%, that sometimes the derivatives exchange is driven by the price as well. So it's kind of, we see obviously that the derivatives exchange, because they had a much bigger trading volume, it has impacted the price as we expected.

So this is a good trend. So we think that this will further stabilize the price. What are the advantages for a retail trader, your average Joe, for using leverage? Because obviously there's extreme risk. A lot of people come into the market and they say, oh, I can turn my $10 into $1,000, you know, and they don't realize that they're probably just gonna be erasing their $10.

So what is the advantage and how should leverage be used properly, I guess, by a retail trader? Yeah, that source is very common and very tempting, I would say. A lot of people start to divert trading because of the leverage, right? It's easy to bounce back for themselves. So most of the time, I'm a hodler and I have some Bitcoins and sometimes I really think that in this one or two weeks, the price goes too high.

It probably goes down. And I want to protect my position, right? So I'm assuming that it will go down 30%, I think. I will go back to like two months ago, allocate a little bit of my portfolio or cash to invest into derivatives to hedge my position. That's one of the strategies I use most. Because I don't want to trade most of my coins. They're in the cold wallet.

I don't want to move it. It's easier for me to allocate some money to hedge the risk. Even if I get liquidated, the damage is still net gain. You have a net gain if you lose on your short. I protect

my code wallet. That's one use case. Another thing is we see a lot of programmers, a lot of users that know how to program and all the APIs are public for most exchanges. And if you know your… Some people have the feeling that when they look into the chart for too long, they observe some patterns, right? So instead of treating manually, you can use API.

But for every job, for individual person, I do encourage them to minimize the leverage. It's very common that as we can see that high leverage users are more likely to get liquidated. It's very dangerous, right? People ask me that, I often got asked that what's the leverage, suitable leverage

for beginners? I would say less than five times. Five, yeah. Five times because that's the leverage we see most institutional clients use.

So, they're smart and I believe that that's the right choice. Yeah institutional clients use. So they're smart. And I believe that that's the right choice. Yeah, think like a whale. Yeah, exactly. That's interesting because I think that your average person is probably using 10 to 25 and sometimes pushing 50. And especially you talk about institutions using 5X. Those are institutions,

I'm assuming trading in other markets that are even less volatile than Bitcoin. I mean, price can move 10% on a crypto asset in an hour on a crazy day. So that's a liquidation with 10X leverage. But it's interesting, I want to touch on, you talked about hedging, and this is something that I talk about all the time and people never seem to understand, is when you use a short with leverage to hedge, it's emotionally, I find, very easy because, like you said, you actually still want price to go up. You technically want to be wrong. I find that the people who don't understand hedging against their position are extremely emotional with their trades because they're shorting and genuinely want to see price go as low as humanly possible, right?

Yeah. Emotion trading has always made you to do the wrong decision. That's what I was saying, right? So trading against your emotion, it's almost the first thing you have to know about it for beginners. Yeah, it's absolutely essential. I just think that most people don't understand that the purpose of leverage is really to hedge. You should only be trading with a small part

of your portfolio against your investments. And you, you, you, uh, you really articulated, articulated that very well. So, um, how large is the, well, I guess we kind of touched on how large the derivative market size itself as a part of the overall market cap of crypto? Do you know how big it is? That's including altcoins and everything. I haven't checked the spot trading volume for all. I think for derivatives, the daily trading volume is around 5 to 6 billion, probably more. I didn't compare with the spot. I didn't remember on top of my head. I probably should check it. So usually, I would say that it is a couple

of times bigger than spot markets. And for traditional markets, they're usually a hundred times bigger in terms of trading volume. So we'll see this marketing world keep growing. Where did the name Femex come from? Oh, it's from a Greek goddess. It's called Femi. She represents the fame. I joined Mogestani in 2008. It was a financial crisis. Lots of Wall Street companies tried to rebuild their reputation.

A reputation like a 100-year-old company, they tried to rebuild its reputation. Reputation in financial is extremely important because your customers put money, probably life savings, into your platform. And you have lots of responsibilities. And something you cannot say, excuse me, you have to understand that you have to provide a very good quality of the service and you have to maintain a reputation all the time. And that's what we believe. And we're truly working on this very

hard. That's interesting. I won't name names, but I've spoken with the teams at a number of leverage and derivative exchanges over the years. And one of the CEOs said to me, we're having a conversation. He said, education is important to us because we care about our customers. And I said, do you really care about your customers? Are you just telling me that? Is that true? And he said, well, really, we just don't want them to lose too fast. Yeah, that's the wrong attitude to open an exchange, honestly. So I remember a story that Morgan Stanley always improves their trading system, and they always prepare for 2x, 5x, 10x trading volume. So what it means is that they always stress test their system, see if I can handle double

the volume, 5x the volume, 10x the volume, right? There's one day, it's a big, big, big day, and the market is so busy, and a lot of other brokerage went down. And at that time, Goldman Sachs, people called Goldman Sachs, hey, I cannot trade at that time. They say, just simply go to Morgan Stanley, right? This kind of thing that this is just one day

that Morgan Stanley built so much relationship and built their reputation through those crises, right? That's the service we want to provide. That's the company we want to build. And we believe in this industry. And all team members, they have very strong background. And they take this opportunity because we think this is something big in the next five and 10 years. So what was it like coming out of, I'm assuming, college for you

into the Great Recession, into a global economic crisis? It's funny. I had friends who – I graduated college in 1999. So friends who went into investment banking. You're young, though. Thank you. I'm young though. Thank you. I'm 40. I'm a young 43.

Friends who, you know, I went to the University of Pennsylvania. So everyone went into investment banking. So my friends went into investment banking and then went back to business school. And when they graduated in 2009, couldn't even get jobs as good as their investment banking jobs that they had out of college. Right. So what was it like for you coming out of college at that time when jobs were scarce, especially on Wall Street? It's super difficult.

And I remember that I was an intern in 2007 in Morgan Stanley. And at that time, everyone told me the bonus is good, everything is good. And I joined Morgan mortgage in 2008. And I was in the training program, so I haven't started to really work yet. And then the price, the stock market crashed. And the mortgage-stating stock market crashed to, I think, lower up to like $4 or $5. And we were wondering, should we rewrite our resume

no that's uh that's something that year changed everything regulations we have to go through a lot of uh documents uh uh compliance progress to to to build something So it totally changed the whole industry. It's very hard and the package is not as good as before. So I think before the financial crisis, we always heard that those big investment banks pay a huge, huge bonus, but that's not the case anymore. And technology pays a critical rule. And I have to go through like a series 57 exam to be able to sign off my team's application. I have to sign off their code, sign off their test cases, all those kinds of things. So it's tough for banks at that time.

And that's how I learned that I saw banks how to change their business model. Mogulson changed huge. And we go through a lot of painful process. And then Mogulson now has a much much better position and their business is very strong that's given me a good experience

to understand how to run a financial firm. If you do something bad, right? If you do something bad you think that you can escape away but looking to those investment banks If you do something bad, right? If you do something bad, you think that you can escape away. But they're looking to those investment bank after 2008. They're chased after by the government and they have to pay a huge amount of fees to settle those cases.

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they're not making their rent payments, they're not making their loan payments. Do you think that we can have another bank event like 2008 if the economy continues to contract as it has? It could to 2020. So 2020 is like, it's a memorable year, will be a memorable year for the rest of my life. And you know, we see that the politics and the global events happening and it will cause a recession as expected, right? So I remember Chinese government already said the Q1 is down, they probably have a negative increase in terms of GDP and American, the stock market seems strong, but there's a lot of signs that the economy is declining and maybe shop play and the coronavirus is still ongoing.

If we went into autumn or winter, the situation will get worse because the virus will maybe come back again. Summertime, maybe a little bit better, but that's no proof that it stops the virus at all. We still have to wait for the vaccine for maybe another 18 months. There are lots of facts that can have another financial crisis, as I can see. That's why the stock market is so volatile and the crypto market is also volatile as well. People have to be cautious to invest anything.

Don't put all your savings into one specific instrument. It's hugely difficult. Maybe you should allocate more cash in your hands just in case, right? What do you think Bitcoin and crypto's role is in an individual's overall portfolio

with that said? So I have some numbers that for a lot of private management company, private equity management company that they usually allocate like 5%, 5% to 10% assets into cryptos. So I read an analysis report that say they add up all the investment. So assume that as 5%, they add up all the management company assets. They think that Bitcoin price is probably worth like 50,000 already. There's a lot of money, hot money still into this market. Research projects, DeFi and Bitcoins trading.

There's so many things. So that's a good thing. I'm expecting that it really becomes the digital gold these days. And people are willing to put some money to hedge their risk in the traditional markets. And I remember there was one day that the market movement shape looked exactly like gold. I posted on my Twitter about that. Yeah, I find it. And someone told me it's not uncommon.

And they see this pattern sometimes earlier as well. So we see that now the Bitcoin traditional market, they have the same shape. They kind of start interaction with each other. That's a good trend. So I would say that's a parallel world. You have a crypto world, you have a traditional world, and the financial system will have more and more communication. And that's also a part of the job to build a bridge between them, right?

Right, which is something that you guys are doing, obviously, by offering traditional products that maybe are not offered on a number of derivative exchanges. So it's interesting, you touched on institutional money in this space. And I think most people would be surprised to hear that private equity farms are actually here because it's always a conversation of if institutional money is invested, if they're going to be invested, if they were already invested and have dumped, it's like chasing a ghost, right? Trying to figure out the story to that. I saw recently that Fidelity did a study that said, I believe one third of

institutions are exposed to crypto in the United States, at least. And then I saw another study that was like thousands of CEOs were interviewed and 89% said that they believe that blockchain would be a fundamental part of their business within the next three years. So doesn't that indicate that institutional money is already here one way or another? Yes. So, yeah, I believe that that may be overstated. I don't know. There's not a lot of institutional clients, even the investors, they won't announce it. But we know that they are huge in this market.

My expectation is that there will be more and more. Doubled every year will be at least, I think. Do you think that they're actually investing in spot Bitcoin or do you think that they're like on CME? You know, do you think they're investing on futures or getting exposure via futures? Or even, I guess, by investing in crypto based companies like your own? You know, I guess there's a lot of ways to be exposed to the crypto market without buying Bitcoin and putting it in a wallet. Do you think that that's true, that they're doing it in a number of ways? I think for now, it's easier to, if you want to trade, it's easier to trade in a company

like Phemex, BitMEX, and Binance, etc. And because CME, the volume is still small. Yeah. If I remember correctly, it's like only a couple million. Yeah. It varies, but it's never been huge.

Yeah. It's not designed for the new needs, right? So we want to trade every day. We want to, the countryside wants small. We want to use, we want like a big leverage or flexible leverage they

can adjust. They want extra protection. And all of those features are not provided by CME. So I do know that there are some customers that purchase for CME because it still has its own reputation. And that's CME a seamless technology very strong and if I'm a traditional trader I definitely will consider CME because that's that's give me a lot of like confident to trade right and but look that I would say that

to CME got a lot of challenges from the company like us. We operate globally and it's very easy to access. We provide much more advanced liquidation and insurance mechanism that CME is not providing to their retail customers. We have an app. CME doesn't have an app. That's why we see that majority trading volume is still in those exchanges like us. And so back to your question that we in the OTC markets and providing financial services for institutional clients because lots of trading companies have capital issues. So they need more funds to be able to trade different exchanges. So there's financial needs and the farm,

the mining farm, they also have a lot of products related to cryptos as well. We always hear about the whales in this market that are moving price and manipulating price and all this thing. How

much Bitcoin or how much money do you have to be, do you think, to be a whale in the crypto market? I don't know. It's getting harder and harder. As I was told that like two years ago, probably if you have 200 BTC, you can manipulate the markets. And people do see that. It's not a huge number. It's not a huge number. It's not a huge number. But now I think it's getting harder and harder. And you probably

need a team to do this. You need a business system to... There's so many exchanges, right? You have to be buying and selling equivalently across the entire market, both on leverage exchanges and spot. And exchanges definitely have a monitoring, right? They have a monitor to see who drove the price and they will look into the account to investigate. So I hope that those big exchanges will do the same as we do. We do monitor the abnormal activities.

We'll send emails to ask some questions to the client to understand what they need and why they do that. If we do this right or wrong, we give our own opinion. So that's what I said earlier. Exchange have a lot more responsibility. It's not just to guarantee the order book to be time and price priority. It's much, much more than that. Which is interesting because you said, I hope that they would do this,

which is a very political and polite way to say it because I mean, some of these exchanges have internal trading desks and mysteriously the price moves tremendously while no client can trade on there. I mean, there's obviously a lot of accusations that some exchanges are counter-trading their own customers or they see your orders, they're sweeping your stops, all these crazy things. Is that something, well, you probably can't speak to it, you're not trading there, but do you believe that's something, when you see stops being swept, that's something that some whale is doing? Or do you think sometimes that the exchanges play a part in that?

It's really hard to tell because all gas, because it's very easy for people to imagine there's a whale behind this. So that's something we cannot control. And I don't have the internal data from other exchanges. And that's just really hard to tell. What we can see is which market has driven the price. But we don't know whether there is a one count or there's a multiple count or or uh multiple trading uh simultaneously it's it's hard to tell from

outside but but as as i know it's possible right because the market is still small and the trading one is still small it's it's possible and maybe there's one team or a couple of teams, they want to do this and they're able to do this. That's the big issue. Yeah, big issue. But in another way, right? If you're already aware, you have like more than 10,000 Bitcoin. What's your incentive to do this? I agree. And I think that people who don't understand underestimate the amount of risk

that would take because you still don't know if there's another party on the other side that's going to allow you to- Because the audience and the media, they like the story of the whale story. But as I can see that people have much, much more Bitcoin. They probably made a fortune in 2016, 2017. They actually invest heavily into the industry in terms of projects, in terms of the exchanges. They're doing a good thing to improve this platform. That's the most case I saw. I never met a whale or maybe there's a team. They are doing a good thing to improve this platform. That's the most case I saw.

I never met a whale or maybe there's a team. They are very secret. Hacker may be one of the force to do that. There's a lot of hacking events almost every year. They may have the incentive to do this. To do the best thing. It's fun. And they think this makes money. I don't know. But the majority of people I met, they really put a lot of resource and effort into this industry.

It's interesting you touch on hacking. And I think I was surprised when I read a report recently that said that each year hacking has increased exponentially. You would think that with all the new security measures and all these things that actually hacking would become more difficult. But it seems it's become easier with time in this space. And that as the space grows, obviously, it becomes a greater target. No insurance, easy to steal money. How do you prioritize security on your

exchange and how do you secure people's funds? I mean, it seems to be an extremely, extremely major challenge. Yeah. So what do we do is we hire a third-party security firm to audit our system regularly, right?. Almost every month, once we have new features, we ask them to give us advice to do the test. That's one of the important things.

There's a white hat hacker. They protect people. They not just protect people, they have the community to know what's the common issues and what's the latest virus they have, right? Some teams, they also have a connection with local law enforcement.

So if you get hacked and there's a high, there's a certain chances you can get the money back. Right. Right. That's very important to you can get the money back right right that's that's very important to you that we keep cooperating with those companies globally and to to ensure the security that's very important and the thing is in size it's sometimes all in your work right how your team like write to the code code build the system have it thoroughly tested

and a lot of exchange they don't have like a well-rounded testing system what they do is just manually test right features it's also it's very it's unbelievable that for for even for more standing like back 10 years lots of testing is it's not good enough

they have to invest a lot of money into the infrastructure

to make sure that the whole progress is reviewed

and all the cases have another specific team

to run the tests that's also another reason that's very important discoverers have managed to sign off, have another specific team to test, run the tests. So that's also another reason. That's just very important. If you do all of this thing, you probably avoid 99% of the virus and the hacking. Another thing is social engineering. So our customer service will constantly give them training. We have a test email to test if they click the bad link.

Oh, right. Yeah, that's what we do. Smart. Yeah, the first time that I send an email faking address, they say, please click this link for some training bonus. And some customer will click the button, but they will keep doing the training. They build up a good sense of what they should do and what they cannot do. This is very important. You have to do this constantly, almost every two weeks.

For the new joiners of our company, the very first thing is security. To make sure they understand that security is extremely important to the financial system. Besides that, internally, we also allocate a certain amount of our revenue to insurance funds internally. If customers lose money in terms of hacking, they get hacked, we will fully refund. That's our best effort to help people to avoid this kind of disaster. Hey, you can't ask for much more than that. So your company is based in Singapore, correct? But you're in China, right? Is that correct? Yeah, most of of time in Singapore so I have a meeting in Hong

Kong in two weeks that's that that's why fly to fly to not not Hong Kong sorry it's a it's a Hong Kong and then city and I see the Alibaba is in that city so we need to prepare for the meeting so So how do you manage that in context of COVID and traveling internationally into China? Do you have to go two weeks in advance and be quarantined? Yeah, we do. We do need to do that just in case. So it's hard.

Coronavirus makes all the business much harder. And we are lucky that our team is not getting a lot so that's that's something good but I know that's a lot of my friends they all have a small business they have ice cream stand and that's very hard for them yeah I'm friend that in Jersey and he is running a retard ice creams franchise and it's it's so hard. It's so hard. And yeah, I feel sad for him and hope everything goes well for him. So I'm curious, totally off topic,

but something I've always wanted to ask. I know how, I mean, I'm curious as to how Americans are perceived in Asia at this point in time, especially in light of the COVID response and the crisis. But I'm just really, really interested to hear what people think about our government and our politics and what's going on here in general. So I lived in New York for seven years before I moved back to Asia and I think for well educated person people as I met they they all understand well it's so politicians game right so different cultures they actually the, they very similar. So we have the same goal on freedom and it's,

it's all common. So in terms of Mr. President, you know, you know, it's, it's, he, he is not the president. I would say he's not president. I will vote if I have the voting right. Yeah, me either. Yeah. He is not helping in this crisis in terms of how he handled the virus,

how he handled the multicultural in this country and the racism. And I would expect a better president to help because American has a lot of responsibility. He's still the number one country in the world, right? If you have this kind of a president, a lot of things you cannot do,

right? You make chaos into the world. That's terrible. That's, that's, that's something we are expecting American can do more, right? More than this.

Yeah, I agree. And how do, I mean, living in a country that took the response to COVID extremely seriously, a lot of Americans believe that America has taken it seriously. I'm not one of them. I think that it's been basically a complete joke. But living somewhere where, you know, people respect the government they socially distance they wear masks they do all the things that are obvious and ask for again like how do they look at the united states response to covid specifically yeah so they yeah the most of people i am, they were kind of disappointed.

When America and Australia are mocking the Chinese government and all the people in the Chinese government, they much, much appreciate the government effort. China is almost back to normal. We have a colleague that is American. He said said i'm so lucky i didn't fly back and uh like he told me that china is one of the safest country right now right and um that that's that's something just some total difference from from what media uh is is talking about and uh so people when when, when you read the news, you have to understand who wrote the news, right?

Those newspapers, they all have their political opinions and they kind of have a bias, as I can see, right? But the good things, I think, people get more and more educated and understand the world much, much better. We travel around the world and we understand multicultural. We can talk to different people. And that's not a problem at all.

I think the government is kind of lagging and they are not prepared for this new generation, right? They think the generation is old. They still can be fooled by this fake news, right? But that's not the truth. That's not the truth. That's social media. People can free talk. If you travel around, you understand.

You understand the multi-different culture. And so it's very easy. Yeah. You said that your friend joked that he's glad he didn't have to go back to the United States. I remember a lot of people joking that when the SpaceX rocket took off, that those were the two luckiest people on earth because they were leaving the planet. Yeah. America's still amazing, right?

That's the only country can build a company, have a company, SpaceX, right? And no other country can do that. So I still believe in the American dream. And I think if people go through this political crisis, I think America will be stronger. That's what I believe. I agree. I think that in general, things always trend in a positive direction.

It's like looking at a chart of the Dow Jones for 100 years, right? And when you look at the context, the Great Depression is like a blip. So I think that politics, depending on which side you're on, either way, you think that world is ending at the time, but in the end, everything continues on that upward continuum of progress. At least I'd like to think so. So I have one more question, I guess, before I know we got to go soon. But you probably, I know you were a trader yourself, but I'm assuming that as the CEO of an exchange, you have some really interesting insight into the behavior of traders and how they act because

you're on the other side. I'm wondering if you've learned any lessons by running an exchange that you may not have known when you were just trading by yourself. I haven't traded for a long time. So my training basically test our platform to make sure the functionality is good. I'm more harder and I don't trade oftenly. Just like what

your observations from the data you see, the way that traders behave on your platform. I'm just curious if there's anything interesting in trader behavior that you can glean from that. Not particularly, I would say. Because I have the data for all the customers back at Morgan Stanley.

All right. So nothing surprises you. Yeah. The big thing is that Morgan Stanley has so many trading volumes, so their signal is more accurate. They can test their ideas. And that's also something we want to build. But particularly, now Femex has more and more retail clients. Our retail clients' volume is very big

and sometimes even bigger than the institutional clients. And so we do see a lot of common mistakes they made. As I mentioned, high leverage and put a lot of money, keep chasing their losing position. That's the common mistakes people have to avoid. Revenge trading. So you see people, I'm shorting it. Okay, it's up a hundred more dollars.

I'm shorting it again, liquidated up a hundred more dollars. And then they're eventually right and it goes down, but they have no money left by the time it does. I do have one observation is that if you hold a selling position, it's more likely to make money. Really? Yeah. So one is funding rate. Right, of course.

Usually, foremost, push the price up and the funding rate goes up. And if you sell, you probably collect all the funding rate goes up and if you sell you probably collect all the funding rate right and also that uh for for for btc us dollar because it's um it's settled in btc so the revenue curve is not like a linear right right? For selling, for short position, you have advantage, right? You have an advantage for earning Bitcoin versus earning dollars, basically. Right, right, right, right, right. So that's another reason.

The third reason is, the third reason is that, because for retail clients, they usually, most of them, they only have long position. Right. They're bullish. Inherently bullish.

Yes. They're bullish. It's kind of against the common sense to have a sell position. But that's the advantage of selling. And if you sell at the right point and then manage your liquidation price, it will be profitable.

So that's what I saw. Because we have some stats that people tend to have a short position. They are more likely to have profits. That's really interesting. And for anyone who's trying to compound their gains in Bitcoin versus in dollars shorting, does that more effectively as well, correct? Yeah. That's interesting. All right. Well, so where can people keep up with you after this, follow the exchange, get on the exchange and test it out? What best the best place for them to reach you guys oh so we uh our home page of uh have all our media communities and telegram uh people ask questions we answer the questions over there there's actively like hundreds hundreds users

talking about ideas and products over there. And our Twitter is updating almost every day that have introduced new products, new events. Sometimes there's a campaign, there's some airdrop, and it's all happening on there. And that's two main things. And in our YouTube, there's some educational materials. That's great. Yeah, you can check.

So almost everywhere. And where can people follow you? For me, I'm actively on both Twitter and Telegram. So you can follow me on Twitter.

Perfect. Yeah, I mean, I have to say that obviously, it's been a pleasure for me working with your team personally. And it's the only exchange that I've enjoyed trading on in years. And it's incredible to me how good the customer service is and how receptive you guys are to feedback from your clients, which is something that I've never, never seen elsewhere. It's really, it's really been very impressive. So I hope that a lot of people come and join and get in and start trading there. We do appreciate your trust and the support. We're kind of a late joiner to this industry and we only like established only less than one year and our products are launched only

less than like six months seven months right I think seven months and this is it's huge for we feel very appreciated and fortunate we're lucky that we got so many recognizations

and a lot of people trust us and to help us to grow. And this kind of relationship is very important to us. Thank you very much. Maybe. Thank you. You're welcome. But maybe you've had the benefit because you're late,

you've been able to see all of the mistakes that the people before. Yeah, that's true. That's true. We try to avoid all the mistakes, the common mistakes that people made. And that's all I have on each side. You can see. Well, thank you so much for taking the time. I know that it's the opposite side of the day for you,

and you're probably just getting going while I'm getting ready to go to sleep. So I do appreciate you taking the time this morning for you to talk to me. So I can't wait to follow up and do it again. Thank you. Thank you. Have a good night. You too. Let's go.

Hey, everyone. Thanks for listening. New episodes go live every Tuesday at 7 a.m. Eastern Standard Time. Links to our Apple and Spotify channels are in the show notes. You can also follow me on Twitter at Scott Melker to continue the conversation. See you next week.