The Wolf Of All Streets - The Big Shift: How Decentralization is Overtaking Centralized Systems - Insights from OKX's President, Hong Fang

Episode Date: December 10, 2023

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That has to be hard though. It's very hard. It's inevitably political. A dynamic environment skewing towards negative. There are things that we can't control, there are things that we cannot control. Because engineer culture and, you know, a Wall Street culture is also very different. Centralized exchange is a different animal, right? Wow, that's a big question. I'd like to start with a very big question.

That's a big question. The future of crypto is decentralized and the platforms that end up being the winners are the ones who understand this and will move away from centralized systems centralized exchanges have played and will play a huge role in the way that we transact the way we trade and certainly in the way that we get fiat in and out of the crypto sphere but the exchanges that are forward-thinking are committing wholesale to Web3 and to the decentralized side of exchanges as well. Hong Feng, president of OKEx, one of my favorite guests, came on to discuss this very phenomenon. You don't want to miss this one. Talk about when you came here, what it was like, and how you've built everything it's become now.

Wow, that's a big question. I'd like to start with a very big question. That's a big question. Well, Singapore office was started a year and a half ago so this office was new uh our u.s team when i went to u.s it was like 2019 and i was uh leading the ok coin business globally so build a lot of the uh infrastructure there including marketing legal compliance uh and on the business side, you know, some of the business, as well as product and engineer capabilities. And I think we've come a long way, yeah, over the last few years, particularly the last two years,

I think we've come a long way. In that process, I think what is beautiful is that we have a group of people who not only feel passionate about what we do, but also are all very humble and open. Because, you know, this is something that we're very unique that we are building. At least that's how I personally feel uh because our team is truly global um but because we are global there are just a lot of things that we need to learn from each other uh and also the industry that we are in you know has so many different pieces right right? It's not just tech. There is also financial elements. There's regulatory element.

But then how do you find that balance? Because engineer culture and, you know, Wall Street culture is also very different. So it does take a very special personality to be able to, you know, thrive and enjoy the building and an environment. And I think the lucky thing that, you know, you mentioned that the emotional moment that I, Haider and I had last night, I think it's that, right? It's the ability to actually enjoy that process. And in that process, you end up not building a better platform and a better team, but also grow personally.

You get to understand what you are good at and more importantly, what you are not good at. And for those that we're not good at, you know, either we try to push ourselves, push the limit, or we find people who are good at. And the same thing you know applies to our business right we we have to recognize what we are good at and what we are not good at and be very selective in doing what we are good at and and then just give up those things that we don't care about and we cannot do that has to to be hard, though. It's very hard. It's, I think, one of the biggest lessons I've learned, personally. Like, it's actually many times it's not about what you choose to do, but actually what you choose not to do

that actually define who you are or what you can accomplish. When you came, it's my understanding that it was primarily the centralized exchange business was the main business, but now Web3 has become a huge focus, which could be disruptive to your other business. Yes. So to some degree, you're disrupting your own model.

So why have you guys committed so heavily to the Web3 side and what are you building there? I think the ultimate reason is that we, at our heart, are engineer-driven idealists. Star is an engineer by heart. He is a product manager by heart. He cares about what we can build ultimately to make things better. But at the same time, we're also very pragmatic, right? Because in order to actually build something, there are a lot of traps along the way. And there are how many times we hear

the line of, you know, crypto fix it, Bitcoin fix it. But there are many things that we cannot fix. And there, you know, there's excitement about tokenization, excitement about, you know, payment through crypto. But, you know, it takes a long time for some of those to actually come to fruition. So I think it's that combination of being an idealist, but at the same time being pragmatic. I think for us, you know, when we think about what we want to do, fundamentally, we view ourselves as a technology platform. Because of that, we intentionally have chosen to invest in technology and invest in a more decentralized future. The centralized platform is a must, right, for us as a platform to serve our customer

and to survive throughout volatility and cycles. And it's also a must for the industry to start with because you need that centralized liquidity to have a free market and whatnot. But at the same time, we also believe that ultimately because you need that centralized liquidity to have a free market and whatnot. But at the same time, we also believe that ultimately the technology, intention of the technology is to really put the power back into the people and then how do you actually build it better? That's only part of the choices that we have made, right,

to really invest in technology. But the other part of the choices we intentionally made to not do certain things. We chose not to do trading as our business. There are many times when the projects came to us and say, why don't you park some of the cash with us and we can give you yield? And we said, no, we're not interested in that because we're not in the business of seeking short-term profitability there are listing choices right you know how to actually view listing and we believe that listing is for us to actually help the customers find the right project long term and so that customers coming to the platform they can make money but you know i think there are those choices that you make,

but ultimately we believe that we are here to function as a platform. We don't want to take on those balance sheet risks or trading risks or trade against others. If we do trade, there is a purpose, which is to make it easier for the customer. But we don't want to, you know, we want to disintermediate ourselves as much as possible. So I think there's a constant,

there are constant discussions around that. But I think those are, if we look back, I think a lot of those decisions are pretty consistent in terms of how, where we're drawing the line. I mean, we've seen in this environment, and maybe it's market-driven consistent in terms of where we're drawing the line. I mean, we've seen in this environment, and maybe it's market-driven and all the regulatory things happening in the United States, but there have been times when decentralized exchanges have actually been doing significantly more volume than centralized exchanges. Is that something that's on your radar?

Do you believe that the Web3 side could actually become the core of the business or be larger than the centralized side? We truly believe that. We truly believe that the Web3 side could actually become the core of the business or be larger than the centralized side. We truly believe that. We truly believe that. Actually, I always add permissionless. We were coming to Singapore and one of the themes I'm looking at is really to look at the markets and where we are. And I think, again, there is a pretty, there is some discrepancy between what the market prices are out there versus what's actually happening in the market. If you look at a lot of the on-chain data, the trends are pretty positive. Even the, you know, what you mentioned, the percentage of the transaction volume on DeFi versus CeFi,

the percentage actually are pretty resilient. It went up at some point to 20, but dropped down a little bit, but it's still at like 15, 16, 17%. You know, I strongly believe, and I think it's our corporate philosophy too, that that piece will continue to pick up over time. There are regulatory and compliance requirements on the CeFi side, because when you introduce more people into this world, people need on-ramp, and that means that you need to actually connect with the existing financial system. But how do we actually build that parallel permissionless system? I think that that's something that we all feel very excited about and also a strong sense of purpose there too.

And as an American, obviously, it gives me the actual option to participate and to interact with the platform when I can't with the core OK Act project. Did it worry you at all? We now know, I think, what the rules are for the centralized side. Does it worry you that the rules could change on the Web3 side or that something you're doing now

could end up being viewed as noncompliant in the future? It's possible. Even for centralized, right, there are still areas that has that ambiguity. But I think for for the decentralized part uh there will be we are watching uh there are certain parts that i think are probably less ambiguous than others but but we are watching i hope that you know we've seen in the c5 world in the U.S.

just these high-profile cases Coinbase, Ripple, that was brought to court. And I think as an industry, we're lucky that there are players like a lot of kudos to Brian Malmström and Brad. They actually stand up for themselves

and let everything go through the judicial course in the U.S. And I feel grateful as part of the industry. And I hope that for DeFi, if it really comes to that, you know, we as an industry can actually see similar things happen and defend what's right for the people. Do you think there will be a time when your core business is just the same everywhere in the world and you don't have to navigate this regulatory arbitrage and what's happening in this place, this place and otherwise? I don't know. I don't think that, I don't know.

I think it will probably be quite natural for regulators in different jurisdictions to ask for different things. There may be certain themes that somehow will converge over time. I think for the CeFi side, there are some clear rules like sanctions, KYC. Those pieces, I think, customer protection disclosure, there are pieces that I think will converge. But then there are still differences in details, even for KYC. Of course. KYC requirements in Europe are different from U.S., from Bahamas, from Dubai, from Singapore.

So I think there will still be differences. And then when it comes to, for example, asset listing, there is a wider divergence of what each regulator is asking for. And then when you move along the continuum and get to DeFi side, it's even more dynamic. So I think it's probably going to be quite natural. But I'm hoping, I'm really hoping that U.S. policymakers will be able to reset and then lead. Because I do think that right now, yes, the policy guidance in U.S. is kind of in a, I don't know how to describe it. How do we say this politically? Negative environment.

Dynamic environment. Dynamic environment skewing towards negative. Dynamic environment. But I'm hoping that we can reset. And I do think that, you know, the rest of the majority of the world is actually watching,

and they still view the U.S. as a leader in this aspect. So I think if there's something that can be done in the U.S. that is forward-looking, that is common sense, that is non-political, that goes back to the ground of really protecting people. Think about when Internet in IT was introduced back to the ground of really protecting people, right? I mean, think about, you know, when internet in IT was introduced and there was, you know, debate about how to regulate that. And I think we get to a reasonable place. I mean, this is similar. The only complexities that crypto or Web3 or however you want to call it, or Bitcoin versus crypto,

like, again, there's trip, but, you know, this industry not only is technological, but also touches on value, which inevitably touches on money. And it's inevitably political. But I hope somehow, you know, we can still get back on our feet and set things straight and leave a clearer room from like there is actually, you know, legislative guidance in terms of what actually does not have to be regulated and what needs to be regulated. And I think the centralized piece should be regulated. I agree.

And you can argue to what extent like stable coin is a different animal. Centralized exchange is a different animal, right? But then the DeFi part, there should be bigger room because you can see when the public policy stances are different, people vote with their feet. It's harder for individuals to move around,

but institutions move around and capital move around. So, you know, that's what we see. We're seeing institutions and capitals moving to Asia, moving to Dubai, to Europe. So sad as an American, but yes. I think it's coming back, though. I think so. I think so. I'm hopeful. I'm hopeful as well.

So of all this, everything you guys are building, what are you the most, before I let you go, I know you got to go back to work, but what are you the most excited about? What do you think will be the biggest change that you'll see in the business over the next few years? For, I think we'll next few years? For us, it's two parts. One is to invest in technology.

I think that part will continue to be moving forward. Our Web3 team has already done a lot. Even before Web3 product goes out, there's a lot of on-chain stuff that the team has to do to make sure that the centralized exchange actually operates smoothly. So we've actually accumulated a lot of that know-how and we'll continue to actually invest in that part. I think that is actually something that I feel very excited about. The other part is about the team and scalability and infrastructure, and I think we're building something that is very beautiful and unique here together with the team.

And what I really feel grateful and proud of is that the team is really open and resilient. And we have a lot of people who you know, who are willing to take a step back and think about what we are doing and reflect and learn from each other. And I think that is quite beautiful. You know, we want to continue to do the right thing and just keep moving. There are things that we can't control. There are things that we cannot control. So we'll just focus on what we can control control i think it's incredible what you guys have built and being here in the office and really seeing it and being at

the event last night and being at token 2049 and being in asia there's still just an incredible groundswell for everything that's building and you guys are doing such a tremendous job and it's so nice to get out of the united states and see that because it re-inspires and i think reinvigorates you makes you want to go home and do better but what you guys have built is incredible i can't wait to see we'll we'll get we will get there and i can't wait to see what you build over the next few years thank you so much Let's go.