Thor Chan is the chief executive officer for AAX cryptocurrency exchange. Having previously held key roles at Microsoft, HBSC, App Annie, and Publicis, I was curious to see how these roles have contributed to his entry into the crypto market.
Our discussion included how employing LSEG Technology used by London Stock Exchange Group, Singapore Exchange, Borsa Italiana among other top exchanges and organizations, is helping AAX position itself as a next-generation cryptocurrency exchange.
Apart from AAX, I engaged Chan on the effects the coronavirus pandemic is having on the cryptocurrency market and whether it’s a blessing in disguise for crypto exchanges and the crypto space at large. I could also not resist myself from asking Chan why the crypto market recently crashed by almost 50 percent.
To get started, can you tell me how your growing up influenced your entry into the financial sector, especially crypto.
Before AAX, I managed some brokerages and trading platforms in Hong Kong, focusing on Asian equities. In 2016, I started trading Bitcoin and was intrigued by the 24/7 non stop market which has deep liquidity and high volatility. I saw that digital assets would play an increasingly important role in financial markets. Like other financial markets, when they started, there are lots of opportunities for trading and arbitrage due to market inefficiency. After trading for two years, we also identified lots of issues with trading technologies. In 2018, our team came together and we decided to build a world-class next generation crypto exchange that can meet the standards of the financial industry and win the trust of future investors.
I see that you previously held key positions at Microsoft and HSBC just to name a few, can you tell me how it was like working for such big companies and how it drew you closer to wanting to start a crypto exchange?
I worked at various companies. Different organizations gave me opportunities to learn how to operate a business across different phases – bootstrapping, fast-growing, expanding globally, struggling and failing. When working at big companies, I could focus on just a few things. I would only need to play my role well and my job was done. But working with startups, I would have to wear multiple hats, proactively push things forward and always try to get more things done to increase the chance of success. Startup environments suit my personality better and market opportunities gave me a chance to run a crypto exchange.
Apart from working in major global companies, you once held a license to manage equities and derivatives brokerage and trading operations in Hong Kong. Tell me how that experience was like and how it has impacted operations at AAX?
Hong Kong is one of the most respected financial markets in the world and operating a finance business in tune with all regulations is strictly required by the SFO. My previous experience allowed me to understand the regulatory framework and how the regulators are trying to manage the markets and protect investors. I’ve learnt a lot from operating a licensed financial business and I now apply similar concepts and principles in managing AAX to make sure that we’ve got a strong sense of self-regulation in terms of operational control, risk management, compliance, information management and segregation of duties. We’ve been seeing that a lot of crypto exchanges are not operating with enough regard for these areas. Some run it like prop trading desks. Even worse, some just run it as an application platform on the cloud without hardly any control whatsoever.
What features differentiate AAX from other exchanges?
AAX uses LSEG technology that is part of London Stock Exchange Group, and used by major markets such as London Stock Exchange and Singapore Exchange, among other 40 international exchanges and organizations.
Why did you choose a technology that is applied by companies in the traditional financial market? And what advantage does AAX gain by using a world-class matching engine such as the Millennium Exchange trading platform?
The matching engine itself is agnostic as to what it’s used to trade for. Although the base code of the matching engine has been adapted to enable 24/7 trading and be made suitable for digital assets, the reason why we chose this particular piece of technology has to with its power.
Being used by major stock exchanges means it can handle volumes that we haven’t even yet seen in crypto. Also, it’s MiFid II compliant by design syncing AAX with a crucial piece of regulation around market integrity. Lastly, LSEG Technology is a proven brand and part of an august institution that both institutional and retail investors can easily place their confidence in. That’s what it’s all about, the engine enables us to instill investor confidence and trust.
With so many cryptocurrency exchanges sprouting every day, don’t you think the crypto exchange market is saturated?
It’s very saturated, and as the market matures, I believe we will see more consolidation and mergers, but the game isn’t decided yet. The industry is attracting institutional players, regulators are eyeing the space, traders are becoming more sophisticated.
Only exchanges that take market integrity, security and performance very seriously, and the ones that are innovative will be able to grow with the industry.
In the past, we have seen how hackers have siphoned cryptocurrency worth millions of dollars from crypto exchanges (roughly 300 million US dollars in 2019), how does AAX ensure users’ crypto wealth is kept secure at all times?
No doubt, security has been a major challenge for the industry. Since we started the exchange, from day one, we have been working very closely with Kroll, a leading global security solutions firm that has advised financial institutions, governments and even intelligence agencies.
Our multi-tiered security architecture is robust and CCSS-compliant, covering hot and cold wallets, policies, procedures, and multi-sig authentication mechanisms to take all-critical actions.
But it’s not just about our client’s assets. We also take the security of client data very seriously. In addition to leveraging techniques across encryption, invisible watermarking, access controls, and maker-checker authorization systems, AAX also implements a stringent multi-level employee verification system.
I heard you are planning on launching a native exchange token. Tell me more about the plans and why it’s crucial.
More than an exchange, AAX is an ecosystem and serves a growing community. Our exchange token, AAB, is a way for the community to grow with us and to really optimize their trading experience.
We like to think of AAB as digital umami – it adds that extra touch, that next-level flavor, that hard-to-define dimension – the missing piece that makes everything taste slightly better.
AAB can be used to enjoy trading discounts of up to 50%, optimize wealth management products, such as lending and borrowing, unlock special features and facilities, and gain access to unique financial instruments that we will be rolling out over the coming year.
Also, AAB will enjoy daily buybacks and coinburns, funded by 100% of all trading fees earned by AAX on our derivatives markets. This process will continue until 50% of the total supply of AAB is destroyed. We believe this will encourage a lot of price action.
Will you hold a token sale? If yes, how will you use the proceeds of the sale and maintain transparency and investors’ trust?
The purpose of the token sale is not initially to raise funds. In the first three rounds, we’re offering AAB at a discount and based on a lucky draw will even give half of all buyers their AAB for free. The reason is that we want to reward our early supporters and drive more community engagement.
In total, 20% of the total supply of AAB will be available for public sale. That’s 10 million AAB, which will initially be priced at $1 per token.
Other than that, the rest of the AAB will be used to fund our marketing efforts, provide liquidity, expand our risk reserves, strengthen partnerships, and incentivize our team and affiliates.
As to transparency, it’s important to understand these tokens are not stocks, equities or any type of security. They are utility tokens. Token holders can use AAB to enjoy benefits. They can purchase more AAB, or sell it on the spot market. Transparency in this context is about market integrity – making sure the prices are accurate and protected from pumps and dumps. As to the daily buybacks and coinburns, there will be regular reporting.
With the crypto industry flooded with tokens, how will AAX’s native token, AAB, cut through the noise and bring the much-needed value to its users?
Keep it simple. If traders see value in our mission to connect crypto to global finance, and if they see AAX has what it takes to deliver a premium trading experience and innovative products, then they may want to trade with us.
The only token that gives discounts on our platform, or that can be used to gain access to special services, facilities and products, is AAB.
In other words, this is not about the token itself, but about the exchange.
Will AAB have value outside of the AAX platform?
At the moment, this is not what we’re focused on. Of course, it’s possible that we’ll see AAB listed on other exchanges at some point – this is not really in our control.
Perhaps in the future, there will be ways in which AAB can be used outside the platform. Especially as we begin to integrate with global markets and expand into a tokenized economy, we may find special use cases for AAB.
What are your thoughts on the coronavirus pandemic and its impact on the cryptocurrency market?
The panic around the virus has impacted all asset classes, including crypto and gold. There is a lot of debate around the question of whether or not Bitcoin can still be seen as a potential safe haven asset, but it’s really not that complicated.
During a period of intense panic, many investors fled the markets in search of cash, or to defend their positions elsewhere. Cryptocurrency markets suffered together with all other markets. But over the coming weeks and months, as governments cut interest rates, I think we will see the crypto markets surging.
Although the coronavirus pandemic is having tragic effects on traditional businesses, do you think cryptocurrency exchanges are likely to see a surge in usage?
The obvious answer would be that many more people are at home and so they may want to trade more, but these are temporary conditions and not particularly interesting.
If anything, this is a time during which a lot of people may want to reflect on how we’ve organized our society. Such thinking can be around social issues, environmental issues, but also around finance and economics.
This is a good time to really study what blockchain has to offer our digital world, and what cryptocurrency can do in terms of generating, exchanging and storing value.
I think the value of crypto will become more apparent to the mainstream, including institutional investors, and this will bring more capital into the market.
Recently we saw the crypto market plunge by 50 percent, any insights why this happened?
First of all, all financial markets suffered. Investment managers needed to close their positions for cash and fund redemptions as soon as possible to prevent further losses, and it simply spiralled out of control. It’s a liquidity crisis.
On the crypto markets all types of assets were dumped. This sparked a massive amount of liquidations, even of low leverages positions, further escalating downward spiral. To make matters worse, BitMex broke down. This is significant, because a lot of market makers and trading firms use BitMex to hedge their position.
Furthermore, on BitMex, Bitcoin is used as the settlement currency and for the maintenance margin – as the price of Bitcoin plummeted, the value of the maintenance dropped as well, causing liquidations to happen even faster.
