A recent tightening of regulation of cryptocurrency exchanges rolling through the Asian markets is revealing which exchange model is likely to succeed. One breed of exchange views itself as the outlaw of the traditional financial system, eschewing regulations and allowing anonymous trading with no identity verification. While at the other end of the risk spectrum are the pure technologists who are passionate about the more elegant blockchain solution over the current cumbersome financial services IT infrastructure. Who will win?
The Rule Players
Tokyo-based QUOINE is a good example of a crypto exchange model that is thriving under the new regulatory landscape, no doubt owing to its pedigree. QUOINE’s exchange was built by a team of IT and risk professionals from major investment banks who place a strong emphasis on bank-level regulation and compliance.
The regulatory rightsizing was the most severe in China where local crypto trading has been banned. Huobi, OKCoin, Yunabi and others started closing down domestic operations like dominoes before the September 15th deadline. Singapore’s approach has been somewhat obfuscous. Crypto exchanges remain in operation but, without warning, had their local banking privileges withdrawn in September. Japan has taken a clear stance on cryptocurrencies, accepting bitcoin as a legal payment method and licensing and regulating Regulated Virtual Currency Exchanges. While 12 firms closed down under the new regulatory regime, 11 have been licensed as exchanges, including bitFlyer, Coincheck and QUOINE.
The exchanges surviving the regulatory sweep are noteworthy as China, the US and other countries have now indicated they may follow Japan’s digital currency exchange licensing model. Some of China’s closed exchanges could reopen as licensed virtual exchanges. Meanwhile, many Chinese continue to trade anonymously.
On the newly regulated exchanges such as QUOINEX, trading outside the purview of regulators is not possible. Far from bucking traditional financial services, QUOINE hires from banks and fintech and insists upon strict regulatory, compliance and security, including KYC and a 2-step customer verification process. For added security against hackers, wallets are held in cold storage in an offline storage medium. Co-founder Mario Gomez-Lozada spent his career developing the IT infrastructure used by major investment banks, including IT risk and control systems.
When QUOINEX opened in Singapore in 2014, Japan’s then largest exchange Mt. Gox was closing after losing $450 million in bitcoins to hackers. QUOINE made a well-timed move to Japan in 2016 after receiving an $18 million venture capital infusion, led by JAFCO. Although if it is true that Singapore banks are currently targeting lax exchanges without KYC and other user identity verification measures in place, QUOINEX, which trades fiat and crypto currencies, may have retained bank services. QRYPTOS, a cryptocurrency only exchange, recently opened in beta mode.
The Liquidity Vehicle
Non-regulated crypto exchanges could be left further behind if crypto exchanges link up to create much needed liquidity in cryptocurrencies, an effort QUOINE is spearheading through QUOINE LIQUID, a global liquidity vehicle. In the current illiquid market, counterparty risk is very high and market manipulation is hard to curb. As a fiat-crypto currency exchange, QUOINEX is already linked and trading with most major currency exchanges. Owing to the high counterparty risk, exchanges without strong client identity protocols are likely to be eschewed by other exchanges—and traders. Traders will go to the exchange that offers the most liquidity, and thus the tightest spreads.
QUOINE LIQUID will act as a central processor where all market makers and traders can trade crypto only pairs and fiat-crypto pairs. This universal order book, called the World Book, can match several million transactions a second. Additionally, prime brokerage services will be offered to large investors. [CL1] A prime brokerage performs some of the cumbersome back office functions that have traditionally required banks to make high investments in IT systems, including securities custody and settlement services. The LIQUID Platform prime brokerage services include direct market access through a full set of trading and risk management tools, fiat cash management, crypto-fiat credit for margin trading and real time reporting.
Plug and Trade
The QUOINE trading platform has been architected to allow other exchanges to plug into its back end and access its cross currency trading platform, which trades 50 currency pairs across fiat and crypto currencies. QUOINE offers no fee trading on base currencies, while its global liquidity platform would narrow spreads. A current promotional campaign has lifted fees on all currency trading.
Its early target market is other cryptocurrency exchanges. In addition to tapping the liquidity source, QUOINE’s stricter compliance and security protocols could be attractive to exchanges not up to standards under the stricter regulatory climate. Exchanges may also feel overwhelmed by the large influx of custom utility tokens being generated by initial coin offerings (ICO). QRYPTOS will accept all utility tokens for trading, as well as support ICOs and secondary markets in tokens.
Conceivably, large exchanges could also plug into QUOINE’s exchange platform. The financial services industry has only began to move financial services to the blockchain, piecemeal—the Australian Securities Exchange is launching its electronic clearing house system and the CME Group a gold trading platform on the blockchain. However, the traditional exchanges have yet to embrace trading the cryptocurrencies that the blockchain was built to run.
The technology transition seems Herculean. QUOINE started out as a slim client running on a mobile trading platform before launching on the desktop. Banks, meanwhile, maintain large IT infrastructures to manage their front, middle and back offices. QUOINE and its ex-big bank IT team could provide a robust buy versus build option.
The QASH Token Sale
A QASH Token Sale of 500m QASH is taking place on November 6th. Half of the QASH token proceeds will be used to make deposits on other exchanges to establish the World Book order ledger. Investors participating in the early bird pre-launch phase from Nov 6-8 will receive a 20 percent discount. To sign up for a QRYPTOS account to buy QASH tokens go to https://qryptos.com. The tokens can be used across all of QUOINE’s exchanges.
QUOINE has launched an active Telegram channel to engage with their community on the QASH Token Sale at https://t.me/joinchat/FPU5vRGhiBjfLcQogatv3g – join us today!
QUOINE has also launched a QASH Bounty Program, where you can earn QASH by promoting QASH. Details at https://bit.do/qashbountyprogram
QUOINE’s backers have a strong background in Blockchain technology, fintech and financial services regulation. In September 2017, QUOINE Corporation became the first global cryptocurrency exchange to be officially licensed by the Japan FSA. ]. Koh Boon Hwee, a GIC board member, also serves as the deputy chairman of the Securities Industry Council. Hwee’s private equity fund Credence was a lead investor in BeMyGuest, a Fast Company “Top 50 Most Innovative” company. Masaaki Tanaka, senior advisor to the Bank of Tokyo-Mitsubishi UFJ, is a member of the Panel of Experts on FinTech Start-ups of Japan’s Financial Services Agency.
Investor Taizo Son expects the blockchain to finally democratise finance. Through his Mistletoe VC fund, the brother of Softbank CEO Masayoshi Son has been an early backer of blockchain startups including QUOINE and will back the QASH Token Sale. Other investors have served as senior executives and board members at Asia’s largest firms and successful internet companies, including Yahoo, PayPal and Rakuten.