Crypto Veteran. Tokenization, DeFi and Security Tokens - Blockchain.
Ishan Pandey: Hi, Ben Zhou. Welcome to our series “Behind the Startup”. Tell us about yourself and the story behind Bybit?
Ben Zhou: Hi, Ishan! Thanks for having me. I co-founded and serve as the CEO of Bybit, a fast-growing global crypto derivatives exchange. I ran a forex platform for eight years before founding Bybit. My time there helped me gain insights as to what traders expect from a trading platform. In mid-2016, I really started to take a keen interest in the budding and vibrant crypto scene, when the limitless potential of the technology and the numerous possibilities for development and growth caught my attention. Crypto was then an industry in its relative infancy, reimagining ways to distribute data and exchange value.
That was also when I observed that, despite their ecstatic and exuberant growth, crypto exchanges had numerous deficiencies, not least of which was their inability to meet customer expectations or match their own lofty promises. Traders were not getting the best overall trading experience in a market that lacked professional players. Therefore, it is built with the express mission of providing a professional, smart, intuitive, and innovative trading experience to better serve the trader community. We founded Bybit in March 2018 and launched the trading platform in December of the same year.
Ishan Pandey: What is the state of digital assets based derivatives right now, and where do you see the market going?
Ben Zhou: Quite a lot happened in the last 12 months. This time last year, BitMEX was the undisputed market leader in the crypto derivatives market, with several new entries, including Bybit, looking to both peels off some BitMEX users and grow the overall market. Not many were expecting such momentous change to arrive so furiously — we have witnessed a sweeping reshuffle in an incredibly compressed period of time.
A year of the pandemic-induced epic journey saw March’s crash, May’s halving, institutional adoption, mainstream recognition, and a stupendous bull run that sent Bitcoin price rallying to twice of its previous all-time high in 2017. Bybit has also since solidified our position in the top tier of derivatives exchanges. The lessons from the past year have taught us predictions may be a futile exercise in our industry. In the current landscape, we have many players but no definitive standards. I believe the best course of action is to redouble our efforts in creating a fair, transparent and efficient trading environment, one that the trader community can always count on and feel supported — such is our outlook in a fast-changing landscape. We aim to raise and set the industry standard for the best execution, most responsive customer support, and a simply great overall trading experience.
Ishan Pandey: Regulations regarding digital assets, contract for differences and digital assets custody is still developing. According to you, which jurisdictions are the most favourable for operating digital exchanges?
Ben Zhou: We have always welcomed progressive regulations and can catalyse healthy development and wider adoption. We applaud those regulators who encourage innovation and are open to discussions on industry experts’ key industry issues. The jurisdictions in which this is true will enjoy a first-mover advantage in the future of money and value exchange. Bitcoin and other leading cryptocurrencies have quickly matured in the past years, especially the one we just lived through and proved their value and resilience. We implore regulators to embrace crypto-native solutions and think for the long term future, and not look to the past and try to use a carbon copy of the legacy framework to arrest innovation.
Ishan Pandey: In what jurisdictions do you want to expand? Further, what limitations and challenges do you face in terms of regulations?
Ben Zhou: A healthy level of adoption, an underserved crypto community, and a progressive regulatory authority make up the trifecta that informs our decision in expanding to any given market. We prioritise expanding our footprint to wherever we can make an immediate difference and bring about the most positive impact. In the near future, that means ASEAN and we have every intention to deepen our ties with this fast-growing region.
Ishan Pandey: The GameStop Mania and the restrictions imposed by RobinHood has angered retail investors. According to you, how can the blockchain industry leverage this situation?
Ben Zhou: Robinhood’s gamified UI cannot hide that plumbing still runs through the old financial system’s clear houses. The popular trading app’s PR disaster results from the betrayal of its own mission statement of “democratise finance for all” and its failure to adhere to crisis communication’s best practices. The trader community is hungry for a fair and transparent trading environment where they can reliably find uninterrupted services, where there is no nebulous entity making decisions on whether or not their trades can go through, and where they can trade on a level playing field. The decentralised nature of blockchain and its capability to harness the power of mutual distrust makes it uniquely positioned to facilitate the future of investment and exchange of value.
Ishan Pandey: What are your views on Elon Musk promoting dogecoin and the mania of GameStop seeping into coins like Doge? Do you think that the SEC will start entering the cryptocurrency hemisphere over-regulating the market citing market manipulation?
Ben Zhou: The world’s richest man is just having some fun. And investors will do best to treat it as the lighthearted jest it is. As for r/wallstreetbets and the GameStop phenomenon, they were talking about investment opportunities on Twitter and Reddit is not fundamentally different from the idea dinners where hedge fund managers compare notes on investment. If anything, the fact that it is on Twitter and Reddit for everyone to see only makes it far less likely to be classified as manipulation. With Gary Gensler, someone who has thought deeply about fintech and blockchain, coming to helm SEC, we expect the agency to take a far more considered and nuanced approach going forward.
Ishan Pandey: What has Bybit learned from the Bitmex indictment by the DOJ and CFTC?
Ben Zhou: Since day one, Bybit has always been compliant with the local laws and regulations in any jurisdiction where we offer services. When unsure, we would always rather err on the side of caution.
Ishan Pandey: The primary concern of investors and traders is the exchange’s security as there have been many incidents of exchanges being hacked. According to you, what are the best practices for maintaining a cyber-secure environment?
Ben Zhou: Critical infrastructure investing should be among the top priorities on an exchange’s agenda, particularly if it operates digitally. The level of technology spending represents a company’s total security determination and capability. On aggregate, several leading cryptocurrency exchanges invest around 15%, with some raising it to 20% or more, such as Bybit. But spending should not be the only reason for consideration; implementing and adhering to best practises in cybersecurity and risk management is just as critical. Exchanges need to properly address risk areas to tackle possible hacking risks and implement several levels of protection for penetration testing to better measure the efficacy and preparedness of the protections of the security infrastructure.
Data protection and privacy safety at all contact points with the exchange could also include the authentication device utilised. Simply stated, this implies preserving the details and knowledge of a customer from account registration, login, trading, to some sharing of information with the network. This can be done by applying the best practices for technology lifecycle management to detect possible bugs, recruiting experienced and trustworthy security experts for penetration testing and running bounty schemes within the white hat group. Cryptocurrency exchanges are often advised to collaborate with trustworthy compliance audit organisations to carry out security assessments, apply stringent management protocols, and invest in zero confidence infrastructure. To avoid any possible data violations externally and internally, all access to the service needs authentication.
As a consequence of human error, this greatly decreases risk. Several tailor-made defence products from reputable manufacturers may be sourced and deployed externally. However, alternatives may also be built in-house if the exchange has the required talent, knowledge, skills and capabilities, ensuring greater control of future protection issues.
Ishan Pandey: Bybit is a global derivative exchange catering to clients from many jurisdictions. How do you maintain compliance with regulations in each jurisdiction?
Ben Zhou: We maintain an active watch of regulatory changes and always stay compliant with local laws and regulations in any jurisdiction where Bybit services are available. We are in regular contact with many regulators and seek to open up more dialogues around the world.
Ishan Pandey: The Year 2020 witnessed the entry of many institutional investors in the crypto space. What challenges are still left that the industry needs to tackle for mass adoption?
Ben Zhou: Compared to the rest of the commodities market, cryptocurrencies are still more prone to volatility, and that can cause a certain level of jitters among institutional investors. As the gradual accretion of institutional participation continues to unfold, we will see crypto, especially Bitcoin, price grow less volatile, which in turn creates a virtuous circle for more institutional involvement. There will likely not be a single moment where crypto suddenly achieves mass adoption. But when we look back when mass adoption is at hand, we may recognise this moment as when it truly began.
The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions. The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company. Interviewer - Ishan Pandey.
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