Regulation in the Era of Blockchain and Crypto

Asia Blockchain Review

October 27, 2019

Founded in 2018, ecxx.com aims to be the world’s leading digital asset exchange. The Singapore-based exchange allows global users to buy, sell and store digital assets with a strong focus on high-liquidity and security. It also partnered with Ledger Vault on a multi-authorization cryptocurrency wallet and management system. Asia Blockchain Review recently spoke with Branson Lee, Co-Founder and CEO of ecxx.com, about issues ranging from the shifting Asian regulatory landscape in the era of blockchain technology and cryptocurrencies.

Asia Blockchain Review: First of all, can you tell us about ecxx.com and the role it plays as the world’s leading digital asset exchange, especially given its focus on high-liquidity? And how has partnering with Ledger Vault been conducive to this focus?

Branson Lee: We saw a gap in traditional vs digital finance and believed that the future will be underpinned by blockchain technology. Hence, we want to extend awareness to those who only understand traditional banking and the underbanked. 

Our platform is dedicated to offering unique experiences, regardless of whether you are a professional or retail trader. The partnership with Ledger Vault further enables us to deliver trusted and secured digital asset trading services.

ABR: You recently discussed the blockchain and crypto regulatory landscape in Asia with other industry experts at the Trescon World Blockchain Summit in July. Would you mind recapping that discussion for our readers and sharing any additional thoughts you may have had since then?

BL: I was on a panel where we spoke about crypto regulations. Each panelist brought their own insights from their own jurisdictions. In Singapore, for example, the MAS (Monetary Authority of Singapore) has a stance where regulations will not front-run innovation. I think this is great for innovation to flourish. For other jurisdictions like Hong Kong, there are some specific guidelines that involve professional investors and not retail investors. I think the overall sense is that governments are grappling with regulating crypto with an appropriate touch while seeking to protect the retail consumers.

 

ABR: Liquidity has been an ongoing issue in the cryptosphere for some time. Can it be pinned to a single root cause, or are there various factors/actors involved? 

BL: There are various factors involved, such as market conditions, price volatility, the level of KYC requirements, etc. Currently, there are only about 463,000 unique Bitcoin wallet addresses out there, which shows that we are still very, very early in terms of penetration or even adoption of crypto assets. 

Part of it could be due to education or lack thereof, and part of it due to regulations starting to catch up. Also, as a store of value coupled with the high price volatility, adopters are more keen on holding it than spending it. No one wants to be the pizza guy in 2010. However, we do see encouraging signs in the industry. We see more traditional financial infrastructure like custody services, on-chain monitoring companies, AML/CFT startups, and so on being set up. All these will eventually help in driving awareness and adoption. 

At ecxx.com, we aim to onboard high-potential blockchain projects that bring value to society and more trading options to users. In addition, we will also offer fiat-to-crypto on-ramp soon to enable more consumers to access Bitcoin easily.

ABR: Many countries are currently hurrying to regulate crypto by creating a dedicated taskforce. However, there’s still a lack of a transnational framework. In an interview with Cointelegraph, you stated: 

BL: “Crypto exchanges are not regulated like typical security exchanges and this exposes market participants to all types of manipulation. We believe there should be rule books and exchanges should work hand in hand with regulators to be fully compliant. Currently, a lot of exchanges are benefiting from regulatory arbitrage, partly because regulations are just starting to catch up with blockchain.“ [Link

 

ABR: Can you elaborate on this statement regarding regulation?

BL: Traditionally, money movement through the bank system is easily tracked since there is a well-established system of identification and audit trail. In the blockchain space, most blockchain addresses are not easily linked to individuals or groups, thus making it extremely difficult to track currencies used for nefarious activities.

As a digital asset exchange, we believe that the only way for the industry to grow is to ensure we all play our part in minimizing AML risk and conducting real-time due diligence on cryptocurrency transactions will go a long way in ensuring this.

Therefore, we recently partnered with Merkle Science to enhance on-chain transaction monitoring. With this partnership, the AI-enabled risk-monitoring system allows for the detection of any unusual patterns that might be suspicious for funds received through Bitcoin and Ethereum.

This is also timely, as the new guidelines set out by the Financial Action Task Force (FATF) require virtual asset service providers (VASPs), such as cryptocurrency exchanges, to comply with AML and CFT regulations.

ABR: It was recently reported that global banking giant HSBC tested out its blockchain-based trading finance platform, Voltron, which purportedly reduced transaction time by 40%. Given that traditional financial institutions are now pushing for the adoption of blockchain technology in their own systems, how do you envision the future of financial markets going forward? Will blockchain simply be absorbed into the mainstream financial system or could blockchain companies eventually replace existing institutions?

BL: The future of financial markets will be vastly more efficient than now. From credit scoring to identification and loans, processes could be further streamlined and efficient. More clearinghouses and custody providers are now exploring the technology for clearing, settlement, and other functions.

I believe that blockchain technology is more of an enabler, and different companies are working closely together to upgrade financial services. Multiple parties across various countries still need to figure out how to work in such a multi-blockchain environment with shared data, distributed ledgers, and business processes. 

I don’t think the existing financial institutions will be replaced per se, but it will be a watershed moment for the financial system to start incorporating blockchain technology and no longer being able to ignore or cast aspersions that it is just a fad. Those who resist will probably be left behind. 

 

ABR: What has been your assessment of fund-raising tools (ICOs/STOs/IEOs) following the ICO bubble of 2017?

BL: ICOs had declined in popularity compared to 2017, but recent regulatory developments could lead it to become a common instrument for raising capital. IEOs had opened up new opportunities through exchanges, but have also cooled with the crypto winter.

STOs comes with the advantage of security and compliance. Security tokens are considered the intersection of digital assets and traditional financial products with government regulations. We believe that STO is the key to unlocking the trillion-dollar opportunity in the coming years and have applied to be in MAS Fintech Regulatory Sandbox. I still feel that it is an efficient way to fundraise, but we can see that without proper guidelines and regulations, things can get out of hand very quickly. So regulation has a big role here.

ecxx.com aims to provide a secure and legally compliant digital token exchange platform that facilitates the efficient functioning of a market for digital assets, including security tokens.


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Asia Blockchain Review

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Asia Blockchain Review is the largest initiative for media and community building in Asia for blockchain technology. We aim to connect all blockchain enthusiasts on a regional scale and facilitate the technological foundation of blockchain through a range of group discussions, technical workshops, conferences, and consulting programs.

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