All the Answers you Want to Know About COBINHOOD—Explained by our CEO
Q&A with CryptoGrinders: Highlights and full interview transcript
- COBINHOOD confirms it will not charge any fees.
- COBINHOOD is registered in the Cayman Islands, with offices in each major country to facilitate compliance.
- No current regulations in Taiwan about ICOs, but compliance will be imposed if it happens.
- COBINHOOD cannot be affected by any China regulations.
- Will accept FIAT to crypto, and vice versa, trading. But the ability to execute on FIAT currency is subject to banks being willing to transact with cryptocurrency exchanges in the future.
- The long term plan is to migrate to a decentralized platform; until that is achieved, the centralized exchange will coexist with the decentralized, starting Q2 2018.
- Can you profit from COB tokens? For margin trading, if you pay the margin loan interest in COB, COBINHOOD will buy back the tokens on a market order on our exchange and you get 50% discount. This means that every margin trader who use COB tokens, they can check to opt-in the pay the interest of margin loan in COB and they got a 50% discount so they create a market demand for COB.
- The platform intends to offer 10x margin.
- Traders can opt-in and opt-out any time for the margin trading program. And the algorithm will determine the market supply-demand and find the best interest rate that we can provide and reward to the asset deposit
- COBINHOOD will ONLY underwrite ICOs from reputable, billion-dollar companies
- The ICO underwriting service will provide companies with marketing resources, experiences, liquidity, legal compliance review, smart contract advisory, and COBINHOOD’s trading reputation.
- Centralized exchange assets will be insured; decentralized exchange assets will not be — as any losses must be by nature of decentralization, client-side error.
- 5% of the value of funds raised by each ICO underwritten by Cobinhood will be distributed to holders of COB, proportional to the percentage of COB they hold. As an example, if you hold 100,000 COB (~$5,500 worth), the value of your share of an ICO where $200m in funds are raised would be ~$1,000 (in whatever token)
- In terms of insurance, details about it will be announced soon. But in case traders lose their deposits, the plan is to immediately liquidate their loss in FIAT, and calculate the average market orders, at the time of loss.
- For the security-side, most funds will be stored in our cold vault which will be 98% of all assets will be stored on the security modules. And the security module is multi-signature, so each security module will be locked into different bank’s safe.
Full interview transcript
The transcript below is based from the video posted above. Annotations for clarity have been applied and some details may appear different from the actual video.
Ryan: What’s up Grinders? Today we will be having the founder and CEO of COBINHOOD so today’s going to be an exciting episode. So guys, start sitting in — let’s get started.
Alright, give me a second. Popo, are you there?
Ryan: Give me a second to just update a few things. What’s up, people? What’s up? Today we have Popo Chen in the house, CEO of COBINHOOD. Say hi guys!
Ryan: The chat is excited to see you. Okay, let me just put it on Twitter. Alright, guys, let’s get started.
We have a very very young and talented CEO right here in the house. So just a quick background on Popo Chen, basically, he co-founded and started 17 Media. But before it was called 17 Media, it is… Okay, just a little bit about 17 Media. So 17 Media is a mobile application that offers live video streaming and real-time content-sharing services and the headquarters is in [Taipei, Taiwan]. And in terms of funding, ’til date, it has raised a total of $15 million [USD] in terms of, I think, two rounds, if that’s correct. They were recently, or at least in the month of December 2016, were acquired by Paktor, which is a Singapore company — a Singapore dating app company — and they acquired 17 Media.
But before it was called 17 Media, apparently, it’s called Machipopo, Inc. So Popo, without further ado, I’d like to, of course, introduce you to the chat and also I just want to ask a few questions.
Ryan (Q1): So did you get started on your entrepreneurial journey, how old were you when you first started your first company — your very first business venture?
Popo: Okay. So actually, I started my first company in the fourth year of college. And I have been in the entrepreneurship [field] for five years and have exited three companies, successfully. And right now I am building COBINHOOD, the most exciting startup that I have ever built.
Ryan: And when you mentioned that… what even made you come into this space? Maybe [you can] share a bit more about your previous application, before we jump into the good stuff, of course.
Ryan (Q2): Just share a little bit about how fast did 17 Media, or at least, Machipopo, Inc. [grow]? What kind of database are we talking about here? How many users were on this app that you created?
Popo: The downloads have exceeded 30 million registered users and the daily active user is now about 5 million.
Ryan (Q3): And what kind of space are we talking about? Like, how fast? How many years, or months…
Popo: In the beginning, 2015, around July, we founded Machipopo, and started our live-streaming project because we [saw] the hype in the US caused by Meerkat and Periscope and we want to do live-streaming in the Asian territory that’s customized and fits the Asian audience.
Actually, at that time, we only have a seed fund of around $300K [USD] and we only have five people and we did our own live-streaming protocol — propriety protocol — in one month. [Then we] launched in Asia. And in September, it created hype then daily downloads reached about 1 million. And then later it became the top free app in Taiwan and then [in] Hong Kong, Singapore, then China and even USA. We beat Snapchat in the last two days.
Ryan (Q4): But what attributed to the success? What’s interesting about your app that it garnered so many downloads and so many users in such a short span of time? I mean that’s really impressive! What kind of marketing did you guys do? What kind of features made it so interesting and fun that virality was so great?
Popo: Actually, at that time, we see that Instagram and Snapchat [that] do photos and share videos, right? They are not entering live-streaming at that time, two years ago. And because Periscope was bought by Twitter, Facebook started to do their own live-streaming platform but they are very late. About one year ago, they launched Facebook Live but two years [prior this] we’ve already launched and merged the capability of photo, short video, live-streaming, and you can basically think that we already invented the features that what now Instagram cloned, at that time. We’re actually the first to do that and what followed later are those big social platforms that cloned the features. Integrated, like Snapchat Stories, and live-streaming into Instagram like [what] Facebook does. But we were earlier to integrate that feature, so actually, you can see that the Instagram live-streaming is very popular now, and it’s a very good fit to integrate the features.
Ryan (Q5): So just to understand a little bit, after you did all these… But what is your background in terms of your degree or whatever that allowed you have this ability to create or think of this application? Are you of a computer science background? What’s your background like?
Popo: I studied in National Taiwan Univesity and majored in EE, electrical engineering. But I mainly focused on computer science courses so I started writing computer programs in the first year of college then later got more interested. In the fourth year, the iPhone app got my attention and then I jumped into the social media era, so I have been focusing on the social platform for about four years. After I exited 17 Media, I started to get interested in crypto-trading.
Ryan (Q6): Ah, okay, so that’s how you discovered cryptocurrencies. You were just… You were literally an investor first. Out of curiosity, what was your first cryptocurrency, other than Bitcoin, of course?
Popo: The first cryptocurrency I bought was Ethereum.
Ryan (Q7): So you bought Ethereum. How early did you start in the space?
Popo: I started to trade crypto[currencies] about half a year ago. And then later, I used to use Kraken but it got really slow. And then one time I placed a market order but the execution failed so I pressed it [again]. And then later I got two completed orders so I got very very disappointed.
Ryan: Instead of getting one full order… because of [the] lack of liquidity, right? Because of the lack of liquidity, you managed to have two small orders, right, instead of one full order. Is that what you’re trying to say?
Popo: I think it’s just like, kind of, bulk bills. Instead of the market order’s supposed to get the liquidity from the market — but best price, right? And at that time, instead, is the execution failed, build server is busy. Later, so I re-executed the same orders but I got two orders.
Ryan (Q8): Oh okay, okay. So, if that’s the case, right? You started off [like that]… What other problems or issues did you face while trading? And did your experience in terms of exchanges… What kind of difficulties did you face?
Popo: One is, to pass the KYC is very slow. And after you pass the KYC, you can deposit USD. And then you find out that the platform is very laggy. Actually, it’s very hard to place orders [and] to [do] very high-frequency trading. Actually, it’s settlement is still kind of slow, it takes about five to 10 seconds to settle orders. And later we found that my margins are squashed by the fees. So mainly these three problems.
Ryan (Q9): Okay. So when you started COBINHOOD… I mean, I’m sure you had a lot of ideas before you came up with an ICO, what were the various types of business ideas or concepts did you come up with? And then you narrowed it down to creating an exchange?
Popo: So I trade crypto[currencies] myself, I later found out that traders, can see that the fees, the margins, about 25% of my monthly profits are gone because of the high fees that most exchanges are now currently charging. And I don’t think they deserve the fees because of bad service. But if the service is very fast and very smooth, I’m willing to pay the fees.
Ryan: Okay. Right.
Popo: So I want to create COBINHOOD to maximize traders’ profits and the service quality and the security. And so I can trade in COBINHOOD, happily. :)
Ryan (Q10): So, basically you are trying to create an exchange. And because you are not charging any fees for trading, I think that’s very unique. So how is the company, or at least how is the exchange going to make money then?
Popo: We provide margin trading with up to 10x leverage. And for the margin trade part, we provide margin loans but it’s not like Bitfinex. Bitfinex is… if you want to loan to the margin funding you have to place your assets onto a margin funding order, right? And the margin traders will get the margin funds from those orders. But the process is kind of a little complex, so we reinvented that to use our own propriety-made dynamic model to determine the best interest rate and the deposits of users’ crypto assets can automatically earn interests. Which means that if you got 100 Bitcoins, and you deposit into COBINHOOD, you got interests earned on a daily basis. You can cash out anytime and we guarantee 100% reserve so we don’t embezzle your money.
Ryan (Q11): Since you mentioned about embezzlement and security, how secure is your exchange? What are the features that a user can expect to make sure that… Okay, before I jump into security, you did mention that also, one of your revenue streams is through lending but you mentioned that the calculation is a little bit complex, so how do I earn? Let’s say, for example, if I have 10,000 in terms of COB tokens, I’m willing to lend it, right? Where do I have to keep these COB tokens in order for me to be entitled to earn from this margin trading?
Popo: So, our design is, in the terms, is when you deposit your crypto assets, you automatically opt-in but you can opt-out any time for the margin trading program. And our algorithm will determine the market supply-demand and find the best interest rate that we can provide and reward to the asset deposit. And for the interest, we earn the interest also.
Ryan (Q12): Okay, so that’s one aspect. Is there any other aspect of the business that will be generating a revenue stream? I understand that you are able to underwrite for other cryptocurrencies that are planning to list on COBINHOOD. So is that one of the revenue streams as well?
Popo: Yeah, that’s what we will be mainly focusing on in 2018. Basically, our basic strategy is…. because of zero fees, we expect a large liquidity to come to our platform. And when we have a lot of traders and liquidity, we can expand to the ICO underwriting service. It is like, you build first your first crypto-NASDAQ and then later we become the crypto-Goldman Sachs. We only cooperate with successful startups or IPO firms. And we help them decentralize their application onto the blockchain. So it’s not like we find the project on Coinschedule and we approach them — it’s not like that. It’s called listing right, it’s ICO listing, what we do is like ICO consulting service, so we transform… For example, like Github, everyone puts code on Github, right? So Github has a problem that it’s still centralized. What if Github launches its decentralized code-base that’s also compatible with Git protocol? So this angle that we approach these very already very successful startups and help them migrate into the decentralized world. So we underwrite their coins and we guarantee the coins will be listed on Cobinhood for trading immediately after ICO to solve the liquidity problem. It’s like the ICO flaw is the framework, the ICO framework.
Ryan (Q13): And in terms of these companies that are planning to list with you, how long will the process be and what is the process like for the companies who plan to list on your [platform]? I mean, are you going to provide them any advisory, as in, because obviously, they are going to be underwritten by you, are you going to provide other services, for example, advisory on how to launch a successful ICO or marketing, are you going to help them with the marketing campaign?
Popo: It’s like you can say that we are the Y-Combinator of the ICO world but we don’t underwrite those companies who just have white paper because it’s very risky. So we find already successful companies and help them migrate into the decentralized world. And we provide marketing resources, experiences, and our trading reputation, the liquidity, and the legal compliance review, smart contract advisory, and all things like that.
Ryan (Q14): So the services that you are providing to these ICOs are actually very extensive. So the next question that I want to ask is… I went through your site and I did notice that you do not find your financial backers or your usual advisory board, is there any reason why I don’t see any team behind it, or why I don’t see the full team other than your self?
Popo: So we certainly have a lot of financial backers or financial advisors [who] come from large banks like J.P. Morgan or the large banks in Taiwan, Hong Kong, but because of compliance issues, actually they can not be officially listed on the website because they are not retired. So banks have compliance like security trading firms, UPS, they all have some compliance for them to follow. So we don’t especially list them on the website but that doesn’t mean we don’t have them.
Ryan: Okay. So I’m reading the chat and people are saying that how is it that you don’t charge a fee and still can be successful. So maybe some of the people just came on board and they don’t understand the logic.
Ryan (recap): So guys, just to recap for those who just came in a little bit later, the business model is very different from the current exchanges that we’re used to. Current exchanges charge a fee for each particular trade and also if it runs on margin, there’s also a fee they charge because they are lending as well. But for COBINHOOD, they earn revenue from lending for those who are margin traders and at the same time they are also going to do listings of ICOs.
Ryan (Q15): So those are the two revenue streams. Any other revenue streams that you would like to highlight for this, Popo, or this is it for now?
Popo: Actually we want to emphasize that we want to create an ecosystem that is one-stop for ICO framework. It’s like an IPO flow, IPO framework. And because every country will have its compliance, its regulations on ICOs operating in their own countries, we plan to expand into large countries first like USA, Japan, Korea, and do a local subsidiary for the compliance and get the license for ICO underwriting. Like IPO underwriting, it has a license. In the future, ICO underwriting will also have a license. So we do the underwriting by providing the advisory, consulting service, and provide market liquidity. And it’s the ecosystem, not just the listing. In the listing, is just, you got some money, it doesn’t last long because when the compliance comes up, actually you can not list your ICO on to these sites to raise money because you have to comply with the country’s regulations and laws.
“We do the underwriting by providing the advisory, consulting service, and provide market liquidity. And it’s the ecosystem, not just the listing.”
— Popo Chen, COBIHOOD CEO
Ryan (Q16): Okay. So maybe we pick a few questions from the chat. The question from “Little Forest Lamb:” who will be providing insurance for account asset and which company?
Popo: After we launch our exchange, we plan to contact the insurance companies. Like Coinbase, they already have insurance companies backing their hot wallet assets, so we’ll do the same. For now, because we are in closed beta now, we have no valid power to approach the insurance firms but by the end of the year, we will come up with the plan and announce it on the website.
Ryan: Okay, that’s a good answer. Karan Joshi asks, current ICO for COB tokens is for the exchange? Do you understand this question? The structuring is a bit… it doesn’t sound…
Popo: Not sure about the question….
Ryan (Q17): Okay, I saw another question… Are there any ICOs that are going to be listing on the exchange? I mean, any talks of ICOs what will be listing on the exchange?
Popo: Yes so we will start to line up the ICOs that we’ll underwrite in 2018 because the ICO is a step-by-step process and we need to create a reputation in the industry and later we can get very good projects that have ICOs we can underwrite and we will cooperate with them. Actually, the ICO underwriting service is mutually beneficial because when we underwrite a good coin, the liquidity will come to our exchange, right? And we provide traders’ liquidity to them also. So it’s mutually beneficial.
Ryan (Q19): So, Rishi Gangwani asked, when do you expect to add FIAT to exchanges. Will it be a regulatory nightmare?
Popo: We can not guarantee that FIAT can operate forever because like Bitfinex, they got shut down because some intermediate banks stopped them, their wiring. Basically, we have already opened accounts and passed the banking KYC on this FIAT deposit that we’ll do. But because it relates [not only] to non-local banks, but it relates to intermediate banks [as well], so we can not guarantee when will intermediate banks stop the FIAT service. No one can guarantee that, actually. But we’ll make the best effort to allow the support of most mainstream FIAT.
And another approach is that we’re trying to do is we will launch like a Tether for Euro, Japanese Yen, Korean Won, Taiwan Dollars, Australian Dollars… We will open subsidiaries in those countries and find the best way to comply with their laws and provide like an Ethereum, FIAT backed cryptocurrency like Tether. Different kinds of FIAT-backed crypto.
Ryan (Q20): There are some questions that are very specific. CryptoWill is asking, is the 5% interest paid out in a daily or monthly increments. Or is it just planned to be paid out once a year?
Popo: If you opt-in our margin [trading], and become our margin trading fund providers, which you are automatically opted-in and you can opt-out anytime. And when you opt-in, you got interests earnings on a daily basis and you can cash out anytime. And we will notify you every day about your interest earnings. And approximately, we have examined, like Bitfinex, daily renting interest is about 0.08% per day average. For that, the annual interest rate is actually 30%. And we provide higher leverage for traders so the total lend-out money will be the asset amount will be more, the percentage will be more. but we still guarantee a hundred [percent] reserve. So we estimate that the average earning for the depositors will get an annual 5%.
Ryan (Q21): So okay, that is how the calculations come about. What happens to COB when it gets used for either purchasing margin or discount ICOs?
Popo: For margin trading, if you pay the margin loan interest in COB, we buy back the tokens on a market order on our exchange and you get 50% discount. So that means every margin trader will try to get COB first because when they have COB first, they can check to opt-in the pay the interest of margin loan in COB and they got a 50% discount so they create a market demand for COB.
Ryan (Q22): Makes sense. So the next question is, is this a decentralized blockchain exchange?
Popo: We want to do bigger things so we want to migrate from centralized to decentralized simultaneously. Actually, our team is hiring a blockchain expert and we’re already developing our own decentralized chain. It will be our own chain that focuses in decentralized order-matching. It’s not like Ethereum, Ethereum is focused on… you can execute anything but it’s not optimized for specific tasks, right? So when you run some specific tests, it takes a long time, you send a lot of gas, because of the web assembly, the architecture is not optimized for a specific scenario. But for our chain, we will optimize for the settlement of the order book, decentralized order book so you can register any asset into the chain. And you can trade on the chain and the settlement will be fast — the build will be optimized.
“We’re already developing our own decentralized chain. It will be our own chain that focuses in decentralized order-matching.”
— Popo Chen, COBIHOOD CEO
Ryan (Q23): So for now, I think Howard Chang is asking a series of questions and maybe I can lump them together. Since your company is registered in Taiwan, how many cryptocurrency exchanges are there in Taiwan and how much of the market share is COBINHOOD able to capture? I think that’s his question…
Popo: You mean only in Taiwan market?
Ryan (Q24): Yes just Taiwan because he mentioned that COBINHOOD is…. Is COBINHOOD registered in Taiwan? Is that correct?
Popo: We’re registered in the Cayman Islands and we have the subsidiary in Taiwan, USA, and Hong Kong.
Ryan: But the parent company is basically registered in the Cayman Islands, right?
Ryan (Q25): Also his question is, what are the stock shares…. Sorry Howard, your question’s a bit off — there are no stock shares… I would assume his question would be how much of the market share in Taiwan would you be able to capture? Or at least, maybe how confident are you able to capture the overall volume in terms of the crypto world… Maybe it’s a combined question, with Rishi’s question… Because there are so many cryptocurrency exchange platforms, there’s Binance, there’s Poloniex, and all the large Korean exchanges, like CoinOne, Bithumb, how does COBINHOOD standout, or what’s COBINHOOD’s strategy to literally capture a share of this market, other than the zero fees?
Popo: So for [the] Taiwan market, actually there is no exchange currently in Taiwan. There are some that help you purchase but they charge about 6–8% of the fees because Taiwan doesn’t have an exchange that provides a low rate. So currently in Taiwan, you buy, you need to plot 6%, you sell [it’s] minus 6% so it’s like the fee’s 12%.
So when we launch I think all these platforms will disappear because no one wants to pay 12%!
Ryan: Yeah, exactly. I think I see a lot of that happening. When you say 12%, are you talking about from crypto-to-crypto or…
Popo: …Crypto to FIAT, Taiwan dollars.
Ryan: Oh in Taiwan specifically. So for a Taiwanese to purchase cryptocurrencies the total is 12% to get in and 12% to come out. A total of 24%
Popo: Oh no no no… 6% get in, 6% when you get out.
Ryan: Okay. Because there are countries where people pay as high as 20%.
Ryan (Q26): Yeah as high as 20%! I’m not sure if it’s in and out but as high as 20%. I think the Koreans, at that time when [name omitted] able to purchase crypto, it’s actually pretty high. But then again you are not able to accept FIAT for now because you will not accept FIAT or at least people can not wire FIAT into a bank account, offshore bank account, and then it converts into cryptocurrencies. That’s something that’s not available when you guys go live, right?
Popo: Yeah, we go live in November. And actually, in December, we plan to launch our FIAT deposits and withdrawal.
Ryan: When is that again? Sorry, I didn’t catch that, when is that again?
Ryan: December! Okay, so one of the members of chat mentioned, you guys go live in November. Is that correct?
Ryan (Q27): So the next question is if Taiwan government decides to ban Bitcoins and exchanges like China, what would you do and do we lose our money just like that? Basically, he’s just concerned about what’s the Taiwan government’s stance and banhammered onto the exchange, what are the contingency plans of COBINHOOD?
Popo: Basically, the regulation is per country currently, right? So if that country forbids any Taiwanese to enter this crypto market, at the KYC phase, we will block them. We will block their IPs and [blocking] at KYC is when they can not prove they are not Taiwanese. So we’ll still operate our platform because we are registered in the Cayman [Islands]. Actually, the Taiwan, US, and Hong Kong [locations are] for the development team and operations-side we can say that we’re in Cayman, so the laws would not apply. If we already block the citizens for countries that ban the crypto then it just doesn’t have an issue to not operate our platform. It’s a country-wide issue, not a global issue.
Ryan (Q28): People are asking, [someone] has read the insurance of your cryptocurrency, how much will you ensure and will they receive COB in return if their money is lost? So I assume that in terms of the insurance, he is referring to the insurance on the exchange. Let’s say someone loses their funds, how will they be insured? Back in FIAT, back in Bitcoin, or back in COB? How is the insurance like?
Popo: So when the insurance terms come out, we will announce [it] on the website. But we have plans to liquidate their lost, immediately, the average of the market orders, at the time, in FIAT. And we will pay back ASAP. For the security-side, most funds will be stored in our cold vault which will be 98% of all assets will be stored on the security modules. And the security module is multi-signature, so each security module will be locked into different bank’s safe. So basically it will be very hard to break in.
Ryan (Q29): Do you have a license from the Taiwan government to work?
Popo: Taiwan currently doesn’t issue any license so the crypto [market] doesn’t really create a hype in Taiwan. It’s still very small percentage of people that know what crypto is. So it has not caught the government’s attention so there is no issue of license.
Ryan (Q30): Will decentralized exchanges also have insurance? Let’s say, for example, now because I understand you’re not [decentralized] yet, what happens when you decentralize? Will the insurance still be covered? Just out of curiosity because I understand that right now, you don’t have the funds coming into your platform yet, so you’re not able to negotiate yet a proper T&C with an insurance company. But if you decide to go on to the blockchain, will the insurance companies still cover?
Popo: [Decentralizing] is just to solve the security issue it doesn’t make sense for the insurance companies to insure a decentralized exchange. Because on decentralized exchange we will mainly focus on POS method so if a large stakeholder will be compromised, I don’t see any issues why they will want to back that.
Ryan: So this is what I’m hearing, the insurance may not apply if it’s a decentralized exchange because the security will come from the network.
Popo: If the security is compromised it’s [the] miners’ fault. It’s the stakeholder’s problem.
Ryan (Q31): Another question is, is shorting allowed?
Popo: We plan to launch futures in 2018.
Ryan (Q32): How many times in terms of leverage and margins are traders going to get? 5 times? 2 and a half times?
Popo: We currently offer 10 times leverage.
Ryan (Q33): So the platform is a demo, is anyone actually able to use your platform as of now? Or no one can use your platform to test it out as of now?
Popo: Currently it is in closed beta and we will announce the open beta in October. And we will let everyone register onto our platform and we will provide virtual funds, which will be removed when we actually go online so you can deposit any amount of assets when you pass the KYC and registered an account and so you can start trading. So we’ll first verify in open beta that we can do high-frequency trade and verify our matching-engine has no problems handling large amounts of traffic. And we also invite the whitehat hackers to try to break in, like Hackerone and security companies to try to hack into the [system]. We’ll hire a lot of whitehats. Even in-house whitehat.
Ryan (Q34): CryptoGrinders can definitely assist with that and we can discuss that. I think that no matter what, security is a very important aspect in terms of an exchange, as you know the space is pretty rampant into being hacked, accounts being hacked, and security compromised, and it’s happened all over the place. And it doesn’t give anyone assurance whenever we do any trading. So help me to understand, how are you securing the tokens, is there a security measure that you guys use?
Popo: You mean on the exchange?
Ryan: When we fund our accounts, we purchase, and then we make trades, how are these tokens secured? Not insured as in security-wise.
Popo: We use cloud-solutions for the trading engine, we use Google Cloud. And the locking of Google Cloud, we’ll also use our security modules and we host our own CI, Continous Delivery and Integration servers by ourselves. Actually, there is no attack surface for the outside world. And the firewall applied is very strict in the cloud. Add most of the funds transferred will be stored in the cold wallet and for the hot wallet, we’ll use the hardware security module service on the Google Cloud. So basically we purchase a keystore and it’s API-base matched by Google.
So if our API key is not compromised, you can also think that our hot wallets [are] not compromised. And the API keys are protected by the hardware security modules and very few people have the deployment key, only key men — less than three. Most developers still use another project, the staff project, to test the development. And for the continuous integration, we mainly focus on the test cases and unique tests to minimize the bug issues that may arise. And we back up the database every day, and our databases are multiple accounts — different accounts — different service accounts, not the same account so it’s actually very hard to break in. And we still hire a lot of hackers to try to breach and scan for security vulnerabilities every day, the key markers in the firewall and the attack surface of the whole service is good.
Ryan (Q35): How do you plan on offering crypto-asset trading with stocks, foreign exchange, precious metals, commodity, and market indexes/futures? Because you’re doing crypto and forex, are these going to be separate?
Popo: We will first focus on integrating these APIs with other existing brokers but the safe currency you use will be with crypto or FIAT-backed crypto. So that’s the main difference but it can be done. Because brokers can open the API access for you then for sure if you have a large bargain power then for sure they’ll be happy to open the API because you help them earn money, right?
Ryan (Q36): Is it going to be difficult in terms of regulatory-wise? Because it’s the old school financial market combined with the crypto, so in terms of you being a market maker for that and integrating with other exchanges… Because I’m sure you’ll also going to be working with other exchanges in order to provide the assets. So how is that from a regulatory perspective?
Popo: You mean that if we will get liquidity from other exchanges?
Ryan: Yeah, regulatory-wise and also from a liquidity aspect, it seems very complex. SO how are you going to handle it? Are you going to handle the assets yourself or you’re going to be the market maker and you’re going to provide the liquidity… how does that work?
Popo: Actually liquidity providers if from the traders not from us because we enforce the hundred percent reserve and we don’t trade ourselves. So the strategy actually is… the zero fess is to attract liquidity to our platform and when we provide those FIAT deposit/withdrawal like other exchanges then the issue is solved. Because with the trading pairs, you have a lot of different FIAT trading pairs and you can enter a trade among different markets. And if the fee is lower and it’s zero on the service party and you want to exit better, I think the word will spread very soon and the liquidity comes very soon.And it makes sense for us to launch a decentralized exchange when we already gather a lot of reputation and liquidity and traders. So it’s actually a step by step process.
Ryan (Q36): And can you explain a little bit more about the vesting pool? How does that work?
Popo: So the vesting of the ICO tokens is 10% after the ICO ends, every year. Then for the team to release some tokens sold to the market, we can still get some returns from releasing some of the tokens to the market and we buy back the tokens at the same time so have a reserve of the token to use.
Ryan (Q37): Will 10% of the vesting pool be a part of the circulating supply? Therefore making the remaining 90% outside? Because usually, most will gradually put the 10% from the vesting pool back into the circulating supply. So, therefore, you’ll make up the remaining 90%. So, I guess, eventually, will you be putting out a hundred percent of the tokens back into the market?
Popo: That depends on the situation because our margin trading strategy is you can pay 50% off with the token. That means, it’s like we buy back the tokens, right? So if the company doesn’t like the money, we won’t release more tokens to the market and the COB tokens’ price may rise as a result. Everyone will want to have the tokens to have discounts on the trading loans. So the reserved tokens will be used in emergency situations, for example, we lack some money but I don’t think that’s going to happen because on the VC side, we already also ensure the $5 million investment in a pre-A round of traditional VC investment. And we plan to raise series A in 6 months… about 3–6 months. Raise $10 million at $100 million valuations or more based on how we perform. So it’s very unlikely that we will lack the operating funds. Our ICO is actually to attract the traders, we actually don’t lack the operating funds, because we already raised a lot. But our ICO strategy is just like our marketing strategy to help traders in the world to find our project and back us and they will become the early adopters of our platform to help us spread the word. The concept is for marketing strategy not for fundraising.
Ryan (Q37): And when is your ICO ending?
Popo: October 22.
Ryan (Q38): Okay so on October 22nd your ICO will end. What’s the procedure like [join the ICO]?
Popo: So the current phase is you’ll get 30% bonus and it will decrease to zero [bonus].
Ryan (Q39): And is there a cap to how many COB tokens one can acquire? Is there a limit?
Popo: For the users, we don’t enforce a cap.
Ryan (Q40): So based on the current valuation, 1 Ethereum can get you how many COB or 1 Bitcoin can get you how many COB? What’s the valuation like?
Popo: 1 Ethereum at zero bonus is 4000 COBs and the total valuation is about $60–70 million USD.
Ryan (Q41): How will you be competitive and successful against a competitive like Binance?
Popo: I think they’ve come from the OKCoin, I think they are doing good but they don’t want to support the app because they don’t want to enter the regulations of the FIAT world. That’s actually only crypto-to-crypto trading and they still charge 0.1%, mutually make and take, 0.2%. I think they don’t have much difference from other exchanges also.
Ryan (Q42): So you will beat them by using FIAT. As in that will allow you to have more liquidity, basically, as in there will be more use cases. I guess because you are able to accept FIAT and being that you’re registered in the Cayman Islands, that will give you a bit more flexibility to add FIAT. Is that correct?
Popo: Actually, still, we’ll open a subsidiary in each country to set up under regulations and compliance and managing KYCs, working with local financial partners and banks to maximize the traders’ liquidity and profit margin. But no one can 100% guarantee that FIAT can work because some third-party may be blocking you and country-wide regulatory issues. but we’ll make our best effort to make that happen.
Ryan (Q43): Exactly how will COBINHOOD offer multiple currency deposits/withdrawals for many currencies listed.
Popo: You can choose your preferred FIAT currency at your setup time and you can change it anytime. It’s an option.
Ryan: So it’s a configuration, an option. So okay, that’s nice.
Popo: But for FIAT we don’t allow FIAT- to-FIAT trading. You can trade USD to BTC, and trade BTC to Euro. USD to Euro — no.
Ryan (Q44): Will you be taking 5% on the existing active ICOs? If they come to you and they want to list on your exchange, will you be taking 5% or no? Only when you do underwriting?
Popo: We charge zero fees for listing. We don’t receive the rebates, we just list the coins. Most [exchanges] they charge like 3 BTC to list your coin but we don’t list the shitty coins, we don’t list the very low liquidity coins. We only underwrite billion dollar companies or very legitimate companies. Our concept is not to approach the small ICOs that doesn’t have a lot of reputation instead we approach the ones like Filecoin, and other large, high-reputation ICOs. And we’ll also create new ICOs by doing our consulting service to help existing service to migrate to the decentralized world. And for that, we charge the 5% ICO underwriting service. Because every ICO we’ll underwrite is a billion dollar above, so 5%… The market cap will be like Filecoin, which is billion-dollar level for each ICO we underwrite. We don;t underwrite small ones.
Ryan (Q45): Okay so there will some sort of criteria. But then again for an ICO, to raise 1 billion, that’s a lot.
Popo: No, no, no, no. I mean the market cap, not the rate.
Ryan: Because very few cryptocurrencies raise a billion dollars. I think $200 million is already excessive and most projects are ranging from $15–20 million. So you mean the eventual market cap.
Popo: Yeah the ICO coin’s eventual market cap after the ICO ends. So billion dollar level like Filecoin for sure is billion dollar.
Ryan: Filecoin? Filecoin is not a billion dollar, is it?
Popo: They released 20% and raised it to a hundred million equivalent value so it’s like a billion… But it’s not listed Coinmarketcap, there’s nowhere to trade now.
Ryan (Q46): What determines the intrinsic value of COB tokens?
Popo: We don’t guarantee that the value will increase because if we guarantee that, that’s illegal. The SEC will go find you. So we built this privileges ecosystem that will COB to create a demand for the COB so that the market value may rise. So it’s used for the margin trading fees to pay the interest, you’ll get 50% discount. Another is when we underwrite ICOs, you can get new ICO tokens at a very significantly lower rate. For example, if we underwrite Filecoin, and 5%, for example, is 1 million Filecoins, we will split the 1 million Filecoins based on the percentage of the COB you hold and then you’ll get the rounds of the pre-sale or ICO round at a lower price. And you can pay in COB or other crypto and it will be announced on our website because every project may be different, every situation may be different.
Ryan (Q47): Do centralized exchanges close down after [the] decentralized exchange is released?
Popo: It will coexist. Then we will gradually migrate to completely decentralized [exchange]. Because in decentralized [exchange] you have the capacity issue now which can now be solved very soon. We are still figuring out the better consensus algorithm. Our team has expertise on the consensus algorithm and we do a consortium chain when we do decentralize. It’s like a POS but you need to hold a lot of stakes before you become a node. So actually, it’s kind of like a consortium chip. And gradually migrate to the decentralized system and eventually, I think the liquidity will exist all on the decentralized system and at that time, we will consider closing the centralized one.
Ryan (Q48): Can members trade their COBs against other cryptos? That means COB will also be one of the pairings, is that going to be an option?
Popo: Yes, COB will also be a pair with Ethereum and BTC and USD. USD Tether first and then when we launch FIAT, we will have USD.
Ryan (Q49): Would COB tokens be transferable in benefits to the decentralized exchange?
Popo: Yes, for sure. Because the decentralized design is like an interchain protocol, it doesn’t focus on our chain [just] like interchain protocol but it focuses on the fast, high-frequency settlement fees of all kinds of trading pairs, order books. That’s from the consortium chain or side chain. Maybe it’s easier on the side chain but we’re focusing on creating our own chain built to optimize the whole system and do pluggable consensus algorithm parts. So if the consensus algorithm can be improved, it’s like OTA, everyone can upgrade immediately. And the direction of the new system, the process will be designed to be effortless to upgrade the consensus part. The core logic part, we will focus on the fast settlement of each kind of trading specific to our characteristic for our design of chain.
Ryan (Q50): Where can we sell our COB tokens? Apart from your exchange, is your COB tokens going to be available on other exchanges?
Popo: We don’t approach other exchanges to list our coins because we, ourselves, we’re already going to provide lots of liquidity and that is enough for you to trade in our exchange. So that will cause liquidity issues, we ourselves are already providing the solution.
“Our team actually focuses on the whole ecosystem to help all crypto traders or the common public to migrate onto the crypto world. We want to do more than just trading. If you want to support our team, you can join our ICO to back us up.”
Ryan: Alright, guys! That’s all the time that we have for this interview. Popo Chen, is there anything that you’d like to say before we end off our session?
Popo: Our team actually focuses on the whole ecosystem to help all crypto traders or the common public to migrate onto the crypto world. We want to do more than just trading. If you want to support our team, you can join our ICO to back us up.
Ryan: Thank you so much Popo for coming on this interview. And guys, for those who attended this AMA event, thank you so much for making this possible, Ryan CryptoGrinders, signing off! Thank you Popo!