Which problem is Zeus Exchange trying to solve?
Crypto markets are in general disconnected from the financial system, which means that there is not enough choice in investment instruments, or they are all arguably high risky, or it’s hard to hedge crypto volatility or it’s hard and costly to withdraw the money to your bank. We see unique market opportunities arising from the need to legally bridge conventional financial markets and cryptocurrencies, and to provide ready liquidity and instruments with intrinsic value for crypto investors.
What is your biggest challenge in launching a Security Token exchange?
The biggest challenge for such a product is regulatory uncertainty. To put it simply, 50% of a fintech startup working with crypto is an ongoing legal framework.
There is no ultimate solution or a solution that would always work, so you get used to working in an evolving cycle of finding some answers and getting more questions.
What is an investors advantage to buyi/sell securities via Zeus Exchange compared to other exchanges?
We offer access to conventional securities as well as to crypto instruments, such as cryptocurrencies, crypto shares (backed by stocks), STOs and digital commodities. It means, that you can easily go between various financial and crypto instruments at a single platform in a matter of minutes whether you are a crypto trader or a financial wealth management company.
When will I be able to trade Security Tokens on your exchange and who will be eligible to buy and sell them?
We expect to launch in Q2 2019 and would be able to offer our services to professional traders in Singapore and Hong Kong.
Geographically, we consider Asia to be our key market for many years to come, so next steps would be launching in Southeastern Asia, South Korea and Japan, and building partnerships for the future launch in China.
Clientele-wise, we are launching with services for professional (accredited) traders only, and then work our way into retail. Again, the turn-key for a fintech working with crypto is the legal framework, and it’s something, that you can only build step-by-step, making sure, each smallest step is operating properly.
The end goal would be to provide anyone with an opportunity to invest in various financial and crypto products on the go, from your mobile phone, out of spare change.
What kind of Security Tokens will I be able to trade on Zeus Exchange?
We will launch with crypto stocks, which are essentially ADR (American Depositary Receipt) issued on blockchain for the underlying stocks. A depositary receipt is a security that is offered as a “tracking stock” on another foreign market. Such digital assets provide a novel investment vehicle, create an arbitrage opportunity between the markets, and facilitate ready liquidity.
For example, Crypto AMAZON stock is an instrument traded in crypto, but you can always exchange it into the underlying AMAZON stock. Such a bridge instrument allows you to easily go between financial and crypto markets and profit from the price difference while enjoying the benefits of a liquid instrument. Also, you can buy Crypto AMAZON stock in crypto (tracking AMAZON) and protect yourself against volatility in crypto space. Or you can request to receive an underlying AMAZON stock to your broker account or sell in for USD.
We expect to launch with top-20 NASDAQ based crypto stocks. Afterwards, we will be adding other digital instruments, such as indices (in a partnership with BlackMoon), digital commodities (with Taiwan and China partners), and STOs of businesses and startups (partners working with SMEs and startups in Asia, Europe and the US).
What is the most important thing investors should know about Security Tokens?
STs represent a valid investment instrument with some intrinsic value, and we expect many types of STs for different purposes (tokenized securities, dividend tokens, equity offerings, indices, structured crypto products etc) to enter the market.
At the same time, ST is a regulated financial instrument bound to the legal requirements of security laws of different countries, and there will be no easy solution for KYC/AML, or anonymous trading gateway or anything similar. There will be multiple companies offering an access to trade STs, but they all are bound to be heavily regulated.
Will I be able to sell Security Tokens I bought via Zeus Exchange also on other exchanges?
We are working over several partnerships with exchanges to accept their STs and get our STs listed, so eventually, yes, that’s one of our strategic goals. It expands the liquidity pool and brings freedom of choice to our customers. We envision a network of compatibly licensed exchanges in the future to emerge, but it’s not something that can be done easily or immediately.
A conventional market example to the same activity would be the following. Imagine you want to move your trading activity from one broker to another. Even if the securities you trade are the same, you’d have to open a new account and request to move your assets from one custody to another. Any service provider in trading securities must make sure they know the customer and their source of funds. AML/KYC is a crucial part of trading any securities, conventional or crypto. And we expect such a process will be similar for STs, due to the security nature of the instrument.
Where do you see the biggest advantage of tokenizing securities?
The turnover for conventional stocks, for example, is about $47 TRLN. Tokenized securities may channel this liquidity into the crypto market while providing a window of opportunity for volatility hedge and for arbitrage trading. It’s an atomic fuel for crypto engines.
Imagine you can easily buy and sell stocks in crypto? Then you have a legit entry point for institutional funds to trade crypto. You would be able to create a portfolio of high-risk assets such as cryptocurrencies and balance it out with conventional assets in real time, reducing your risk exposure. You would be able to measure risk for various asset classes against each other, build the data set and analyze your performance. The current crypto market structure is much closer to gambling then we are willing to admit, and we need instruments of a long-term value to make it work.
Where do you see the Security Token Ecosystem in 5 years?
One of the most thrilling things about the crypto/blockchain markets is an uncertainty and the potential for multiple scenarios to unfold in the years to come. It creates a fantastic entry point but what’s more important, it creates a window for trial and error.
We’ve already seen at least a couple of trial and error waves in the market: cryptocurrency adoption and ICOs. We are in very early stages to the security token ecosystem, and next year, I expect, would be a trial and error year for the early players with licenses to collect the experience, and a learning curve year for everyone else.
In general, we need an infrastructure to make it all work, bridging with conventional financial markets, blockchain protocol interoperability, and then we need service operators on top. It all could be done by just a few or by multiple players, and it’s early to tell how it all will play out.
What are the biggest upcoming challenges for Zeus Exchange?
Our biggest challenge is the launch itself, as for any startup out there.
Thank you for the interview.
Note: This interview was conducted on 05.12.2018