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H.K. fintech Spark launches DEX: will liquidity follow?

Spark, OAX and others are building decentralized exchanges, or DEX, for crypto, but face regulatory and market questions.



Hong Kong-based Spark has just launched a decentralized exchange, or DEX, aimed at cash-based businesses like money-transfer operators.

For Spark founder Maxine Ryan and other people in the crypto-currency world, DEX is the future, and more projects in Asia have recently launched or on the drawing board.

“Decentralized is the right way to go,” said Ryan. “We’ve been reliant on central exchanges, beholden to their fees and their structures.”

Amanda Liu, general manager at OAX Foundation, a Hong Kong non-profit that raised the US dollar equivalent of $19 million from an initial coin offering last summer to build a DEX, said, “Decentralized is the trend; central exchanges are too vulnerable.”

But for others, DEX represents a distraction from building the infrastructure necessary for attracting liquidity to crypto markets. No DEX has yet generated the kind of trading volumes needed to establish the sector. And it’s only a matter of time before DEX face regulatory scrutiny.

There’s DEX and there’s DEX
Decentralized exchanges are blockchain businesses with no physical jurisdiction that facilitate peer-to-peer trades of a token or crypto-currency. In their purest form, they are a set of smart contracts that match buyers and sellers anonymously. More hybrid versions are meant to act like centralized crypto exchanges but without handling custody.

Amanda Liu, OAX Foundation

Some like Spark’s exist to serve a customer base with a more efficient service, in this case remittance companies and MTOs that want to transmit payments without a bank (see case studies, below). Other DEX cater more directly to crypto traders by linking liquidity available on multiple centralized venues, or to exchanges looking to remove themselves as a target of hackers (by diffusing the custody of assets back to the account holders).

Many centralized exchanges have announced DEX projects, extending their reach into a pure P2P capacity, including ANX International (whose founders also set up OAX Foundation) in Hong Kong, exchanges such as Binance and Huobi that originated in China but have since moved to Malta or other jurisdictions, Thailand’s OmiseGo and Taiwan’s StarBit, and U.S. players like Kraken and Coinbase.

There is also a new breed of standalone DEX projects, such as AirSwap, IDEX, Kyber Network and Waves Platform. Many of these are built on the Ethereum blockchain.

Industry officials say there are already as many as 50 DEXs in operation or going live worldwide, with more to come.

Even DEX’s proponents acknowledge these P2P venues have their challenges. “Decentralized exchanges aren’t popular,” said Antoine Cote, co-founder and CEO of Enuma Technologies, the vendor building OAX Foundation’s exchange.

They seek to get end users to trade peer-to-peer without providing other services, and because these are meant to be anonymous, there’s no know-your-customer (KYC) function available – that has to take place somewhere else, on a centralized exchange or with an over-the-counter broker.

DEX is secure: P2P is just a private exchange between two parties, and it can’t be hacked. But building a P2P capacity does nothing to address the needs for custody elsewhere in the chain.

Antoine Cote, Enuma

DEX are meant to provide liquidity by enabling people trading two coins to transact literally anything that’s tokenized, so in theory this should connect liquidity among centralized exchanges. Companies like AirSwap have developed Google-like search capacities for users to find bids or offers.

So far, however, several industry execs tell DigFin that liquidity on existing DEX is poor and the user-interfaces terrible. P2P is likely to play a useful niche, like OTC brokers do in classic finance, but they have yet to show they can aggregate liquidity.

Moreover, P2P has appeal to a narrow set of traders: individuals that are familiar with the industry infrastructure, but mainstream retail investors are probably not going to use these.

And more: because of the lack of custody as well as the lack of any licensing for private networks to operate, institutional investors – the holy grail of crypto infrastructure projects – are unlikely to ever use these.

“It’s hard to onboard fiat money if there’s no licensing,” said John Patrick Mullin, managing director at in Hong Kong, which launched a centralized exchange this year. “The ICO boom is over, so the industry needs liquidity – now. To expand crypto [volumes] we need regulated exchanges.”

If DEX remain a niche play, they will also struggle to compete for talent against centralized exchanges that enjoy high volumes and high revenues, such as Binance or derivatives platform BitMEX, says a fintech founder working on a custody solution.

It’s also unclear how long DEX can go without entering some kind of regulatory oversight if they don’t have an answer to customer due diligence. The Financial Action Task Force, a global body overseeing anti-money laundering efforts, is looking to apply its principles for banks to crypto, including DEX, and other regulators will follow.

The promise
Against these concerns are hopes that DEX can improve liquidity and security.

Enuma’s Cote says DEX, by allowing users to chop orders as they need, can help investors transact large blocks, as liquidity is problematic for many coins on even large centralized exchanges.

Others such as Spark’s Ryan say the adoption of stable coins – tokens pegged to a fiat currency or a commodity – will facilitate more institutional or corporate money into crypto. Waves Platform, for example, handles dollars and euros.

Others are working on improving the interface to make DEX more retail friendly. Kyber Network, for example, has removed the order book function from the user’s app, and instead customers just see the best bid or offer for a given token from market makers using its DEX.

But security is the most important driver for DEX.

Michael Oved, co-founder at AirSwap, at a conference earlier this year, noted that his former employer, Virtu, a broker, cleared everything through AIG. This gave it access to financial markets – until AIG went bankrupt in the 2008 financial crisis. The lesson: centralized entities of any kind present a systemic risk.

Case study: SparkDEX
Unlike most DEX, Spark’s is not intended to attract crypto speculators. It was launched to support Spark’s business of providing bitcoin-based payments for companies that are being shut out of the banking system. “We allow any business to be bankless,” said founder Maxine Ryan. “We are replacing traditional financial infrastructure.”

Spark was the first money-transfer business to use bitcoin, beginning in 2014, she says. With its DEX, Spark is transitioning from the bitcoin blockchain to its own, so it can evolve into a platform for any customer to use to transfer among any fiat currency pair.

She sees growing demand from money-transfer operators and other cash-based businesses that are being “de-risked”, i.e. fired as customers by banks. These players deposit cash physically at Spark’s vault (in Hong Kong and in three other locations), and in return get Spark tokens denominated in Hong Kong dollars. Until now, Spark would let them transact against other currencies by trading in and out of bitcoin, but this left it exposed to the mercies of other crypto exchanges.

Now with its own exchange, built on a third-party blockchain called BitShares, users can generate tokens to trade or distribute to Spark’s other cash-out centers. These come in two varieties.

One is a user-issued asset, which allows users to create their own coin on BitShares – which could represent any kind of asset, unit of value or ownership. The other is a market-pegged asset, a “stable coin” whose value is linked to an underlying fiat currency’s; the value is meant to be secured by the issuer putting in a large collateral amount of the underlying. (See our article on collateral-backed stable coins and their challenges.)

The medium-term goal for Spark is to have up to 180 currency-backed tokens on its exchange, each liquid enough to support a market for MTOs, remittance companies and other cash-based businesses. First, though, the company is launching its DEX just with bitcoin and ether, because the exchange needs to attract enough liquidity to convince customers to launch their own stable coins there.

Case study: OAX and Enuma
OAX Foundation, a non-profit entity set up by the principals behind ANX International (affiliated with the company OSL), launched a prototype in June and aims to launch a formal offering in 2019. Enuma Technologies is building the platform (on the Ethereum blockchain) and the governance to go with it. It intends to create a secure and stable DEX that depends on some centralized aspects, including for KYC. The foundation’s ICO last summer sold OAX tokens that users will use to transact in and out of other tokens (such as bitcoin) that trade there. “Trading is peer to peer,” said Antoine Cote, Enuma’s CEO, “but client onboarding is centralized.”

So why bother? To remove the centralized exchange as a point of vulnerability: each user keeps their own wallet, on a hardware device or in a mobile app. Security for the customer is just one business driver: another is the desire by ANX to not be liable for custody issues. Crypto exchanges could, in theory, charge users for the service of safekeeping assets, but none do, and players fear losing business if they charged. So better, perhaps, to push responsibility back to the users.

A DEX is also meant to provide liquidity, by enabling traders to trade assets they can’t readily find on a given exchange. And, says Cote, Enuma is working to allow OAX trading to occur much faster, as close to real time as possible. This requires choices: should trades settle on or offchain? Should there be a centralized order book? Do trades go to the chain as soon as they’re agreed, or in batches? Should a DEX remain only for crypto-currencies, or can it accommodate fiat?

Questions also remain on issues such as the business model – should OAX tokens charge a transaction fee? Should there be a proof-of-stake model in which some members get a vote in how the DEX is operated? How does OAX incentivize users to pitch in with the exchange’s governance?

“It’s like developing a housing project,” Cote said. “Once the platform is built, it’s up to the members to run it.”

Capital Markets

What Citi Ventures’s incubator seeks in Asia

Victor Alexiev, the regional lead at D10X, talks about the technologies transforming institutional business.




Victor Alexiev, D10X

Victor Alexiev is Singapore-based Asia-Pacific lead for Discover 10X (D10X), the new product incubation arm of Citi Ventures. He joined in 2018 and now covers incubation, programs and strategic partnerships for Citi’s institutional clients group.

D10X launched in the U.S. in 2016 to foster innovation from within the bank, encouraging lean-startup thinking as well as coordinating third-party build, buy or partnership decisions with other parts of the bank and its clients.

The following is a transcript of an interview with DigFin, which has been edited for style and conciseness.

DigFin: What kind of innovative models are you trying to develop?

Victor Alexiev: In Asia, it’s about new products and new services in the ICG [institutional] part of the franchise, so the projects we work on are mainly B2B and B2B2C. We’re not just looking internally. We also try to partner with technology companies as we find pain points they address.

What kind of business models are you looking for in this region?

Finding solutions for Citi’s markets, commercial and investment bank business.

Why not for the consumer side, which is such a big part of Citi’s P&L?

We do have D10X in our consumer business for North America, but not in Asia, at least not at this stage. In Asia, consumer fintech and quite fragmented and competitive, and my personal view is that you will need to put in a lot more resources in order to achieve meaningful results.

Is innovation within a huge bank, particularly if you’re focused on B2B – is that an oxymoron?

Yeah, a lot of people think that innovation with corporations is too slow. It’s true in part, as we have to go through a lot of compliance, sourcing and H.R. checks. But we’re looking after companies and people’s money. But once you identify a product fit, you scale much faster. I’m here to build something meaningful within a large institution that has a global footprint.

Within B2B, what kind of ideas are you looking at?

Most projects are new models of customer engagement. Our most public project that was built and rolled out via D10X is Proxymity, an end-to-end proxy voting platform offered to custodians, that directly connects issuers and investors in real time.

Customer engagement sounds very, um, consumery.

A lot of corporate and institutional business platforms for banks is clunky. Or it’s based on business models that just seek to skim basis points by processing large volumes. What will next-generation banking look like? What happens if banks become platforms for others to create value? What do direct-to-consumer models look like for our transaction or investment banking?

So even at the corporate level, you need better customer engagement.

That’s right. For example, an increasing number of clients want to consume our products via an API instead of calling our salespeople. We’ll still need salespeople but we have to be realistic that our evolving client expectations demand a different experience.

What does engagement mean? Can you give me an example?

We’re finding, for example, that buy-side clients are less interested in reading a full research report. But they’re very interested in parsing the underlying data that made that report. Decisions are becoming more quant-driven, so we don’t need to offer as many products. It’s about helping our clients make data-driven decisions and providing them with data-driven products

Is that just a matter of better product design?

No, it means we need to transform the entire organization, to be an end-to-end digital driver – “customer engagement” can’t be just about our front office. “Digital” is about culture and people.

I often hear about banks changing their culture, changing the ways they do business, the mindset – yet the rhetoric doesn’t describe the reality. At best it’s a partial change.

There’s an increasing urgency within banks in general. Margins are thinning, and there is a realization, or a willingness, to transform. We’re trying to speed up the process by providing examples of what “good” looks like.

Where have you implemented new solutions so far in Asia?

Initially we rolled these out in our markets and securities services business. We focused on custody, securities services, equities, and foreign exchange. Gradually we’re bringing new technologies to spread products, corporate banking, investment banking and transaction banking. 

And within those divisions, what parts of Citi are you focused on? Operational efficiencies?

Efficiency is important but lots of departments are already looking at this. I also see at other banks a lot of innovation labs doing proof-of-concepts that may not reflect the actual business needs. The projects I work on all have separate, independent P&Ls, and are focused on client-centered new value creation.

You had mentioned client engagement at the institutional level. What are your clients asking help with?

Long-only funds want data to help them with things like modeling ESG portfolios (for environmental, social and governance standards). More short-term trading clients want data-centered models to take faster data-driven decisions.

We explore questions like what do next-generation pension funds look like? What about insurance? How do we support sovereign funds in managing impact-oriented portfolios?

You’re not big on blockchain consortiums and such?

We are, if it meets business needs. We participated in Komgo, a blockchain consortium for documentation in letters of credit that finance commodities trades.

What are the particular technologies that you’re trying to adopt?

Machine learning, APIs and blockchain are the three deep, transformative domains. For these to flourish requires a bigger internal transformation, a broader regulatory understanding of them, and a cultural mindset change.

That’s a lot. Any anecdotes you can give, to make that a little more concrete?

We’re about to publish with ASIFMA a white paper on STOs [securities token offerings] exploring what it would take to make these go mainstream. Our takeaway was interoperability. A fintech can issue a real-estate token, say, in their local jurisdiction, operating under the same local regulation for securities or property. But how do you open that to international investors, or institutional investors, or create a global marketing capability? The complexity quickly goes up. The same goes for, say, using A.I. with certain clients for real-time pricing and execution of F.X. or overnight collateral. What does that mean, how could it change the market? We’re exploring use cases, doing experiments – to do it right, we have to get out of the lab.

Are you finding lots of B2B technology companies in Asia who fit into these needs?

There are few startups that are enterprise-ready, globally scalable and that could deal with our clients. They need to be either close to the customers – meaning they already have insight, client integration of lots of data – or have differentiated tech that it is scalable, high performance, and can help banks solve specific problems.

But I’m bullish on tech in Asia. We’re seeing the dawn of Asian tech: the technology itself is maturing as companies shift from copy-and-paste to developing more core tech. And we’ve seen more B2B fintech move from trying to compete with us to partner with us.

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Capital Markets

Hope for handling corporate actions?

The industry is shifting from evolutionary fixes to transformational change.




Photo: Markus Spiske on Unsplashed

DigFin moderated a webcast last week on the topic of using new tech to handle the thorny old problem of processing corporate actions. Mention “corporate actions” and you mostly have ops and tech people at financial institutions reaching for aspirin, or something stronger.

Corporate actions are anything a publicly traded company does that impacts its securities, debt or equity. Even straightforward things like a stock split come in all different flavors. There’s no one cone to hold all this ice cream. Banks, brokers, fund managers, and trading venues have invested zillions into processing transactions, but corporate actions is always “the poor cousin”, as Dean Chisholm, Hong Kong-based COO for Asia Pacific at Invesco, put it during the webcast. And because of the complexity, vendor solutions have been too expensive.

Mention ‘corporate actions’ and you have ops and tech people reaching for aspirin, or something stronger

But the industry can’t ignore corporate actions. Alan Jones, Singapore-based head of business development for Asia at SmartStream Technologies, pointed out that corporate actions today represent the highest point of risk to operations. As firms look to scale their businesses – with new markets, new products to handle, and an ever-increasing variety of actions to handle – they need to deal with this final barrier to straight-through processing. Do that, they can then begin to add value, like analytics on top that can give investment firms, for example, a view as to how good a job their service providers are doing.

The good news is that technology is evolving to the point that automating corporate actions is looking possible. The biggest enabler is cloud computing. Cloud isn’t just about saving on cost, noted David Fodor, Sydney-based head of business development for financial services at AWS. It’s about scalability and flexibility. Moving to cloud computing is the precursor to handling the vast amounts of data required to come to grips with something like corporate actions.

There’s no one cone to hold all this ice cream

Cloud is just a starting point, though. One challenge is that corporate actions involves many players, said Satyan Patel, senior VP for global client development at Hong Kong Exchange. Stock markets like HKEX connect to depositories, custodian banks, securities brokers, data vendors and investment firms. And then you have the issuers themselves, whose announcements are often in the form of unstructured data (like text on a PDF). The good news is that, beyond firms’ own IT spend, the finance industry is gradually adopting new standards, like ISO 20022 for messaging. That will help reduce the amount of unstructured data.

However that still leaves a lot of data of questionable integrity out there, which defies manual processing. Francis Breackevelt, chief operations head for Asia at BNY Mellon, in Singapore, said the full range of new technology needs to be brought to the fore. Whereas for years, transaction processing was an evolutionary process, he thinks the industry is at a point of major change. From simple robotics to natural-language processing and other forms of artificial intelligence, firms are on the cusp of tackling the variety of corporate announcements. They are looking at distributed-ledger technology to enable industry-wide processing.

Corporate actions processing isn’t going to be solved like flipping a switch. It requires a critical mass of industry player involvement, guidance from regulators, confidence in the data, greater adoption of enabling tech like cloud, and successful implementation of A.I. Then all of that needs to be implemented to the extent great enough to bring processing costs down, a lot. But fintech is making possible the goal of automating corporate actions in a way that until now has been just a dream.

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Capital Markets

Stablecoin weighs Anchor for investing in economic growth

“Everything has a unit of value, except money,” says Anchor founder Daniel Popa.




Anchor AG, a financial services company, is about to launch a dual-token stablecoin that is intended to give investors exposure to economic growth removed from the vagaries of currencies and commodities.

The company is calling for currency traders, hedge fund managers, and private investors to test its Anchor coin in advance of its inaugural listing on Japan’s digital exchange, Liquid, in September.

Anchor is domiciled in Zug, Switzerland. Its founder and CEO, Daniel Popa, is a serial entrepreneur who was born in Romania under its Communist regime but was raised in the U.S.

Most stablecoins are mapped to gold or a fiat currency,” he told DigFin. “But currencies are all depreciating, whether it’s due to monetary policy, quantitative easing, inflation, whatever. It doesn’t matter how you peg a currency when the U.S. dollar has lost 50% of value over the past 30 years [to gold] and 98% over the last century.”

Reimagining stablecoins

A relative latecomer to bitcoin, he wondered how a stablecoin could be created that would bypass inflation altogether. Other business interests kept him from commercializing his ideas until 2018 when he devoted his efforts fulltime to what became Anchor.

The company has developed a proprietary algorithm that generates an index that Popa describes as “non-flationary”, denominated in “monetary measurement unit”, or MMU, whose value is derived from many inputs.

Like another project in the making, Facebook’s Libra, Anchor’s algorithm uses inputs from leading world currencies and major bond-market yields. But unlike Libra, Anchor’s most important input is GDP movements from 190 countries, using data sourced from institutions or companies such as the World Bank and Bloomberg. “This gives it intrinsic stability,” Popa said, in contrast to other stablecoins.

It’s really telling you the value of the dollar or the yen, without any government influence

Daniel Popa, Anchor

The index data tracks back 25 years to when Eastern European countries ditched Communism and joined the liberal world. Since then, global growth in real terms (adjusted for inflation) has been 0.4% to 0.5%, on a 25-year average (or around 2.5% per annum in notional terms). Popa says Anchor’s value is tied to this absolute economic growth, instead of the vagaries of fiat currencies or commodities (whose value also vary over time against the dollar, making them unpredictable).

Anchor versus Dock

Anchor’s value will have to be managed actively. The company’s plan is a dual-currency launch. First is the Anchor coin itself, which Popa describes as a “payments token”, built on the Ethereum blockchain. The plan is to issue 700 million tokens on Liquid, with MMU currently trading at about 79 U.S. cents to one Anchor; the company is aiming to raise a total of around $600 million.

This money will go to seeding a fund that will invest in currencies and bonds to stabilize the Anchor token (ANCT), as will any returns on investment. As those investments gain in value over time, they will support an increase in value of Anchor tokens. The fund will be actively managed by Anchor to cover market events.

One of the vulnerabilities of stablecoins is that they can be broken in severe market conditions. Anchor is therefore launching a second Dock Token, which Popa describes as a “utility token”. ANCT is the main payments or currency token, while DOCT is utility token used systematically to buy or sell ANCT to maintain its price to MMUs. DOCT’s algorithm is built to provide incentives to ANCT users to contract or expand the supply of ANCT.

Dock Tokens are not tradable on exchanges, but serve as the gateway to access Anchor Tokens: upon purchasing DOCT, users automatically agree to its terms and conditions that build in this rebalancing mechanism, in return for benefits such as discounts when new ANCT is being minted.

“The Anchor token gives you a financial anchor in choppy waters,” Popa said. “When there’s a storm, we ask users to Dock their boat, and we burn the excess tokens in what we call a contraction phase. In other periods we ask users to expand the market.” He says this is just one of several tactics devised to maintain the stability of ANCT.

Measuring money

Popa declined to detail how the company defines a payments token or a utility token, saying he didn’t want to be drawn on legal issues. The company’s legal team is confident the firm is in compliance with Swiss regulations, and it will seek licenses in other jurisdictions where necessary. One of the company’s goals is to expand to other markets, with Asia a priority.

Popa, who has founded and run large-scale businesses before, wants to see the company grow quickly. It now counts 30 developers on staff, based around the world, a number he hopes will rise to 200 over the next 24 months. The priority is to grow the stablecoin and its ecosystem, with more traders using the associated Anchor app. This by itself won’t generate much in the way of revenues, but a critical mass of users would enable Anchor to launch financial services on its wallet (similar to how Libra would offer credit and other services via its Calibra app).

Popa says he hopes Libra also gets off the ground, which has many structural similarities but is fundamentally valued on fiat currencies. “The more participants, the sooner we get mass adoption of cryptocurrencies and stablecoins,” he said, adding that he expects other big corporations to enter the fray.

If the project gains currency (ba-dum-dum) then its biggest risk would be that global growth slows down. Against a backdrop of buffers against further exploitation of natural resources, climate change, and aging demographics in the world’s leading economies, is Popa worried about this?

He says no, noting that for decades growth has been constant. Even in 2008, when most countries fell into recession, aggregate business growth grew year-on-year. Moreover, he says, a momentary fall in growth would be smoothed over by the algorithm’s cumulative calculations of growth since the 1990s.

What excites him the most is how this calculation can be used. The firm’s website has a simulator measuring MMU against 19 fiat currencies plus bitcoin and Tether, going back to 2012. “It’s really telling you the value of the dollar or the yen, without any influence by a government,” Popa said.

He says the purpose of MMU is not a stablecoin per se, but to serve as a unit of monetary measurement. “Everything has a measure of unit value,” he said, noting physical phenomena such as distance, volume, pressure and so on. This endows these categories with predictability and stability.

“Everything has a unit of value, except money,” Popa said. The challenge he faces is that money is a social phenomenon, subject to human agreements rather than physical or mathematical laws of nature. Has digital finance changed that?

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H.K. fintech Spark launches DEX: will liquidity follow?