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Crypto Firms Excel in Technical Expertise But Have Little Understanding of Risk

Crypto Firms have great technologies that address a lot of challenges and open up an entire new world of doing business. In conversation with CoinFi's CEO Timothy Tan about how regulations and risk management will be a competitive advantage for crypto firms.  


Thank you so much for doing this with us! Can you tell us the story of how you got involved with the Regtech or Crypto markets?

I started my career as an analyst in Goldman Sachs working on statistical arbitrage and algorithmic trading. I then moved to Asia working as a Senior Trader at two hedge funds: Nezu Asia and Segantii Capital, each with over $1.5 billion of assets under management. Over my career I traded equities, foreign exchange, equity derivatives and convertible bonds in the US and over 10 Asian countries. I then moved to co-founding a hedge fund and raised $20 million in assets in the first year of the fund.

As I became more and more interested in blockchain, I realized that the tools I was used to having on Wall Street simply didn’t exist for crypto. So, I decided to team up with some colleagues to develop the tools ourselves.

Can you share 5 ways that Regulation and Regtech can help stabilize the Crypto Economy?

KYC on all exchange account openings even if it’s crypto-crypto trading. Right now some exchanges don’t require KYC for depositing and withdrawing of crypto. Similar to signing up to an E*TRADE or other brokerage account there should be mandatory KYC. When individuals are aware that exchanges have their information and any unscrupulous trading behavior can be tracked, then there is an implicit mechanism to discourage bad behavior.

Regulatory oversight of exchanges on custody side. What is different is the custodian part of securing assets is mixed in with the exchange (which is unique in crypto versus equities). Right now we don’t know if the assets are actually on the exchange and if they are keeping their books cleanly. There should be a third party audit on exchange assets to verify they are custodying everything correctly.

Regulatory oversight of bots to prevent flash crashes. There are regulations in equities to prevent these “flash crashes” that don’t exist in crypto. It’s in everyone’s interest that Bitcoin price doesn’t drop 99% on one exchange because of bot trading and there’s a fair and orderly trading market

  • Better regulation encourages institutional investors to come. An increase in large buyers will help stabilize the current large drop in the crypto market.
  • Stronger regulation on exchanges and following trading rules and guidelines of traditional markets like equities ensures fairness for all market participants, which encourages more traders into the market.
  • More clarity on the rules surrounding ICO capital raise will encourage companies to come out and raise again. In 2017 with the ICO boom, there was a large buy demand in Ethereum due to ICOs being funded in ETH, we will see a repeat of this once regulatory clarification comes in and more companies come to raise.
  • Having rules and regulations ensuring all the industry players (exchanges, wallet providers, ICO founders) are accountable is a good thing and breeds confidence in the market

Comments: (1)

Shailendra Malik
Shailendra Malik - DBS Bank - Singapore 18 October, 2018, 23:371 like 1 like

Pretty much true. Many times they get frustrated to see lack of adoption from banks or other FIs but they fail to recognize the strong Risk assessment processes and risk-averse structure in place. If they remain cognizant of that and provide additional justifications and details, the issues could've been resolved much quicker.

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