Creating a Singaporean Cryptocurrency Exchange with Tokenize Xchange

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When asked if cryptocurrency trading should be banned, Mr Tharman Shanmugaratnam replied that “cryptocurrencies are an experiment” and “there is no strong case to ban cryptocurrency trading here” however “there are significant risks in the use of cryptocurrencies. There is a clear risk of money laundering. And there is clear risk that people will lose a lot of their money by investing in cryptocurrencies.” (Read his full response here) (MAS, 2018). From his response we can see that while cryptocurrencies will not be facing a total ban in Singapore, the technology is still plagued with uncertainties that hamper large scale adoption. To learn more about the cryptocurrency scene and what can be done to improve Singapore’s position as a cryptocurrency hub, I spoke with Mr Hong Qi Yu from Tokenize Xchange (“Tokenize”); a Singaporean company with a bold vision of building a next generation currency exchange as the center of a safe and smart blockchain ecosystem.

Before starting Tokenize, Mr Hong studied Electrical Engineering at Nanyang Technological University (NTU) and worked in various companies before taking a break due to health issues. During this break, he traded for a living and in exploring different asset classes; he saw that cryptocurrencies were vastly outperforming the other assets in his portfolio. However he felt that the cryptocurrency trading platforms were not built for user comfort. Mobile-optimisation was severely lacking and thus it was common for him to stay home all day glued to his computer screen even on weekends to monitor cryptocurrency prices just so that he could physically press the buy/sell buttons. If the cryptocurrency exchanges had functions such as “stop loss” or “limit order” as is commonplace in traditional exchanges for established asset classes like shares and FOREX, the trading experience would not be as torturous. At the same time, he also saw that there was little access to alternate coins beyond Bitcoin. There was also no one-stop platform to trade both FIAT (traditional currencies like USD & SGD) to cryptocurrencies and cryptocurrencies to cryptocurrencies and thus he needed to use two platforms.

Seeing the gaps in the cryptocurrency trading world, Mr Hong started Tokenize to

  • Offer an innovative suite of trading tools while balancing ease of use
  • Provides access to alternate coins
  • Be a reliable one-stop platform for trading FIAT-Cryptocurrencies and Cryptocurrencies-Cryptocurrencies
  • Establish a Singaporean cryptocurrency exchange that fully complies with all regulations

Starting only in October 2017, Tokenize now has a beautiful office in the Marina One East Tower and has since expanded into Malaysia.

Trends in the region

Mr Hong has observed that companies in an ever-expanding variety of industries are looking to integrate blockchain into their business models. Putting aside the hype behind cryptocurrencies, Blockchain is a platform to allow different parties to transact with each other through a distributed public ledger. For example, MAS is developing Project Ubin with a consortium of financial instituions to use the Distributed Ledger technology for the clearing and settlement of payments and securities (MAS, 2018). Aside from the finance industry, other industries are also starting to adopt blockchain; for example PSA International (PSA), Pacific International Lines (Pte) Ltd and IBM Singapore have just recently successfully concluded a blockchain-based supply chain trial (Opengovasia, 2018). JD.com has also announced plans to help blockchain startups scale their applications through integration with JD.com’s e-commerce businesses and have signed up Singaporean start-up; Bluzelle, a blockchain-powered database service provider to be part of the initiative (Forbes, 2018).

Even as we hear more news about blockchain adoption in the corporate setting, Mr Hong believes that the blockchain eco-system is still in the early adoption stage. For any exchange to function smoothly, trading volume is needed. In the cryptocurrency context, for trading volumes to reach a substantial level, users need to convert their FIAT to cryptocurrencies so as to trade. However Mr Hong feels that not enough are doing so. To put this in perspective, in October 2017 Coinbase; the leading cryptocurrency exchange, had 11.7 million users while Fidelity had 24.9 million brokerage accounts in June 2017. However adoption is on the rise and if current growth rates are sustained, Coinbase accounts are projected to surpass Fidelity accounts by October 2018 (CNBC, 2017).

Riding on trends

As blockchain continues to show its disruptive potential, Mr Hong has been investing heavily in infrastructure to position Tokenize as an enabler for more companies to adopt blockchain in their business models. In particular, he feels that the partnering with cross-border payment service providers will increase the value that both parties can offer to end-users. Already in the Philippines, we are seeing crypto-currency start-ups offering low-cost remittance fees (Forbes, 2017). Additionally Mr Hong believes that while cryptocurrency prices are still volatile, eventually a stable universal currency will emerge. With such a currency, cross-border transactions will not be subject to FOREX risks, further savings costs for the end-users. Beyond financial services, blockchain can also do a social good to the world by partnering with charitable organisations. For example, the United Nations World Food Programme has been testing blockchain technology in Jordan to provide food assistance to 100,000 Syrian Refugees and this program is expected to save $150,000 a month and eliminate 98% of bank transfer fees (Bloomberg, 2018).

Additionally, Mr Hong seeks to promote blockchain adoption in Singapore by establishing Tokenize as a trust-worthy exchange platform for investment in cryptocurrencies. To do this, Mr Hong has partnered with legal and compliance firms to conform to best practices and prepare for future regulations. This will be especially important as Singaporean laws do not make any distinction between transactions effected using FIAT currency or virtual currency and thus MAS’ Anti Money Laundering(AML) /Combating the Financing of Terrorism (CFT) requirements will  apply to activities of financial institutions conducted in virtual currencies (MAS, 2018). Intermediaries will also need to conduct customer due diligence, monitor transactions, perform screening, report suspicious transactions and keep adequate records (TODAYonline, 2017).

As part of the roadmap, the team aims to position Singapore as the hub to propel blockchain innovation further in Southeast Asia by working with different stakeholders to create a safe and smart blockchain ecosystem. It is envisioned that this ecosystem would allow innovation co-creation among blockchain startup companies, institutions, and other companies.

Challenges in expanding overseas

Recognising that significantly more scale can be achieved outside Singapore, Mr Hong is expanding Tokenize into the ASEAN region. However there is still much uncertainty surrounding the various regulators’ stance on cryptocurrencies.

(ASEANToday, 2018)

In particular, Mr Hong is waiting for Malaysian regulators to unveil new regulations as their country will be the first country that Tokenize expands to. In December 2017, Bank Negara Malaysia announced that cryptocurrencies were not legally accepted payment methods and is expected to announce new guidelines in the coming months. Under the proposed policy “digital currency exchanges will be subject to the Anti-Money-Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act of 2001, calling for similar due-diligence requirements as law firms, accountants and real-estate agents. Exchanges will be required to verify their customer’s identity, monitor trades and report suspicious activity to regulators.” Beyond reporting requirements, “Malaysia’s cryptocurrency exchanges will be required to publish prices and the methodology used to determine those prices” (EIU, 2018). More regulations can be a boon as exchanges will have to implement stricter controls thus increasing the credibility of cryptocurrency trading. However frequent revisions and additions to cryptocurrency regulations do make expansion planning difficult.

Enabling growth

To obtain more resources to build up Tokenize’s abilities Mr Hong and his team partner have applied for the StartupSG founder scheme by SPRING Singapore and has NTUitive as their AMP (Accredited Mentor Partner). Mr Hong praised NTUitive as being very supportive and working with them did not require him to sacrifice any equity. Seeing the viability in Mr Hong’s vision for Tokenize, NTUitive has also recommended Tokenize to receive the full grant amount from SPRING a few months ago.  Mr Hong feels that SPRING has been playing an important role in cultivating entrepreneurship especially among the younger generation. The grant has been approved last month and they are now in the process of finalizing the contract. As alumni of NTU, Mr Hong and his team partner are determined to make their alma mater proud and hopefully to be able to inspire more undergraduates to pursue their dreams.

Call to Singaporean companies

Asian culture is particularly conservative which leads to risk aversion and rightly so; every investor should exercise prudence and not rush into investing in any new technology. Mr Hong recognises this aspect of investor behaviour while understanding the world-changing potential of blockchain. Therefore he seeks to promote adoption of cryptocurrencies by first giving assurance to investors that they will be trading on a reliable platform that conforms to the high control requirements set by the Singaporean government. New technologies are springing up at an increasingly face pace and to retain our dominance as a thought leader in ASEAN, Singapore will need more trailblazers like Mr Hong to bring credibility to new technologies so that our risk aversion will not lead to our obsolescence.

References

Aseantoday. (2018). The next step for cryptocurrency regulation. [online] Available at: https://www.aseantoday.com/2018/03/the-next-step-for-cryptocurrency-regulation/ [Accessed 17 Mar. 2018].

Bloomberg. (2018). Banks Replaced With Blockchain at International Food Program. [online] Available at: https://www.bloomberg.com/news/articles/2018-02-16/banks-replaced-with-blockchain-at-international-food-program [Accessed 16 Mar. 2018].

CNBC. (2017). Bitcoin exchange Coinbase has more users than stock brokerage Schwab. [online] Available at: https://www.cnbc.com/2017/11/27/bitcoin-exchange-coinbase-has-more-users-than-stock-brokerage-schwab.html [Accessed 16 Mar. 2018].

EIU. (2018). Malaysia’s central bank issues cryptocurrency regulation. [online] Available at: http://www.eiu.com/industry/article/1426386726/malaysias-central-bank-issues-cryptocurrency-regulation/2018-02-05 [Accessed 17 Mar. 2018].

Forbes. (2017). Meet The Cryptocurrency Startups Targeting The $26 Billion Remittance Industry In The Philippines. [online] Available at: https://www.forbes.com/sites/chynes/2017/09/15/meet-the-cryptocurrency-startups-targeting-the-26-billion-remittance-industry-in-the-philippines/#686350035510 [Accessed 16 Mar. 2018].

Forbes. (2018). Chinese Retailer JD.com Launches Blockchain Accelerator. [online] Available at: https://www.forbes.com/sites/emmasandler/2018/02/27/chinese-retailer-jd-com-launches-blockchain-accelerator/#23d8247f5516 [Accessed 15 Mar. 2018].

MAS. (2018). Project Ubin. [online] Available at: http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/Project-Ubin.aspx [Accessed 15 Mar. 2018].

MAS. (2018). Reply to Parliamentary Question on AMLCFT enforcement on virtual currency transactions. [online] Available at: http://www.mas.gov.sg/News-and-Publications/Parliamentary-Replies/2018/Reply-to-Parliamentary-Question-on-AMLCFT-enforcement-on-virtual-currency-transactions.aspx [Accessed 16 Mar. 2018].

MAS. (2018). Reply to Parliamentary Question on banning the trading of bitcoin currency or cryptocurrency. [online] Available at: http://www.mas.gov.sg/News-and-Publications/Parliamentary-Replies/2018/Reply-to-Parliamentary-Question-on-banning-the-trading-of-bitcoin-currency-or-cryptocurrency.aspx [Accessed 15 Mar. 2018].

Opengovasia. (2018). Blockchain trial successfully tracks and traces cargo movement from Chongqing to Singapore | OpenGovAsia. [online] Available at: https://www.opengovasia.com/articles/blockchain-trial-successfully-tracks-and-traces-cargo-movement-from-chongqing-to-singapore [Accessed 15 Mar. 2018].

TODAYonline. (2017). MAS issues guidelines on digital token offerings. [online] Available at: https://www.todayonline.com/singapore/mas-issues-guidelines-digital-token-offerings [Accessed 16 Mar. 2018].

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