This interview originally appeared in Elev8.
This week on the ELEV8 Interview Series we sat down with Thor Chan, CEO of AAX Exchange. Founded in 2018, AAX is a digital exchange for digital assets and cryptocurrencies and is the world’s first cryptocurrency and digital asset exchange to be powered by LSEG Technology, which is part of London Stock Exchange Group. We spoke to Thor about the regulatory landscape, what LSEG technology means for AAX, what defines an ‘institutional-grade exchange’, and much more. Read the full interview below!
Thanks for taking the time to sit down with us today, Thor. For those who haven’t heard of AAX, can you give us a brief background and overview of the organization?
Thanks for having me. AAX is a next-generation cryptocurrency exchange and it is the first of its kind to be powered by LSEG Technology’s Millennium Exchange matching engine. This is the same technology that operates at the heart of major traditional markets such as the London Stock Exchange and Borsa Italiana, but it is now available to crypto investors.
We offer an environment committed to the highest standards of integrity, security, and performance, and provide investors an opportunity to trade across more than 50 cryptocurrency spot trading pairs and five futures contracts. We also offer an OTC platform for first-time buyers of crypto who want to buy with cash, existing investors who want to increase their crypto portfolio, and merchants who want to sell cryptocurrency.
We have a fast-growing global retail investor base who are using AAX and last year, we became the first cryptocurrency exchange to join the London Stock Exchange Group’s ‘Partner Platform’. This now enables us to provide direct market access to institutional investors as well as connect with other members of the partner platform including investment firms and sell-side brokers who are also on the LSEG Partner Platform. Our goal is to provide a mature, institutional-grade platform, for everyone.
What is LSEG technology, and how does this differentiate AAX from other digital asset exchanges?
LSEG Technology is London Stock Exchange Group’s technology provider. It provides solutions to over 40 traditional capital markets around the world and now also powers a cryptocurrency exchange. This is unique and significant.
We believe the crypto market is maturing, not only in terms of investor attitudes towards this new asset class, but also at the level of regulation and mainstream engagement. For this trend to continue sustainably and open the industry up to institutional capital, exchanges need to commit to higher performance and transparency standards, and with LSEG Technology at the core of our operations, we believe AAX is leading the way in this regard.
AAX is based in Malta. Can you talk to us about the current regulatory landscape and what you’re hoping to see with regards to regulation in 2020?
AAX holds a transitional license in Malta, and as we look to expand we are also exploring other jurisdictions. 2019 has seen a lot of progress on this front, with guidance coming from various jurisdictions, including Hong Kong, the UK, and Singapore, but also other institutions lending their weight to the debate around crypto assets, such as the International Monetary Fund, a number of Central Banks, and the Financial Action Task Force.
We believe regulatory clarity is key to adoption and growth, and we believe that while the decentralized blockchain community can bring a lot of benefits in terms of financial inclusion, privacy and efficiency, we also can learn a lot from the regulated investment community with respect to security, consumer protection, and market integrity. We hope more jurisdictions will open up to this field of finance and see such progress as vital to the growth of this asset class.
What’s happening in China vs. US and other markets given current government policies?
Cryptocurrencies such as Bitcoin traditionally operate independently of sovereign authorities and often perform in an uncorrelated fashion. We believe that cryptocurrencies should form a part of all investment portfolios as a way to both hedge against macroeconomic turbulence and to inject a bit of alpha into portfolios.
AAX is an institutional-grade exchange. What defines an institutional-grade exchange and why is this important for digital asset traders?
In building AAX we have sought to achieve a balance where we meet the requirements of institutional investors and those of retail investors. This means in terms of compliance, market integrity and performance, AAX operates at the highest standards – on a par with traditional markets. The fact that we are powered by LSEG Technology means that we can perform at speeds and volumes that are important for institutional investors, who are used to trading in fast-moving, high-performing markets – this is the definition of an institutional-grade market. But, we also put a premium on user experience, design and overall ease-of-use. So we think of ourselves as an institutional-grade platform, for everyone.
Let’s talk about cryptocurrency adoption. What is the industry point of view regarding adoption, and what does the industry need so it can take the next step into wider adoption of this technology and these assets?
Cryptocurrency is seeing increasing adoption and the initial concerns about security and the integrity of crypto assets have been mostly addressed over the years. We are seeing more adoption of cryptocurrencies as a form of payment, value transfer, rights ownership and most commonly investment. The next step is to intensify the integration of the cryptocurrency investing world with traditional financial market infrastructure, and to clarify regulations so that the adoption can become easier and more widespread.
Other than cryptocurrencies, what digital assets does AAX support or does it plan to support?
We are currently focussed on the top cryptocurrencies and crypto-to-crypto pairs. We also see great value in stablecoins as they form a bridge between crypto and fiat, facilitate entry into different markets, and enable investors to escape volatility when needed. In future, we also see great value in listing various tokenized securities as a means to bring liquidity to previously illiquid assets, and make it easier for investors to move between various asset classes, and distribute wealth.
What are your thoughts on decentralized exchanges? Can you talk to us about the pros, cons, and challenges surrounding decentralized exchanges?
The concept of a decentralized exchange is appealing but at present, the reality is not there yet. Due to relative lack of liquidity and other technical matters these types of exchanges are vulnerable to price slippage, and more worryingly there have been reports of front-running and market manipulation, bringing into doubt questions of integrity. We do believe there is a place for DEXs, but for practical purposes, rather than ideological, we have built a centralized exchange – not just because it makes it easier to provide highly liquid markets but also because it greatly simplifies compliance.
What’s next on the roadmap for AAX as we head further into 2020?
Since launch, AAX has been growing steadily. We are entering new markets and continue to simultaneously grow our retail and institutional base; in 2020, we intend to explore more innovative crypto assets, and we really think there is a lot of room for innovation in the crypto derivatives space. For example, AAX has scheduled to offer options to customers soon.
In addition, our platform will provide loans service to customers, building the platform up as a one-stop financial hub for digital asset owners.
Thanks again for taking the time to sit down with us today. How can people get in touch with you and AAX to learn more?
You’re welcome and it was a pleasure to speak with you. You can download the AAX Exchange app or visit our website to sign up and get real time prices, trade and receive our newsletter. We are also active across all social media.
