SlateCast #31: KuCoin CEO Johnny Lyu discusses regulation and the future of DeFi

Hi guys, yes I'm here. I'm happy to meet you. Thank you.

Thank you for the question. FTX has been a center of discussions. It's suffering great losses and no one is willing to see that because it's a huge blow to the entire industry. I think the entire industry today—institutions, users, or exchanges—are all willing to extend a helping hand for this crisis to go away as soon as possible so everything can return to normality again. We also have to admit that there is a certain level of panic that exists in the industry, which has also resulted in some bad rumors and questions about, for instance, the health of certain companies. And as a response, we've published reports and proofs including proof of reserves.

Thank you for the question. Well, when we look at the crypto sector, we see that it is different from the traditional finance sector for several reasons. In the traditional finance industry, savings and transactions are actually separate from one another. Money is put into the banks and transactions are conducted on an independent platform. Crypto is different because exchanges provide both. We are willing to cooperate with them because exchanges like you said are taking a tremendous risk today as custodians of customer assets. Actually, lots of our profits and revenue go to safety and the infrastructure for this. So it is actually quite costly for us to make sure safety all works out. It is our top priority always to make sure that risk is properly managed and controlled, so safety always comes first. Going into the future, if there are third-party service providers that can give users the experience they want, we definitely welcome that. Because in essence, this was a fantastic experience and we will definitely embrace them.

Thank you for the question. Well, I would say any sovereign country with an established financial industry would consider two things when issuing regulations: one is to manage risks and the other is to protect users from losses as a result of malicious intentions. So for industry practitioners, including KuCoin, we definitely embrace such regulations. And for countries with regulatory frameworks that are very active and supportive with licenses, we definitely embrace whatever new regulations there are. We are always very proactive in complying with local laws and regulations, and we always cooperate with local authorities where we operate. We also have a responsibility towards our own users as well, and that helps us feel we're not alone in this fight. We're not just crossing the river by feeling the stone; everyone is in this together and we're willing to help each other out. So for KuCoin, we definitely are willing to stay in communication with the regulators and learn from them as well. Thank you.

First, I can confirm that we're fully liquid and we are also publishing our asset status right now. As I mentioned, we are also collaborating with third-party auditors right now to investigate proof of reserves. This is a matter of industry self-discipline because our sector itself is highly differentiated from the traditional finance sector for reasons I've already stated above. The rules are completely different and it is changing so rapidly that regulations can barely keep up. Before we have a whole set of mature infrastructure of regulations, I think it requires lots of self-governance and self-discipline in the industry. That's why we see exchanges trying to have consensus on what to do in times of crisis. Now assets are being disclosed by different exchanges in different ways—some would resort to proof of reserves, some would publish it at the link in the transactions, and we will have a certain knowledge about solutions we can employ to certain circumstances. I think every time a crisis occurs it also gives rise to a lot of opportunities. So I think after this we will see a boom of third-party auditing agencies that can provide professional services such as proof of reserves and even endorsement, and perhaps the traditional insurance companies can also get involved and provide insurance to users. Regulatory measures will definitely also keep up and they will also provide guidance on how to better develop the industry. Let's take DeFi for instance: how to avoid risks? As knowledge is accumulated, I think everyone will gradually have a better understanding of what DeFi is, and the whole operations and whole climate regarding crypto and DeFi will just be better regulated and more orderly as time goes by. From the user's perspective, they should also be preemptive with sufficient knowledge—that's always the better strategy. Like I said, everyone needs to make their own contribution for the healthy development of the industry, including the users, so they should keep learning more about these rules and we also help with the infrastructure of the whole sector. Thank you.

Thank you. Next time, cheers, bye.