And that was the first time I realized we don't have to have some intermediary in between all the time. Things can be built on a peer-to-peer basis and that's probably a better way to bring things on chain to increase that transparency, to put that accountability out there for everyone to audit and no one to tamper with the infrastructure. Trust should be earned on a constant basis and trust should be verifiable on a constant basis. That is a fundamental philosophy and belief that we have as an organization. The fact that we have been investing very heavily in the self-custody technology and the wallet and product infrastructure is an important, actually a critical piece of how we actually view trust. I think people are underestimating what Bitcoin will do. I really believe that with stablecoin getting more widely adopted, people will be surprised how that actually feeds into wider adoption of the coin.
We're very excited for another episode of the New Money podcast. With us today, Hong, president of OKX, one of the five largest crypto exchanges in the world, 60 million active users across multiple geographies, and one of the first pre-approved for MiCA in Europe, and just recently re-entered the US. So, I think there's lots of stuff to talk about. But I'm very much looking forward to this conversation. Thanks for joining us here.
Thank you for having me. Fena, is that how I should pronounce your name? Fen?
Freddan is exactly right.
Fine. Exactly. Been spending quite a bit of time in the US and I think also the Americans have a hard time pronouncing it. They always go with Freddy. But yeah, it's like a German name.
Yes. I think we want to run through a couple of topics, right? I want to kind of learn more about your journey. Want to learn obviously about the journey of OKX and the broader evolution of the crypto market as you guys perceive it. We want to talk about the future, right? Where's the market going in your opinion and how are you guys shaping it and driving that future. We want to spend some time talking about regulation, right? Our favorite topic and trust and how OKX is championing that and building products to support that. Maybe if we kind of jump right in, I'd love to get your journey. You've been at Goldman for eight years, I think. How did you end up here and how did that play out?
Yeah, I think I was lucky. I spent eight years at Goldman within financial institutions team on the investment banking side. So I actually had the opportunity right after 2008 financial crisis to get my initial professional training on Wall Street. It was actually good exposure, good training, good learning. And then when I left Goldman, I got into growth equity investment and that was when I got to know Star, the founder, and his platform back then was called OKCoin, was the largest crypto platform in China. And I ended up investing on behalf of my previous boss into OKCoin and that was how I actually got to know Star, got to know the business and also got my first exposure to Bitcoin. And I think it was a big milestone moment for me because before that I had a lot of questions during my Wall Street experience seeing the cycle that has been playing out again and again and all the kind of pains and system issues that we've had. Those questions lingered until I got to know Bitcoin and I realized actually you know what, this is something that can be totally new. It actually disrupts not only how I view the financial sector as I was trained in Goldman but actually how I look at the whole setup even from my academic experience in economic training, macroeconomic economics and how people see money. And that was the first time I realized you know what, we don't have to have some intermediary in between all the time. Things can be built on a peer-to-peer basis and that's probably a better way to bring things on chain to increase that transparency, to put that accountability out there for everyone to audit and no one to tamper with the infrastructure. And the infrastructure itself has a life of its own with good incentives built into the system that incentivize every stakeholder to actually work for the common good, which was eye opening. So that was essentially how I got into crypto and I think I was lucky enough to have the opportunity to get into this and I never regret it. It was one of the best decisions I've made.
I can imagine. I'd love to unpack that a bit for the broader audience. What were like specific observations from traditional finance and your time in the markets where you kind of zoomed out and thought, 'Okay, this is actually kind of broken and there must be a better way to do this.'
Yeah. I think when you look at how the financial system works on the surface, you see the financial crisis happen in cycles and every time something in the market broke down. In 2008 it was the mortgage-backed securities broke down because of the layers of intransparency and people take things for granted. Everyone believes that whatever was packaged into that bundle has already been vetted by other people. It's actually good risk and it can be blindly distributed across the system and that continued until things proved that actually that was not right, that was not the case, and there was a lot of bad credit being distributed into the system far beyond people's comprehension. So I think that level of transparency, the level of accountability, the ability to actually verify things in itself was an issue for that specific case. And we actually see that in many other situations. And if you take a step further, we see a lot of imbalances in the system, not only in the financial system, but also in the broader society as a whole. And there is a great division between the haves and have-nots. And that division between haves and have-nots has also progressed into generational division where the boomers had more resources at hand when the younger generation, just the fact that they're newly out of school or still in school having a lot of student loans on them, they don't really have much resources and the system out there is already flooded with newly printed money. So the asset prices have been too much for them to catch on and it's just a lot of stress and disparity when they realize they really have no chance of building their life of their own just like their previous generations could have been able to do. So I think that level of division was built into the system. On top of the transparency, there is the issue of money printing and how monetary policies are being handled in every jurisdiction and how the overall financial system is actually built on that credit-based system. There are a lot of assumptions, for example that inflation is good. The other assumption is credit is always good and those assumptions when you combine them together create a lot of issues where asset prices continue to go up because there's really no way down because the inflation is there. And when the asset prices continue to grow, people who have no resources they really have no chance to get their life back. And people who have resources or even ordinary people like you and me who maybe don't have that legacy resources but actually earn our own living, once we earn our living, we have to put our money to work somehow and every one of us is forced to be a manager of ourselves otherwise the hard money we earn through hard work loses value over time. So that in itself is actually built into the system. And then the credit-based economy, given how the monetary framework actually runs in modern society, is very much driven by credit and that is a pretty vicious cycle in its own. And you have all the fractional reserve system in the banking system as well, which again created imbalances. And whenever that coupled with the lack of transparency in the system, lack of audibility, once there's one single little pocket in the system that went wrong, it quickly becomes contagious in the overall system and actually pulls the whole system down because of that setup. I think all these are actually intercorrelated with each other. And the only... I went to Chicago for business school and there is a lot of macroeconomics and free market theory that has won the school's reputation in academics. I've always been a big fan of free markets but until I got to understand Bitcoin, then I realized you know what, there is also... it's almost like a fake free market theory when the underlying monetary system is not free market. It's very hard to actually have a free market built on top of it because the price signal is wrong. The price signal is actually expressed in monetary policy which has some built-in inflation in it. Once the system actually feeds on it, it's almost like drugs, you cannot really get yourself off it by itself unless you do it through some violence, crisis, or society upheaval and then you restart that again. And I think Bitcoin is still a way to actually build that honesty into the system in the underlying infrastructure. And then maybe on top of it there's a chance to build a more honest system to help. It doesn't fix everything, Bitcoin doesn't fix everything, because humans are human. But at least there's a chance for having a more honest system that can reward people properly based on their contribution instead of in the current system I think a lot of incentives are misaligned and it's just very hard. I think the whole system is tilted toward one direction.
Interesting. Yeah. Let's double click on that a bit. And I think like if we start at the very beginning, right? Like the mortgage-backed securities of the great financial crisis, this idea of like I trust you bro economy where everyone thinks someone else has vetted the risk and trust puts trust over truth, right? I think like that we continue to see stuff like that right just recently I read about this like private credit situation where they double pledged the collateral and nobody knew that it was double pledged right and suddenly you have like a terrible bad credit situation. I think the team at Figure is doing a good job of kind of like building markets that are built on like I always say truth not trust which I think aligns with that. And then I think like the other point that you made on like I don't know crypto is like an instrument of like I don't want to say redistribution of wealth but like quality of opportunity in the developed world. Peter Thiel just put out an article that capitalism is fading the young generation which is essentially kind of like along the lines of what you've said. Do you see that also reflected in the user base like are mostly young people or people from like economically weak regions using OKX's products?
I think so. Yeah, I think there's a higher likelihood for the younger generation to really embrace this concept because it does challenge a lot of the pre-assumptions that we've had for our lifetime and it is too new, right? So we do see that, we do see a lot more of our retail customers being in their 20s, 30s, and 40s. But we also have actually customers who are in more advanced age but still have that open mindset and actually end up embracing it and we do have actually quite a few of them sometimes reach out to me as well. So we do see that. But I think just on a high level, if you look at the general distribution, yes, I think that what you said is right.
Gotcha. And let's jump into your journey at OKX, right? Like when you joined, I think it was still called OKCoin. Walk us through that rebrand, like what was behind that and why did you decide to merge the two brands at that point in time?
Yeah, I joined in 2019 and I was leading the team to grow our OKCoin business globally, which is a regulated business. So we primarily had it in US and Europe and Singapore, Asia where we basically built the business based on license and compliance and risk infrastructure. In parallel we also have another platform called OKEx that is crypto only. About 4 years ago, it was yeah 2020, 2021, we decided that the right strategy instead of having two separate platforms, two separate products, two separate teams to pursue and build the centralized product in parallel, one with fiat, one without fiat and licenses, we thought that the right thing to do is to actually build just one integrated platform because one, we see that for a centralized platform being regulated is the right thing to do and it's coming. We saw that clearly written on the wall. So we decided to proactively embrace it. And two, we have also seen the kind of market signal where we are actually looking at consumers, customers on the retail side. They also want local team, they want the local touch, they want local support and they appreciate brands who are committed enough to that local market to actually build it properly. So we made that decision and there are many other reasons in terms of product synergy, in terms of branding synergy. We rebranded the product to OKX from OKEx and that has been well received. So we think that there is a lot of synergy there and we want to be able to also build our infrastructure, compliance and risk infrastructure at a larger scale for the broader centralized platform. Fast forward, it's been four years now. I think we're very happy with that decision and business strategy decision. We have been consistently executing on that. We've got our regulated product and business launched and actually running with some initial success in multiple jurisdictions including Europe, US, UAE, Singapore, Australia, and Bahamas. And at the same time in parallel we also heavily invest in our self-custody wallet and web3 product because we think that these two, centralized and decentralized, is the future but we want to continue to invest in that future and then centralized is the very important bridge and it's a competitive advantage that we think that we are building to combine the two worlds and be able to actually offer the upside of both worlds to our customers in a way that we think is the best to our communities. We've been doing that and we're very happy with what we have been able to deliver so far.
No, and I agree. I think you guys are doing a great job on the brand. I'm a big fan of the Formula 1 sponsorship. Of course, I'm a fan of the sport. Nico Rosberg was an early investor in Ivy. So, we've stayed close to the intersection of crypto and Formula 1. And I agree like when you think about it, when you talk about hey there's been like competitive advantage. Would you say like this is like a USP in the classic sense that you believe it's a differentiator in the broader opportunity space and OKX is doing well and continues to invest on the decentralized side of the business.
I think so. I think we really bring the best sides of both worlds to our customer. We offer a very strong self-custody wallet with the best-in-class DEX aggregator out there that is compatible with the largest amount of chains out there. So really, I think that strong belief in interoperability and open ecosystem underlines how we actually build our self-custody wallet and the decentralized product suite that we offer to our customers. And on the other hand, we also have I think the most global and high growth regulated centralized product platform. Again, we are a leading platform in UAE. We're building our product in Europe, in Brazil, in Turkey, in Singapore, in Australia. And in all these jurisdictions we have a very clear roadmap in terms of license application, getting the license, building the right infrastructure, and then we build a very competitive product that is really prioritizing the local community needs. It's very much local design. For example, we just launched OKX Card in Brazil last week and that was very much Brazilian catered. Even the product itself, OKX Card, which is basically built on OKX Pay, brings the centralized infrastructure and our DeFi self-custody wallet technology together to bring that convenience of a centralized product as well as the self-control of a DeFi product to the customer but with a Brazilian in mind in terms of how we think about the compliance risk management in that market and also more importantly what our local community actually wants with this particular card, how they're going to use it. So I think we really have that in our warehouse to offer to the customer and we believe that hopefully over time we'll be able to really build that into something even stronger, particularly strapping the good of both worlds and bring that suite of product power to our customer.
Yeah. No awesome. So basically summarizing the journey, you've been at Goldman and traditional finance, you've been invested in the original OKX entity, came on board and led OKCoin that regulated centralized offering and now president of the combined group. Maybe just to sum up the journey, what does a president do? It's such a varied role, I think it can mean very different things at different companies. What are like the top three things that you're most focused on this year?
My priorities always evolve, but I think very importantly one is about aligning our business execution with the company vision and Star's vision and make sure that we actually build properly to align our talent, not just talent philosophy but also actually leadership bench with that vision so that we can actually deliver and execute properly. And then three, really over the last 3 to 4 years my focus has always really been kind of building that capability of delivering and bridging the best practice in traditional finance compliance and risk and governance control and combine that with our capability within the organization to innovate but at the same time also to build on a scalable basis, enable our local team to really be the decision maker, can drive a lot of decisions. There's a lot of institutional muscle that we have to build as well. So that's another part that I have spent a lot of my time into. Ultimately a lot of the work that has been done have been done by our team and I'm very proud that we have a very strong and increasingly strong team both at the local level as well as at the global level. We've had a lot of new leaders over the last four years who have joined us and left their mark. And I'm very proud of that.
