 Hi everyone, it's MJ and a couple of days ago I recorded a podcast with Fazzam Asaini. Now he has created VALOR which is a cryptocurrency exchange based here in South Africa and I sat down with him to discuss risk management and all things around operating these new cryptocurrency exchanges. Now originally I was going to release this podcast in a series of nine videos but I've decided to change my mind and I'm going to release them all now at once. Now if you have seen the first two parts don't worry I am going to put timestamps for each of the various questions and topics that we discussed so feel free to just skip the first two if you've already seen them. Otherwise you can click on one that you want to see for instance my favorite is when I ask him you know what role can actuaries play in cryptocurrency exchanges but anyway let's head to the podcast. Cheers. Are you recording? So yeah so I've got the recording on Skype and I always do a double take with my phone so I've got the phone recording here and I'm doing the recording on Skype so hopefully both don't fail. Okay perfect. So no yeah first off yeah welcome welcome and thank you for for agreeing to do this podcast with me. Like I said there will be a description in the video below about your podcast that you did with Gray where you spoke about your financial philosophy and your career journey so far and I must say I really really enjoyed it so I'm gonna put that link in the description and all the people who are watching this yeah I recommend that you go check it out but with you I want to jump straight into it and I want to come and hit with a nice meaty question because I know there's a lot of entrepreneurs potentially watching this video and I did read in one of the reports that you guys raised $1.5 million for a startup which is pretty amazing and I guess the first question is you know how did you do it? Did you have an amazing business plan? Was it because of your network or what was the secret source to raise so much money for a startup? Great so first of all thanks for having me on the on the podcast it's great to be here and to dive right into that question I think it's a combination of things that you just referred to so we raised $1.55 million in total from two primary investors one was Michael Jordan so your name but with two a's at the end and he for those that don't know he is the former CEO of FNB first national bank here in South Africa part of the first rank group and he really did a fantastic job with FNB making it actually one of the most they got an award for being the most innovative bank in the world under his so he was one of them and then the second investor was Bittrex and I think you know with Michael I had known him from before starting Valor and we had a couple of conversations and we had like a 10-page pitch deck which kind of outlined what we were trying to do and you know he I think based on our relationship he decided to invest and that wasn't a very lengthy process because we had known each other from before but that's quite different to the investment from Bittrex where we had never ever met them they didn't know us we had never met them there was no relationship beforehand and actually we just reached out to them and said listen we hear you're having partnerships with other cryptocurrency exchanges around the world are you interested in chatting to us and seeing if we can get into a partnership and that was my co-founder that initiated that discussion and effectively long story short you know tens of conversations and the business plan and not just the pitch deck but actually in-depth written business plan later after that we I got on to the plane and actually went to Chicago and we had a one-hour breakfast meeting in an hotel in Chicago and sealed the deal then so really we've only spent one hour in person with our our our major investor which is Bittrex but I think that did a lot of the two divisions on us so so really two very different processes worked for our two main investors but we were very lucky as you said to raise well just over well enough million dollars for an idea that we had and yeah we're hopefully we've done some good things with that money so we can come back to that in some of the future questions no congratulations I mean that is that is an achievement in itself and I mean coming because you say you've got these two different investors I mean for for the entrepreneurs out there what would you say your general investor looks for in an entrepreneur you know is it passion is it experience as a qualification is it having that relationship you know what what are what are some of the things that unite an entrepreneur to an investor in a business environment I mean I think ultimately it comes down to having faith on the capacity of an individual who's leading a business to actually make it work that could come down to experience it could come down to just grit or integrity or there's a whole bunch of things I think characteristics that investors are looking for but ultimately it comes down to belief in the individual can they do what they say that they're going to do and do you believe that they're actually going to be able and whether it's through their own experience or their ability to appear there are you know there are many reasons and ways that can happen but I think it does that come down to that belief and I think especially with my some of my conversations with the investors you know oftentimes they didn't spend too much time on the legal framework you know and we've actually secured another investor now that isn't public information I can't say too much about the investor but um so just raise a little bit more money as well which you're the you're the first person actually that we're telling this to perfect yeah so part of the press but unfortunately we it's not public information the the uh you know who the investor is but you know in the future maybe we will disclose that but based based on these discussions um it's been interesting to me to see how you know seasoned investors will say listen you have the legals in place you have to have the legals in place but that's basically really as a backstop if things go really wrong and just to make sure people understand what the terms are of the investment but ultimately it really comes down to do I believe in this individual if yes let's do it if no let's go and find somebody else I believe okay it's I mean it's interesting because you know from from our actual backgrounds you know we've always been talked to you know look at risk and if the return for the amount of risk you're taking on is you know acceptable then then it's a green light but of course that's very much a an academic or theoretical um way of doing things it's it's interesting hearing how people you know come fall back to belief and I guess there's a little bit of gut feeling as well you know which you know is this person able to do what they're able to do it's it's a bit of a subjective especially when let's say you're only having a one hour breakfast with these people you know they need to make those those calls so it's it's interesting hearing about that um but coming coming to risk this is this is saying that I always find interesting with with regards to to startups and just risk in general I know there's there's many different ways of seeing risk so first off I want to ask you what what is your definition of risk and what would you say are the top two risks every new startup faces irrespective of industry and size it's a great question so let me just make a comment on your on your previous comment which is just you know actually he's kind of looking at risk and and having a robust model etc and um you know the the fact of the matter is with the startup odds are against your success so if you were going to be looking at the you know the models about investing nobody would ever invest in a startup because the chances of survival are slim so I think it really does come down to much more than just the models which is actually the belief as I said beforehand so especially early stage especially when you only have an idea I mean obviously with venture capital you have a whole spectrum it can come from seed investing and angel investing seed investing first round second round etc or series a b etc and um obviously hopefully the risk gets less and less as you go down that spectrum but especially at the beginning I don't think there would be any model that would spit out and invest you know and even with people that are seasoned investors or serial entrepreneurs whenever you're getting into a new endeavor there are so many different types of risks that one doesn't even know about the ones you know about and you're trying to quantify which is always wrong so so yeah so coming up to your question about you said what are the two major risks yes um or how do I define risk and what are the two major risks of any startup so I think you know there's so many different types of risk and I think generally we're talking about financial risk here and that would be you know someone that what is the possibility probability I am going to not get my money back effectively but then there's many other types of risk reputational risk and operational risk market risk tons of different types of risks so I think given the financial risk which is really what is the probability of me not getting my money back I think the two main risks of any startup is um I say the first thing is like your product market fit so there's a risk that whatever you're trying to put out there is actually not wanted by the market and so that could be because of timing or just product itself isn't what people are looking for etc so that a product market fit I think is a very big risk and then I would say probably the second biggest one is uh executional okay you know and and what is the risk of investing some money into a startup into some entrepreneurs and do they actually know how to execute this now that could be just from making sure they're not fraudulent so literally just stealing the money and going elsewhere to they have a lot of integrity but potentially they they're you know the operations and their relationships with with individuals or broader team members aren't as good as they may be so that they just can't pull it off so I would say probably those are the two main things assuming obviously you've been able to secure some funding in the first place I might say I like that one about the the product and you know not being a match for the market because I think a lot of times um entrepreneurs and this is myself included when I've you know dabbled in this in the past is I come up with an idea I think this idea is amazing and I'm so arrogant with believing my idea is the best thing ever that I go out and I build the entire thing and then I take it to markets and I'm like market look at my amazing product and people are like oh we don't actually like this or this is too confusing or how does this actually work and it's it's so important I guess to have that conversation before building the product you know going to people doing that market research saying is this something you want rather than building it and then finding out finding out later so that's yeah I can definitely relate to that one and then of course execution is is such a big one because especially in today's world with the internet I mean ideas are out there there's so many different things to do there's so many innovations and ways to do things that it's not about having a great idea it's about executing the idea that um I think makes makes the difference um but this maybe then leads into can I can I can I just say one thing on yes yes go for it because you talked a little about you know seeing if there's product market fit and to kind of you know talk to people etc if possible I would I would suggest not doing that but actually just putting a minimal viable product into the market just getting something up and running so you can test people's actions not their words because oftentimes people say one thing but they actually do another so as much as possible if you can actually get some sort of you know prototype out there just to test what people how people interact with it or if they want it I think that will probably be much more powerful than than surveys but obviously the first thing to do is is talk to people and see if they would want it yes I mean you know just like with my example what I did this was back when I was at university um we developed a collective buying um online store with idea was that all the prices were hidden and people would pay to reveal the price and by paying to reveal the price the price would then decrease with each reveal and then as soon as somebody purchased it at the discount it then reset it back to the beginning but of course we we did this whole thing we built the whole website we got everything up and running and it was amazing because we failed basically in the two two risks that you mentioned the one thing was we found people just revealed and bought something straight away so if they wanted the man United t-shirt or they wanted the scanning device that we were selling they just bought it straight away they didn't really matter too much about the the cost and it was mainly family members who were doing this that were our initial customers and then what we also found is so people weren't actually using it we thought people would buy the drops and reveal the price and look you know be bargain hunters which we didn't see that activity and then two we took a big smack with logistics on trying to deliver items it was something that we we had no experience at I mean we were nerds making websites now we had to try and deliver a man United t-shirt you know get it from the supplier get it to the customer in a short period as possible and then find out that the size wasn't the right one and have to handle returns and it was basically a yeah not not one of my more successful ventures that I've done in in life um and I think that's that's been one of the nice things about um actuarial science it has been this focus on you know managing risk compared to when I was an entrepreneur which was you know just take a leap of faith and and hope for the best um which like I said this maybe links in very nicely to the next question which is in your opinion how should startups deal with risk I mean should the risk seeking entrepreneurs um ignore them and be like me and take that leap of faith and just hope for the best or should they consider implementing like a strict risk management framework from the start even though that might struggle it will strangle a little bit of the innovation and the culture of the company like how how would you say or what would you say is the best attitude to risk for for a startup bearing in mind that the the odds are stacked up against them yeah I think you always need to kind of take calculated risks with any startup that you're doing now you can't disregard risks and just go all out um I think you certainly need to consider them but the the thing is if you're going to look at every single risk and look at the downside of every single scenario then you're just not going to get anything off the ground you know you've got to try things and you've got to uh you you have to take risk by definition now it is also very very dependent on the particular type of business that you're actually trying to get off the ground so at Valor where we're dealing with people's money we can't like get a quick MVP out to the market that has lots of bugs in it and hope it gets right it goes right just to see if people like it or not because if we do have bugs in it then even if people are ready you know getting reputational damage from the start because we weren't ready to have them on in the first place so for us for example while a lot of people say you know get that MVP out there like I said a little bit earlier we had to spend a lot of time before we took our product to the market internally testing getting cybersecurity firms and experts on board to pen test it internally externally before we felt comfortable taking the first round of the customer fund onto the platform okay so from that perspective we needed to be very conservative but so yeah so I would just say like you need to decide what you first of all need to understand what your risks are I mean to the best that you can we never understand fully what all our risks are and then try to mitigate them but knowing full well that you need to do make a calculation about which risks can you take at the moment when you're still young to be able to get off the ground while ensuring that you're mitigating those those really important risks that are crucial to your to your business as well and I mean this is one of the things about risks is there's the risks that you know about that you can then manage and then there's sometimes the risks that you don't know about that kind of pop up and and surprise you and I don't know if you you had you know you came across any of these but but if you did you know what what were some of the risks that you wish you knew about before you started Vella I think you know ironically being in the banking space which rose I was in for six years I think we didn't really appreciate how difficult it would be to operate a bank as a cryptocurrency exchange a bank account as a cryptocurrency exchange so you know there were other players in the market that were you know operating and and we didn't really think too much about that but we've had to spend a lot of it a lot of our time and our resources on on basically making the banks happy okay so now obviously we have lots of of of you know checks and balances that we have in place we have a very robust anti-money laundering policy counterterrorism financing policy k we do kyc for all our customers economy to get on to our our platform without that but the banks oftentimes require a lot of tlc that's put it that way and and so we've had to spend a lot of time just actually taking them through our processes and and you know sometimes there will be instances where you know the banks won't see or they they won't understand the activity that's taking place in you know on your account and especially as we've grown quite quickly over the past few months when we introduced fiat to to bitcoin trading you know they'll they'll call you in and they'll say hey what's going on here or they'll they'll make it more difficult for you to transact so we've had to spend a lot of time just kind of mitigating those risks because we have to have a bank account to to offer our product which is a gateway between fiat currency the ram at the moment and cryptocurrencies in general so i think that's one area where we don't quite appreciate the the intense kind of effort that would be needed to to work with okay because i mean that's that's something i even saw on your your twitter account is you said hey guys please be patient you know there's a bank there that is busy struggling or one of their systems down so the withdrawal process is gonna be be delayed and you know i've got got friends who work for some of the other exchanges in in south africa and you know i always like to ask them oh what what are you guys doing or you're expanding you know or you're gonna be opening up in other african countries and they say that you know one of the things that prohibits them or which makes it difficult for them to let's say start up in in nigeria is the banks they say the banks in in nigeria are not as sophisticated as the ones here and that they they even have your a lot of a lot of problems just even sometimes connecting and communicating with them so it's yeah it's interesting hearing hearing that and i mean i also like when i you know because i'll try and play around with with fintech and entrepreneurial ideas and one thing i sometimes hear from the developers is they say the biggest thing that's going to cause us a time delay is connecting with the banks they say that that that is a difficult thing which is it's in a weird way it's it's kind of um how would you say i mean because in the one way crypto is potentially a substitute for banks so the fact that the banks are the ones that are how you could say the achilles heel it's in a weird way it's it should be a happy feeling because it's like well one day we might you know be able to compete with these guys in the sense that they you know they're making not mistakes but if they're not able to to handle this type of innovation um especially like i say the the banking systems uh outside of South Africa because because yeah it's uh it's an interesting one it really really is an interesting one and and i mean now maybe maybe coming you know more more on to these crypto exchanges um you know talking about the banking one what would you say are some of the other unique risks that cryptocurrency exchanges face and if you don't mind could you maybe share with us some of the the risk management techniques that you deploy in order to deal with these risks yeah sure so um i think there are many risks for for a startup like ours there are many risks one of the risks is is just the security of the crypto assets that we hold so as you know in the cryptocurrency space there have been many exchanges that have been hacked or have lost funds or their customers etc so i mean i remember before we actually started Valor uh i remember thinking i was having a shower and i was thinking to myself my goodness you know am i really going to get into this business where we're responsible for customer funds in an industry where there have been so many hacks and so many kind of breaches security breaches that have resulted in the loss of customer funds and it actually gave me quite a lot of anxiety and i felt gosh this is really uncomfortable to think about that that scenario playing out and then i felt and then i thought well you know someone's got to do it and it's it's going to be happening and and and if i were a customer i would probably want my funds to be uh at an exchange where the customer does feel nervous about losing my funds and gets anxiety about it and does something about it to keep them safe so i thought you know given that and given you know life and not just startups where you do need to take risks i thought okay well well well let's just get into it and let's do the very best that we can do to secure customer funds so we've done a few things to to mitigate that risk which is first of all we've got a very strong security team we have uh the the head of our security team he actually built the online banking security platforms for two of the largest banks in South Africa so he's a very seasoned kind of security expert um uh so he's the one mitigating factor that we brought in pace just to say let's get the people that actually know what they're talking about in in in place so that in and of itself the fact that he basically built the online security systems of two of the largest banks that's not enough in in and of itself because we're dealing with the new industry but the other good thing about this individual is that he was also in cryptocurrency from very very early on so he was mining the bitcoin when it was sub one dollar oh wow and i remember every telling me that he thought that he had it sold at the top when he sold at six dollars you know so so so he's had a lot of experience in the traditional uh security industry he's been in the cryptocurrency industry for from basically uh the very very early days uh and so so that's the one thing to get the right people in place and then we've done a lot of of research talking to experts in the field speaking with cybersecurity firms and cryptocurrency experts as well to actually institute a whole host of various layers of security in our systems so within cryptocurrency space we have a host of of hot wallets warm wallets and cold wallets and so from your for your listeners that may not be familiar with that language hot wallets are really uh where your private keys which are really your keys to the castle uh in the cryptocurrency space where if you've got a private key then you have the right to spend the cryptocurrency at the address associated with that a private key so a hot wallet is where you have those keys online which are required for liquidity management purposes because people want their cryptocurrencies as soon as they request them and so we offer that service so you request your cryptocurrency and then we you sign it but also there it's not just as simple as that it's also multi-signature so we have several different keys that I have to all come together online to sign a particular transaction for that that those cryptocurrencies to be released from our platform then we have warm wallets and warm wallets and I'll come to warm wallets in a moment and we also have cold wallets which is where the the keys are completely offline so even myself as a CEO and co-founder of Valor I individually cannot abscond with any of the funds even if I wanted okay and so um so there's multi-signature again for for the cold wallets where these keys are actually held in secure institutional grade and military grade kind of security locations that require biometric access they're video monitored and there are several of these that need to come together to actually sign a cold wallet transaction so so and then the warm wallet is effectively just making sure that particular wallets that go in between the cold and the warm are are basically only able to send cryptocurrency to particular addresses for example and that also limits the the scope for any breach of security so these are some of the things that we've done actually if you go onto our website vllr.com we've also talked a little bit about that and then also our support site has more information about how we secure our cryptocurrency assets our our virtual currency assets so that's one of the main things that we do which is and so we've done as I hope have kind of clarified is that we've spent a lot of time thinking about that risk and trying to mitigate it now it's important to know that you can never fully fully mitigate that risk 100 percent and any cryptocurrency exchange or anybody in the cryptocurrency space that tells you so that they've got 100 percent secure infrastructure is aligned to you it's just not possible and so so we just need to make sure that that's that's okay so we've done a few other things as well but those are the main things that I've just described and then I think another major risk is you know operational risk and also the code you know we're we've got a matching engine that matches our buyers and sellers together so so you know you want to buy some bitcoin with your 100 rand for example you might put a bid up you know a buy order up to to buy the bitcoin at a particular price and so when that gets matched we need to make sure that the right amounts are debited and credited from each account and if there are any bugs with our code then we could be double double crediting people or people would be able to kind of withdraw more funds and they have more platform etc so that is just tons and tons of code reviews testing audits getting again external security firms to come and look at our platform to try to penetrate it to see if there are any issues with it so I would say those are those are two main things that we've had to spend a lot of time on and there's other things like reputational risk which is just making sure people know what they're buying and they know what a cryptocurrency platform is and they don't press the wrong buttons and so there's a lot of education that's required and you'd be surprised there are a lot of customers that that come into this space not knowing very much at all and you know for example sending litecoin to a bitcoin address you know that's that's something that's happened and we need to work with customers to actually educate them to make sure that they don't make mistakes and they actually understand what they're doing I mean this may be going a little bit of topic but I'm interested by that if you had you send litecoin to a bitcoin address does it just get lost does it come back say you can't send it and you keep your funds or all your what what actually happens in that situation so in this case effectively the amount was that was sent was very small and so effectively nothing was done because the risks of recovering that are quite high and a lot of effort is required to actually go and recover those funds because the private keys we would hold the private keys that particular address but you'll see like if you go and look at cryptocurrency exchanges around the world some of them do offer recovery services others don't but wherever they do offer it there's a big charge that the exchange needs to charge the customer because as I said you now need to start effectively exposing private keys where you don't want them to be exposed and trying to mitigate that risk and so it hasn't happened in a big way that we would we have actually had to go and recover those funds thankfully but if it did you know it is technically possible the risks are very high and there's obviously a cost to that okay and I mean this this is maybe like an interesting thing about the the crypto cryptocurrency exchanges is that there is a little bit of that systemic reputation you know when when mount gox went down people kind of thought oh you know can we trust these these cryptocurrency exchanges and I think you know if something similar had to happen nowadays to let's say one of one of the big ones in the us or even to say finance or something like that there might be a systemic shock to to the trust that people have with with their exchanges and I mean the one way to to potentially get around that is for the existing exchanges to to say hey let's put in regulation let's say that you need to get a cryptocurrency license and the only reason or the only way to get a license is if you have the security in place if you have the proper systems in place and all these other things would that be something that valor would push for you know would you say that's a good idea to have regulation in the cryptocurrency exchanges or is that a little bit going against the the core philosophy of bitcoin and being a complete decentralized unregulated instrument I mean it's maybe more of a philosophical question but what are what are your initial thoughts around that it's a really good question and actually my view is very clear on it which is I think there's a false dichotomy in the discourse that's being had with the cryptocurrency space and the traditional space and and many people in the cryptocurrency space are saying no regulation and freedom and no government and no law and you know each person under themselves you know many many people are speaking like that and my view is that's just uh that that's just not possible we we you know law and order is we we've evolved to society with law and order when we didn't have a society with law and order we had a lot of violence and we had a lot of kind of uh you know whoever had the biggest force or whether that was you know physical force and intellectual force uh to prevail uh would become the ultimate victor at the expense of justice and um and so our view is is very much that for cryptocurrencies to become mainstream and to move from the periphery to the core we can't pretend that you know we're going to be a you know exempt from from you know regulation and accountability and things of that nature and so we very much welcome regulation um provided that the regulation is is beneficial to society right and I think that's why many people have kind of rebelled against regulations because quite honestly we have a lot of regulation that just shouldn't exist and so we definitely don't want that regulation but the concept of of being accountable the concept of showing the public that you you actually have uh you know the the the necessary skills resources know how etc to play in this space we would welcome that actually so you know to be clear again we are a centralized institution but we provide access to decentralized assets like bitcoin and so our customers are more than welcome to withdraw their funds to their own wallets that are under their own control but ultimately we have customers we have shareholders we are integrated into the current banking system and uh and we should certainly be held accountable and um we think that we will be moving towards a world where players like us will become more regulated we are working with the regulators right now to say let's have the correct regulation in place because we don't want a burdensome regulation that becomes so prohibitively expensive that then gets passed on to the end consumer to to negatively affect our industry so it's a fine it's a fine balance but as a principle are we for accountability absolutely would we welcome wise and prudent regulation most definitely but we will also voice or make our voices heard where we feel that there's injustice or where regulations don't make sense and we're not going to off topic we've been very vocal about the fact that exchange control regulation in South Africa it doesn't do anybody any service that needs to be approached okay because I mean this this is something that that I just worry about and I don't know if maybe this is this is the little act tree in me but um because it's got a bit of an actuarial nature and it comes around the the reserve management of these exchanges because when I was when I was trading bitcoin you know I would leave large amounts of both cash and bitcoin on the exchange just because it was easier to trade than moving everything to a cold wallet and you know having to wait for everything to you know move back and forth but my concern was that if an exchange gets too big like if they get you know too many people are making deposits and there's too much bitcoin that's just sitting there there almost becomes a temptation for the exchange to just shut down and and keep everyone's money now this might not necessarily be you know an exchange in South Africa it could be an exchange you know overseas or elsewhere where they just say sorry everyone we're not going to allow you to withdraw um you know we're taking the money and and running away especially with some of these exchanges where they're not even transparent on who the management team is and now my worry with that is that that might cause again another systemic shock that then people all around the world say oh we can't trust these these cryptocurrency exchanges I mean is is that something that that you guys are also worried about is the behavior of other exchanges or do you think that I'm maybe a little bit too too anxious and that they won't be that that systemic shock no I think you bring on a very very good point ultimately uh exchanges have control over the funds these are centralized exchanges obviously there's a breed of exchanges called decentralized exchanges or DEXs where you know traders have control over their own funds but they're they're quite clunky at the moment and the performance is not very good so by far the most volume that's traded is on centralized exchanges but um you know the scenario you're painting is not a hypothetical one right this scenario has played out before and uh you know in various cases I'm not going to go into all the specifics but there are particular cases about you know founders uh you know claiming to be dead and the funds not being available and uh you know and what seems to be just a absolute scam you know so I think it's very important for consumers and customers to understand who the exchange is who's running it do they trust them because ultimately there there are lots of different factors to this so you you painted the extreme case which is where an exchange would shut down let me paint you a more subtle case where you wouldn't even know that something is is going to arrive and um until potentially it would be too late so right now we manage all exchanges manage their reserves now we've made it very explicit that we have a 100% reserve policy so if you put bitcoin onto our platform or rand onto our platform we keep those rand and those bitcoin 100 so one to one but you know just take this scenario for example let's say you didn't trust us or we were dodgy characters for example right we could effectively on our own ledger create more rands or bitcoin as we please yes and effectively uh you know and let's just let's just make it uh practical let's just say we had an account and we said okay let's just credit this account on our ledger with the million rent now if that million ran doesn't exist in the bank account then it doesn't really exist but i can now issue myself with a million rand say buy x amount of bitcoin withdraw the bitcoin myself so long as we had enough reserves nobody would know that that's what we're doing yes now obviously that's completely illegal and completely unethical and we would never ever do that but the point is that i have no doubt that there would have been some exchanges around the world that may have involved themselves in such activities and and actually some of the ones that have failed uh have done exactly that so so the point being here that it's not it's not just a binary case of you know are you going to shut down and leave or are you going to stay and be ethical there's a very like gray area in between and so you need to be sure that whatever exchange you are with uh first of all have people that are have integrity of the helm and that not only just that but they're being ordered so we also have internal checks and balances to make sure that that hundred percent reserve is there so um so that's the first thing now the second question you asked was really about the systemic risk and if something happens what will happen to the price etc so the price may go down and that's just market risk you know there are there are many reasons why the price go right go down but i feel very comfortable with the fact that all our customers have 100 percent of their money in reserve and so when they ask for it then they will get it what the price is is outside our control as an exchange remember we just bring buyers and sellers together and the buyers and sellers are the ones who determine the price so we have no role in setting the price on our exchange and so people should know that and if they don't know that hopefully they do that they know that now from listening to this okay and so i have no control with the with the price goes up we're down what i do have control over is the integrity of the platform and that there's a 100 percent reserve of the funds that people hold with us so um so i don't worry about that too much because i know that we're doing the right thing and that our customer funds will be available to them um you know so yeah and i'm talking obviously from uh uh there's intention of course and then there's obviously security is we talked about the security risk beforehand and we're doing everything we can to mitigate any malicious attacks from outside or even within the organization because a lot of these attacks actually are internal jobs yes well i mean this this is this comes i guess to my next question uh speaking about you know these actuarial risks and bearing in mind that hope yeah majority of the audience is is actuaries if if let's say valor was to suddenly get a a group of actuaries um let's say they rocked up at your door and they were now your your employees what what would you get them to do first and why that's a good question gosh um probably actually start looking at improving our detection of of irregular activity on the platform okay um so obviously you know we we accept customers uh uh from all over the world and you know by far you know the vast majority 99.9 percent of our customers are all legitimate customers etc but there's always that very small fraction of people that are trying to do this activity on your platform and we have controls in place but those controls can always get better so i would probably start uh looking at that uh looking at our data seeing if there's any ways that we can actually detect that better than what we're already doing at the moment okay um let me ask you what would you use that actually for i'm i'm interested to to to hear from you now well i guess you are i mean my my initial thought would be to you know maybe look at the your revenue streams and see you know how how to maximize or optimize those so for instance um the one is you know the trading of crypto uh with the more volume you know the more potential fees that you guys can can earn um what i would do is i would do some statistical tests to see what is that relationship between uh volume and fees and i mean if it's very sensitive that means you know reducing fees a little bit increases volume a lot then what i might do is maybe recommend um a strategy that vanguard did with passive investing where what they said is uh you know traditionally asset managers were charging two percent and all this things you know to cover their their costs and stuff vanguard said we're going to start with one percent and when we get a certain amount of volume we're going to reduce down to 0.7 percent and then 0.5 percent so the more volume they got they lowered their fees because they could then maintain a certain amount of profit um and what that then did is it just meant more and more money started pouring into into the vanguard fund to a state where i think if i if i remember correctly they were getting or they still are getting a billion dollars every day coming into into the vanguard funds because of this philosophy of by reducing our fees um we're going to get more volume and the amount from that volume so even if we reduce fees by one point we could actually end up making money because of that that increase in volume of course you can only do that if the statistical test shows that there is that sensitive relationship uh you know if if people aren't that sensitive to fees and you reduce fees you know you might be shooting yourself uh in the foot so i mean that that's that's one thing i would i would look at and then the other thing i would look at is i would maybe look at what other potential um again revenue streams you guys could could could tap into and the one thing that um and i guess this is maybe copying from from binance is what they do is they've almost almost turned into a bit of like a consultancy firm as well um in the sense that these crypto exchanges are gateways to to the decentralized uh you know to the decentralized world and valor could position itself as as a potential partner to a lot of other projects saying you know what we can get your stable coin to the market or we can list your non-fungible tokens here um or you know we can assist with with some of these things um of course that comes that might be a completely different business model or or something that you know requires a whole different set of of skills um and then i guess thirdly thirdly my final thing that i might get my act trees to do is i would get my act trees to maybe you know create a case for why institutions should should invest in in bitcoin um bearing in mind that a lot of act trees are the expert advisors to pension funds and pension funds are you know some of the biggest players in the market so if you can get your act trees to create a bit of a pitch deck explaining to the act trees that are helping the pension funds to one buy bitcoin and to buy through your exchange because you've got the security you know you've got all this risk management in place um you might then see your volume uh you know exponentially grow so it's it's interesting i'm i'm what you're acting on myself is the optimistic act tree you know focusing on how do we increase revenue uh whereas i think you're some of the other act trees might come in from a pessimist view and say how do we reduce expenses um but joe those i don't know what what what what are your thoughts on those ideas do you think they they're good do you think they're bad i like them you know um uh we actually done we especially when i was at the first round group at ramish and bank we actually spent a lot of time on on some of those things and we were actually trying to solve the case internally to to launch a bitcoin uh exchange to start off with and we actually did those models and they were very very attractive but um you know that the challenge is that there's so much more than just uh you know the revenue model over here that's that's involved it's becoming better but there were so many misconceptions about what cryptocurrency was what bitcoin was what it stood for whether it was illegal or not what the regulatory framework was etc so i think in time we should certainly do all of those things that you've just talked about um i suppose it's just the timing that's going to be important to see when that is no look and i mean coming coming like i you know i touched on that about you know maybe consulting with a stable coin person you're launching on your fund but has has vela ever thought of making its own coin you know we're one rand equals one vela um idea like have you played with that idea or what what is your opinion of stable coins you're you're you're probing very deeply now so so no that's that's a good question and then the answer is definitely yes um i think stable coins have their role but uh sometimes if they haven't been thought up thought about too deeply then they remain not very useful and so i think for us for example a stable coin would be very helpful if it would assist with the transfer of value of rands between exchanges and not only in South Africa but internationally as well um uh to facilitate you know say arbitrage trading for example or just just more convenience you know because oftentimes the banking system just takes too long with the transfer of rands yes so we've certainly thought about that it's definitely uh very but this way it's definitely on our radar okay because i mean this this is the thing i i like stable coins and i like thinking about you know that their design you know do you keep them purely stable or do you put in a little bit of you know they grow with inflation all these things but one stable coin that i just i don't know i just have a bad feeling about them is is tether so i'm i'm just curious to hear what is what is your opinion of of tether i mean they're in the news quite a lot you know with with the new york uh attorney generals for doing you know all their their weird and wonderful things um what what are your thoughts of tether does it make you nervous or do you think people are making a fuss about nothing um regarding regarding their coin i think it's very difficult to tell you know i think tether is one of the oldest stable coins that's been out there and um has facilitated a lot of the dollar trading through their through their uh you know USDT coin um the thing is this though there were i think there is reason there's a reason why a lot of people have been skeptical is because you know for a long time um it's not that difficult to put out an audit report to say listen this is how much tether is in existence and this is how much we have in our reserves and that was proving to be a difficult thing to come by and so when people say well listen it's it's not that difficult to do why aren't you doing it are you do you really have them fully in reserve or not and then there was you know news that a large amount of that money was actually held by other institutions etc so so am i worried about it i think uh you know i i don't have enough information as to say you know what the reality of the situation is even right now with all the public information that has come out um i would suggest that if anybody's actually dealing with them and with with or has tether that you you you make sure you understand the risks because um effectively the value of tether is really tied to the fact that it is backed by ransom uh by sorry by by dollars in in a bank account somewhere and that's backed back to one to one now you know even the terms and conditions of tether have changed dramatically on their websites since over the last few years about it being redeemable that being backed one to one it being backed by a basket of assets etc so it's changed over time and so it's unclear to me actually don't even know what the latest is right now but um are there risks to that absolutely um am i worried that it would disentangle so to speak uh is a chance of that non-zero definitely it's non-zero and if it does happen would it affect the cryptocurrency markets absolutely i think you would because i actually think from from some stats i looked at recently the tether pairing has the highest um uh volume traded even higher than a bitcoin pair yes so so it's really actually it's it plays a very big role in the current cryptocurrency system but is it the achilles heel no you know will cryptocurrencies survive without it absolutely will there be some some short-term turmoil if something happens definitely but i'm not too concerned about it in the long run and then i mean maybe yo i guess they they might be similar to tether in the sense that they might also have a bit of like a stable stable coin mindset but what is your your feeling about facebook's coin and do you think there's going to be a lot more of these corporate coins like i see walmart also thinking about it i mean for me it makes sense if google made it you know especially since i make revenue on youtube and i spend sometimes money on google ads you know it would make sense to just use a coin to to facilitate those those actions but yeah what what are your thoughts about corporate coins and and this facebook thing that's going to be coming out uh yeah soon because we need a whole a whole another episode to that but let me try to try to see if i can i can make it concise so i think it's a fascinating concept first of all um it's unclear to me why facebook is using a cryptocurrency apart from its clear marketing appeal to the public you know cryptocurrency is sexy at the moment so if you come out with your own cryptocurrency it's it's something to think about rather than oh we've come out with our own you know a reward point which sounds very very different um or or you know our own internal currency that you can use on our platform but you know facebook uh across their platforms has billions of users a huge proportion of humanity yeah and so if they had a coin that was backed as they say libra is you know it's a stable coin which is backed by a basket of currencies as libra is currently planned to be um there is no reason that they couldn't just issue it on their platform without being a cryptocurrency yeah you know they they talk about kind of uh you know having the association behind them which was initially a group of i think 27 different institutions that were effectively going to be the custodians of of this private blockchain but effectively when you have a private blockchain or what's called a permission to blockchain that implies the existence of a permissioner and that permissioner is generally centralized yeah and so it begs the question of why you're having this on a blockchain in the first place it's a bit of an oxymoron a private exactly exactly now facebook has said it's going to be you know migrated to a public blockchain but there's no clarity on what that would even look like which blockchain it would be on etc etc so so i think the thing is right now very few people actually in the world understand the intricacies between all of these different you know the private blockchain and public blockchain what the implications are and you know what's possible with and without them what a migration plan would look like etc and so so that's the first thing the second thing is that facebook is a centralized entity as you would have seen from the press countries like france are already saying that this is not going to fly and we're not going to allow it in our borders now obviously this is a threat in many ways to sovereign currency because if you're a facebook user and you want to send it say on facebook or whatsapp or instagram or whatever it may be then conceivably you could actually just do it to any other user in the world that you should be instantaneous yeah the current financial system doesn't work like that and it's you know it's actually in a pretty appalling state if you to look at our global financial system and so there's a lot of threats to the status quo which is why the us congress and many others have said wait a minute facebook you can't proceed until we're happy with it and why facebook is trying to do a lot of things to appease the public and the regulators particular well it well it just reminds me coming to the governments being worried about there's that quote i don't know if he said it or they you know just they attributed to him later but apparently nathaniel Rothschild famously said that whoever controls the issuance of of money controls the country and yeah i think this is why some governments are worried about facebook because if facebook's the one in control of the the money then governments sovereignty is is challenged a bit so it's a it's an interesting political question as well as i guess financial question that one as well absolutely and actually facebook you know when when posed with that that thinking facebook says well we're not issuing the currency because it's backed by your currency in the reserves right so but then the question is well who can see the transactions and etc etc and in such a case if you're if such a if liba were to take off then conceivably you'd have these big reserves sitting in bank accounts and no movement of them and all the movement would be happening on facebook's ledgers actually understandings people spending habits uh and and quite private information which is also where some of the concerns come in so i think the last point to say about this is that given the fact that facebook is a centralized entity there's a mark zuckerberg behind it there's a board behind it etc that actually they probably won't be able to to to launch it without the blessings of the regulators yeah and if they do things that are against the law then guess what they go to jail now that's very different to bitcoin right you can't put the head of bitcoin in jail because there is no head of bitcoin you can't but you know you can't kill the the servers of bitcoin because it's a decentralized network yes and so i have a lot of doubts as to whether libra will ever even get off the ground at all that's alone or how it will be adopted so obviously i could be wrong and who knows but i think probably if i had to put a net against it i would say odds are against it getting off the ground but not not to say that that's impossible well i mean this this is the one thing i do like about bitcoin is the fact that we don't know who satoshi is you know we don't know um who's the main influencer of it um it's the one problem i guess i have with litecoin is that even though charlie lee is trying to distance himself and work from afar he still is tied very closely to the coin and it's one thing bitcoin i think no other coin i don't know maybe maybe i'm taking a i'm being you know too presumptuous here but i don't think in the future we're gonna get another situation where a cryptocurrency like bitcoin comes along that is doesn't have you know a champion saying hey this is what i made this is why we should use it i think bitcoin has got that unique competitive advantage that the that the other coins don't have but i think i'm i'm looking at the time and i know we we've gone over the hour so i want to maybe end with with one lost question um and that i guess comes down to to bitcoin and and vala and the question is as follows is that some people that i've spoken to they feel that bitcoin is nothing more than a bit of space on a decentralized ledger and that when the holders of the coin figure this out they're going to lose interest and that they're just going to sell um so my my question is is there a concern that the hype for bitcoin might drop and should exchanges like vala actively try to generate hype or keep the momentum going so that you can continue to see the volumes and collect their trading fees um what are your thoughts on that statement about bitcoin and the role that exchanges should should play in it so i would say to an individual that says that bitcoin is just some taking up some digital space on a decentralized ledger and wait until you find out or wait until the world finds out i would say well hey buddy i don't know if you know but your current money that you call it is currently some digital space that's taking over some digital you know ones and zeros that's taking some space on a centralized ledger that isn't backed by anything so wait until the world finds out about that so so um so really i think there is such a misconception of what money is yes and people don't realize that actually money is more of a social concept yes and it's more of a societal and a psychological concept than it is a financial one or even a monetary one to be honest uh well monitoring obviously this monetary but but the reason i say that is that money has changed throughout history its form has changed you know and it has always moved towards what is the most frictionless form of money so in my mind there is no doubt that cryptocurrencies are the next generation of the form of money the society will be dealing with now whether it's bitcoin or ethereum or slibra for that matter or whatever else it may be i can't tell you but if if if you think that bitcoin is going to crash because it's some space on a decentralized ledger then i think somebody should probably do some more research about the current financial system okay that's the first well then the second point is well then maybe let me let me change the second part of my question and from instead of generating hype should the exchanges therefore be involved in actively educating the population about money is that like a responsibility that you should be doing so so i i i don't know if it's like a like it's an ethical responsibility that you have to educate people about money as an exchange because sometimes people just want an exchange to do its job which is to exchange you know one asset for another but we at valor certainly feel that we want to educate the public and actually not just about the new world but about the old world and the old financial system that we're still in by the way so um so and just to to actually address your your previous question i definitely don't think exchanges should involve themselves in any way in hyping up coins okay i actually think that's unethical because then people that don't really know where to look hear about this coin that's going up in price or whatever it may be then they go and buy and then any any hype that's not based on any solid foundation is going to pop yes and then you get innocent bystanders or not bystanders but innocent people that are actually were bystanders but are actually coming to partake in the activity who get burned the most so i think we have a huge responsibility to to to be uh to uphold the highest levels of integrity because it's such a new space and there's so little knowledge about it so do we want to educate absolutely do we want to hype things up no we just want to take things in stride make sure people understand this new technology are there risks to it absolutely but we feel very confident this is the next kind of financial paradigm to which the whole world is moving okay perfect no look thank you thank you so much and and like i say i mean i could i could check for for absolute ages about this and what you've been saying has really been stimulating so i just want to say thank you so much for taking the time uh for being part of this being part of this podcast