Tech-first, trust-next: OKX’s roadmap for regaining consumer confidence
OKX President Hong Fang spoke with Blockworks at this year’s Permissionless on the challenges her exchange continues to grapple with
OKX President Hong Fang | Mike Lawrence for Blockworks
As the one-year anniversary of FTX’s demise quickly approaches, centralized exchanges continue to fight for a restoration of trust by assuaging customer concerns regarding the legitimacy and purpose of their existence.
They also continue to innovate beyond what has previously been afforded to market participants by ensuring greater transparency around the way in which they conduct their businesses.
At least that’s what’s being promised. To date, no major exchange has yet provided a comprehensive audit of assets held on their platforms, instead opting for a proof-of-reserve model.
That model, according to some, falls short of canvasing the true happenings behind the scenes at some of the industry’s largest players — which argue they’re getting it right by proving their reserves through a verifiable auditing practice.
In light of past events, OKX President Hong Fang spoke with Blockworks at this year’s Permissionless event on the challenges her exchange continues to grapple with and the innovations taking place, hoping to draw customers back.
Blockworks: Talking broadly on the vision of OKX, can you describe that? What’s the vision like and how do you see yourselves moving forward in the next 12 months?
Fang: Ultimately, we all always believe that we are looking at technology. We’re using technology to really empower individuals and give individuals more control and more transparency. I think that’s what we’re here for within crypto and Web3. I think our mission is really to be part of that and really help to build that infrastructure and build toward a different culture that is more trustless.
Blockworks: So how does that align with the crypto industry ethos? And do you think that’s changed over the years?
Fang: I don’t think so. I mean, there are many things that change around us. We always say that crypto is fast, crypto is changing all the time. But I do think that there are constant themes.
And those constant themes are actually what matters to us the most, which is one: technology is something that actually really matters. Two, you have to be able to build things that actually matter for the customer — using technology to actually benefit the customer.
And then three is about really what you do, as a platform, as an individual, ultimately decides who you are. We have been around for almost 10 years now. We have always thought about ourselves as a long-term player.
So every decision that we have made in product and business is related to those focused on technology innovation, really focused on doing what’s right for the customer and focused on building long term.
Blockworks: Can you describe to me some of the largest innovations over a five-year period that OKX is really proud of?
Fang: I think we have made a lot of progress over the last few years. Even over the last year, where there’s a lot of volatility and uncertainty and unpleasantness out there.
I think our team has been able to really focus and build, we put out our proof-of-reserve program. And I think it’s probably the only one of the very few who have been very consistently doing it because we actually automate it, we are not manually doing the proof-of-reserve.
We continue to solicit feedback from the community and upgrade the technology behind it and later add the zkSTARK, to really add the layer of privacy and scalability to that program. We’ve been doing it for 10 months now.
We also have our Web3 wallet. We have been pushing out our wallet and continue to add different features, we added [Multi-party Computation] features to it to make it simple to use without a seed phrase.
We most recently added the account abstraction (AA) capability to it as well. You know, if you ask me, is the AA account really usable right now? It’s probably not to most people, it’s more talking to special core crypto native people, but still, it’s part of the infrastructure that we’re building.
Blockworks: Given that your time in your role as President has been quite limited — nine months — can you highlight any challenges or triumphs that you’ve experienced over that period?
Fang: I think I’ve seen our team really put aside the distractions out there in the market. A similar experience I actually had was when I was at Goldman — when I joined Goldman — that was in 2008.
Obviously, it was not a fun time to join the financial industry because everything was falling apart. But the one piece of advice that I’ve got from my mentor was to really focus on what the customer wants.
When you focus on what customers want and then you actually serve a customer, you forget about those noises and actually keep building and I think that’s what we have been doing at OKX.
Blockworks: You mentioned Goldman Sachs. How has your traditional finance experience shaped your approach to crypto today?
Fang: I’ve learned quite a lot there. But related to how I view crypto, there are a few things that I think really matter. One is from my experience there, I’ve done a lot of stuff at Goldman. I’ve done, M&A, I’ve done spin-off, I’ve done usual IPO follow-up, I’ve done also more special types of capital pull — warrants offering or convertible — all kinds of stuff.
But what really stands out from those activities is, ultimately, you realize that capital markets are actually a distraction, particularly in the short term. The capital markets figure out long term, if there’s a substance below the price and price or just signals.
So I think I’ve learned to just take the price of signals, and no more than that. The signals are useful over a longer period of time. It tells you whether you’re in the right direction or not. But short term it’s very distracting.
And for builders, and even investors, you better focus on what’s actually underlying, whether there’s any substance, whether you are actually working on something that actually makes sense. I think that’s one of the biggest things I’ve learned from my experience there.
The second piece that I think I’ve learned, that’s kind of also why I later chose to work in this industry, is I realized that we are not in the free markets, ultimately, the money is not free.
We went through so many cycles — obviously 2008 was one of the big cycles — and you see a malicious cycle of bailing out and then the market broke down, and then bailing out again, and then the [financial] gap increased over time.
I think the fundamental reason was that money is not free and price signals in the market [are] distorted. So I think we want to be able to fix money — have honest money, have the right price signals in the market, so that we can more effectively allocate resources.
And I think that’s fundamentally what we are doing here. The Web3 industry is hopefully built on that honest money, and then we facilitate collaboration through a trustless system. I think that’s ultimately what will provide more productivity to the society, and that’s how I approach crypto itself as well.
Blockworks: What’s OKX’s approach to crypto regulation? Particularly with everything that’s happening in the US. How is OKX managing this period in crypto?
Fang: We actually believe that regulation is helpful for the industry and we really embrace it. We need more regulatory clarity to provide more ground rules and also prepare for the next stage when more people come in.
So we as a platform, really welcome and embrace that. We have a lot of conversations and productive engagements with various regulators, we have quite a few licenses and applications that [are] either already approved or in process.
We are also committed to building for the US market longer term. I do think that that’s an important market. There’s a lot of spirit of innovation and the spirit of the ethos of crypto and of Web3 is very much in line with US culture.
Blockworks: Given that weekly volumes across centralized exchanges are down to some of the lowest levels in two years, how is OKX managing this landscape?
Fang: From a business perspective, we have always been operating with huge discipline. Cash flow has always been at the top of our minds as we innovate on the product side. So for us, we have always focused on the monthly cash flow scale very responsibly.
If you went back to 12 months ago, or 18 months ago, there were a lot of other players in the market who had chosen a shortcut — they focused on short-term profitability. That turned out to be the wrong decision.
For us, we always focused on the long term and we only operate ourselves as a platform instead of trading against customers taking directional bets, taking on big counterparty risk.
There is a fundamental need for trading as well as for facilitating transactions in the market. So we believe that if we actually develop our products right, the market is always there.
Blockworks: How centralized entities restore trust following the collapse of the FTX and how important is OKX’s role in that endeavor?
Fang: We do see, particularly after FTX’s collapse, a lot more uncertainty in the market, both from the customer perspective, as well as from regulators’ perspective.
From the customer side what we want to do is really to address the underlying gap which is lack of transparency. So what we have really emphasized is really to provide that level of transparency on the centralized exchange with Web3 technology. That’s where we’re our proof of reserve program was started.
It’s important as a way to hold ourselves accountable and is an important way for customers to be able to check. It’s also an important way to remind customers that “hey, look, you should verify. Even if we put out stuff, you should actually try our protocol and try to run it yourself and see if there’s any issue with the program that we have.”
Promoting that sense of personal responsibility is also part of the solution. You cannot just blindly trust any platform, either government or private.
Regulators also ask questions, and I think it’s actually good. Because of FTX’s collapse, regulators are also seeing the most vulnerable parts of the industry at this point. And they naturally ask questions around customer protection around customer funds around trading. So I think those are all the right questions to ask.
I think that will help the industry to build more frameworks on the centralized part. That’s actually important to have that on the centralized exchange part because there is a level of responsibility for those platforms to disclose and follow certain rules on the ground.
This interview has been edited for brevity and clarity.
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