Panel Highlights from Bank of Thailand Fintech Fair 2019 - 

A panel on Decentralized Exchanges, Taxes, and Regulations in the Blockchain Industry

Last month, Kasima, our CTO was invited to the Bank of Thailand Fintech Fair. There, he gave a talk on Plasma, and was on a panel that discussed decentralized exchanges, taxes, and compliance regulations around the blockchain industry.

Kasima was joined by Anthony Lewis of R3, Billy Rennekamp of Tendermint, Sagar Sarbhai of Ripple, and panel moderator Paul Sim from Deloitte

If you’re interested in the full discussion, you can watch the video below. We’ve also transcribed highlights from the event:

Billy: Digitizing and tokenizing assets is the future, but where will the liquidity come from? Am I correct in assuming that projects are trying to address this issue by creating Decentralized Exchanges? If so, what’s so exciting about these DEXs?

Kasima: You’re right, it’s why OmiseGO is building a DEX too. At this point it’s about creating an exchange that can fulfill the needs of the market, as well as cultivate a healthy market structure.

The exciting part is seeing how DEXs have evolved. It initially started by putting all order books online, and so EtherDelta was a thing. Then, we saw tactics like centralizing order matching and then clearing everything at the settlement layer -- which is what was decentralized. 

Now, with user swapping, a DEX basically processes exchanges asynchronously. We’re finally at a place where it’s not just theoretical. But we’re answering questions like what it means to be a market-maker and create liquidity.

Paul: I also want to add that just because an asset is tokenized or listed does not mean it’s liquid -- liquidity comes from buyers and sellers.

Paul: Is it right to believe that private markets will adopt DEXs first because they’re more controllable and customizable? As compared to public markets which are large and chaotic?

Sagar: It comes down to regulations and the fact that we need institutional investors, who only come in once the market is liquid and perceived as ‘safe.’ 

To bridge the gap between safety and liquidity, some markets have come up with passive exchanges. For example, the Thai, Philippines, and the Abu Dhabi Global Market are great examples of markets with a framework of ongoing investments.

Even though the entire premise of blockchain is anti-regulation, being regulated is necessary. Because as more markets get regulated, more businesses invest, which creates more transaction volume, and so on.

Billy: Market making isn’t new, but there are all sorts of rules in traditional finance. So I often wonder how everything can be transferred to a system when money is a primitive in a programming language. What remains public or private? How does a transparent exchange work and can it keep up with transaction speeds?

Kasima: That’s a good point. Privacy and intent-hiding are important when it comes to making markets function. There might be ways to deploy zero-knowledge codes and secret algorithms so market-making remains hidden on-chain.

As for speed, the exchange being asynchronous can solve that problem.

Paul: Plus, a Swiss Digital Stock Exchange Deloitte works with has decided that whatever happens before the trade doesn’t need to be on-chain. 

Kasima: So in simpler terms they take the execution off the blockchain and just put the clearing and settlement on it?

Paul: Yes, people want centralized orders books so they can set bids, split them, or cancel them without having things confirmed on the chain. Once there’s a match, then the blockchain gets involved.

Billy: But that’s how 0X works and we haven’t gotten the response or liquidity we expected?

Kasima: 0X doesn’t exactly play towards the market-maker role, there’s product work that seems to be missing. 

For example it takes money to cancel an order on 0x, and a lot of market-making algorithms involve cancelling orders. Small things like these is what I call product work. In the end it’s all about unlocking the general public’s participation in these services.

Anthony: This conversation was a great way to highlight the differences between a traditional and modern financial ones. In the ‘new’ market more privacy will enable liquidity. In a traditional market, as long as people back the asset and trust it, there will be liquidity. 

Anthony: But when you keep things private, doesn’t that make it a challenge for regulators?

Kasima: We look at regulations like an unblocker, something that will add liquidity to our products. But we don’t make statements about regulations on the technology we’ve built, we put  that on the application-level. We just know that regulatory compliance will bring more usage to our network.

Anthony: Sagar, you’re an expert with regulations, how do you get your point through to so many different countries?

Sagar: Times have changed, nowadays central banks want to keep up with developments and are quite welcoming. Great examples are Bank of Thailand, NAS, Phillipine VSP, all are inviting and love collaboration.

We just have to make sure that we listen to what they’re saying and tailor our products to comply with the regulations.

Paul: Any final thoughts

Sagar: I just wanted to add that if someone believes that there’ll be one blockchain that’s going to rule the world, it’s not going to happen. The need of the hour is how to connect different blockchains using interoperable protocols!

Kasima: I also think it comes down to the kind of thing you want to interoperate. The frontier is how you start interoperating other forms of stake and execution. And even though we haven’t figured it out yet, I know it’s going to be fun.

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