DEX Transaction Rates No Good for Day Traders, Says Huobi Canada’s Ross Zhang

Ross Zhang, general manager of Huobi Canada, pitched in with thoughts on decentralized exchanges (DEXs) during a panel discussion at the FinTech Canada 2018 conference. Amid all the excitement, he was a person with some sobering words to say.

“A lot of our revenue is based on transaction fees. So, how we view things is from the customer’s perspective. Right now in the market, a lot of speculators are not long-term investors. They will do frequent trades on the platform, and as of today, with decentralized technology, there are three different types of consensus mechanisms. Because the transaction speed for decentralized exchanges is not really good right now, they cannot support the transaction volume that we have as a centralized exchange. That’s why we still see the transaction fee as a thing that will persist for a while,” he said.

A look at transaction volumes on some of the world’s largest DEXs appears to offer evidence in support of Zhang’s statement. Even IDEX, one of the largest and most hyped Ethereum-centric exchanges on the planet, has a volume of just over $2 million per day.

Although day traders favor quick transactions in a volatile market, these platforms are not entirely useless. After all, people looking to buy once and “HODL” would not mind waiting a few more seconds for funds to reach their wallets.

Exchanges and bank relationships

Perhaps one of the most challenging day-to-day aspects of running an exchange is managing relationships with banks to ensure a fiat gateway. Speaking at the conference, Zhang revealed that Huobi mostly relies on partnerships with exchanges that already have established fiat-to-crypto operations.

“I think that there’s a general approach where we’re looking for partnerships and they should be open and innovative [...] and that also applies to the banking partnerships we’re looking for. When we talk with a bank, we want a solid long-term partnership instead of just focusing on current interests… Another thing I want to mention, because we are a large cryptocurrency exchange, fiat-to-crypto is not a big part of the business and we want to work with exchanges that already have fiat-to-crypto on their offering,” he explained.

This particular strategy lightens the burden on Huobi and spares it from dealing with the countless requirements that commercial banks in certain countries may have. By developing international alliances, the exchange may also eventually offer fiat pairs to its customers by using its partners to power the system.

The global Huobi perspective

Being an international exchange can be challenging, but it does come with certain perks attached. Among them, according to Zhang, is considerable experience in protecting cryptocurrency deposits.

“There are lots of opportunities, especially for a global exchange. We have a lot of experience dealing with security issues. We also focus on experience, and in terms of storing users’ crypto assets, we have a lot of signature wallet solutions. We only store a small percentage of a user’s assets in the hot wallet, and we store the majority of them in a cold wallet so that no one can touch them,” Zhang noted.

The existence of exchanges with large trading volumes depends on how they manage their customers’ funds. A single breach will most likely send the entire cryptocurrency world into a frenzy. One that results in an exchange losing millions of dollars in digital assets could be catastrophic on top of being a PR nightmare. Having a cold wallet is a common practice for thwarting attacks, and Huobi takes this a step further by using a system that revolves around its proprietary token.

Asked why he sees a benefit in issuing a Huobi token, Zhang replied:

“It’s a new business model whose impact can bring value to your customers. They can be used to get a discount on transaction fees on our platform. Another use is for the investor protection fund. Because we use our own revenue to buy back the Huobi tokens, and then protect investors, that’s another value.”

In addition to all of this, users secure a sort of “voting right” with their Huobi tokens, getting a say in some things in the Huobi ecosystem, Zhang said.

“And also, if you want to create an OTC desk, you cannot charge any transaction fees, but the Huobi token can be used as a security deposit for the crypto sellers, making them trustworthy to buyers. We can find a lot of use cases for [the Huobi token]. The way we see exchange tokens moving forward is that [...] we’re looking to build our own ecosystem where the value that comes from the exchange token will become the value of the ecosystem,” he added.

Should all of these plans come to fruition, they could trigger a sustained ripple effect, making Huobi a trend-setter in what customers should expect from their exchange of choice.