Tianyu Yang and Mike

Mike Kayamori AMA: Entrepreneurship And Japanese Crypto Regulation

May 1, 2020

Today, we hosted an AMA with Liquid exchange CEO, Mike Kayamori. The AMA took place in our official WeChat group. It was hosted by TEAMZ CEO Tianyu Yang.

Mike is Co-Founder and CEO of Liquid Group which provides trading, exchange, and next generation financial services powered by blockchain technology. Mike has over 20 years of experience in investments, business management, IT and venture capital across Japan, the United States, India and Southeast Asia at SoftBank Group, Globespan Capital Partners and Mitsubishi Corporation. Mike holds a Bachelor of Law from the University of Tokyo and an MBA from Harvard Business School.

Below are the questions and answers to the AMA.

Entrepreneur Story

Tian: Japan doesn’t have as many as startups as other places. We don’t usually see senior managers in big traditional Japanese corporations, such as Softbank and Mitsubishi, would give up what he got so far and start a new business.
What made you step into blockchain & crypto currency industry and establish Quoine in 2014? Can you share some interesting stories happened during the process of entrepreneurship?

Mike: In 2010, I was in Silicon Valley when the first wave of Bitcoin happened.
Bitcoin was the internet of money. Bitcoin was the digital cash. Bitcoin was the future of finance.
Bitcoin was going to change the world. I was fascinated.

I should’ve bought it then but there was no established exchange to buy bitcoin. Fastforward to 2013 and I was the SVP of Softbank in charge of Asia and India. The second wave of Bitcoin happened when the price of bitcoin passed $1000. At the same time, Softbank was pushing global mobile internet.

Because I was in charge of India, lots of people there did not have a bank account but had a smartphone.

With a smartphone and digital currency, that was financial inclusion.
That was the day I was convinced that this would be my lifetime passion and co-founded Quoine/Liquid.

Since then it has been an amazing journey.
We will be celebrating our 6 year anniversary soon.

It has also been a roller coaster.

I have seen many exchanges come and go but we have been able to succeed.

Tian: 2017 is a milestone for Japanese crypto currency space. Japanese opening market environment attracted a lot of people. TEAMZ was also found in 2017. I remember, all of a sudden there came a crypto currency boom. Quoine is the first exchange licensed by FSA.
How did you managed to be the first one? And how did Quoine change its strategy after being licensed?

Mike: It took about 1.5 years to prepare and get a license.
It was a big challenge.
We even had to move our headquarters from Singapore to Japan.

We had to change our product offering, strengthen our back office, compliance, risk, internal audit, etc.

These functions are called the 2nd line of defense, 3rd line of defence.

Naturally, we had to become a regulated financial institution in Japan with all the necessary financial requirements.

This was a huge challenge to a lot of startups, not only ourselves.

It is not for everyone and you see offshore exchanges take an unregulated approach.

But we do not believe that a non-regulated exchange is a sustainable business, hence we have decided to be a pro-regulatory exchange from Day 1.

We were the first to offer fiat and crypto exchange.

Tian: Quoine has been performing pretty well since 2017, with a trading volume up to 7.2 Trillion yen since 2019 August. At the same time, Singapore and Vietnam office are also going on. What made Quoine from a start-up to be the “Next Unicorn”?

Mike: Yes, I think it was because we were always customer centric.

We made products and features that people wanted.

Being able to provide fiat and crypto exchange was big as well. And finally our company was international from day 1, with a mixture of Japanese, and international employees.
we have a large developer base in Vietnam.

Tian: Right now, Liquid official website is named by “Liquid by Quoine.” Community may still don’t understand the relationship between Quoine and Liquid. Can you please explain that?

Mike: Yes, we started out as Quoine in 2014.
But it is actually very difficult to pronounce. Also, we knew the crypto industry did not have liquidity outside of bitcoin.
Hence we rebranded our service to Liquid.

However, we found out that it was difficult to get trademarks for Liquid, hence we now go by Liquid by Quoine.

But I hope the community will just look at us as Liquid.

And I heard from a Chinese friend that Liquid can mean get rich fast in Chinese.

More About Liquid

Tian: Global market, we can say that America and Japan are two most strict countries with respect to regulation, especially for licensed exchanges. As a licensed Japanese exchange CEO, what do you think of government’s regulation policy? Does it benefit this industry or constrain its development? Would you mind providing some advices for exchanges that plan to acquire license from FSA?

Mike: It is both a benefit and a constraint. The benefit is that first and foremost, the regulation brought clarity and transparency.
Also, Japan is the 3rd largest economy in the world and one of the most conservative.

Having a license in Japan requires Liquid to have all the best practices to operate a safe and secure exchange to protect our users.

And we bring the best practices to our global business.

We also have a custody license in Japan, which is one of the most trusted countries in the world. This brings safety and security to our users. And we are applying a license in Japan and the US.

But this comes with challenges as you have a lot of compliance cost. And we can not aggressively launch new products.

But it is ok. We believe our users prefer a safe and secure and regulated exchange.

My recommendation to people outside is that it is extremely difficult to get a license in Japan. But more difficult to maintain it.

Tian: As one of few Japanese exchange that is actively expanding oversea market. Liquid is an advanced International exchange. We also feel it’s profession when working with Liquid team. Is it because of the Japanese strict regulation which made Liquid enter oversea markets? How does Liquid successfully extend the International market?

Mike: Yes but we were global first.
We started in Singapore in 2014.

But since our Japanese userbase was strong and active, we made a conscious decision to move into Japan. And our management team is hybrid. It is important to be local but also global. And it has it pros and cons.

We believe having the right balance of international and Japan is good.

Tian: It’s kind of difficult to access information on Japanese exchanges. Information channels are very limited. Seems that Japanese exchanges have little intention to go to the world. I think most of audience we have tonight are concerned with how to list project, how to do IEO, and how much is the listing fee? Can you talk about how to list on Japanese exchanges?
Steps, cost, time, and other things that need to be aware of.

Mike: Yes, first in foremost you will need to work with a local Japanese exchange. Everything in Japan is consensus driven. It is not black or white.
There is clarity but you have to read between the lines.

Listing of tokens, launching derivatives, everything.

Japanese exchanges will work with the regulators and official crypto associations to whitelist tokens.

Until recently, there was no new token listings for over 1yr.

But things are changing, and Japanese customers are eager to buy in tokens.

But it will take time as each token will need to be approved by the regulator/crypto association.

One thing is also clear, currently in Japan, you can not list stablecoins, gambling coins, etc.

It is not easy but the regulator makes it difficult to see which one is real and which one is scam.

It is to protect the end user.

Tian: It seems that the competition among Japanese licensed exchanges is not as intense as the oversea competition. What’s your thought on the competition among Japanese top exchanges? Compared to Bitflyer, Coincheck and GMO, what are Liquid’s advantages and disadvantages?

Mike: We are all in this together. There are more than 150 FX service providers in Japan…maybe 200.
There are only 22 crypto exchange in Japan.

Crypto market is still nascent and we need to educate the user, the policy makers, and authorities.
So we work together.

However, don’t get me wrong. The competition is fierce.
I think Japan is the only market that does not charge any fees for spot trading.
It is very competitive.

Our advantage is the deep liquidity and professional trading tools.

Our disadvantage is that even though I am Japanese, to the Japanese users, we look very foreign. 🙂

But it is also a good thing as we look different from other local Japanese exchanges.

Tian: Covid-19 has affected Japanese economy and society a lot. Compared to last year this time, did Liquid’s trading volume changed over the past 4 months? What’s your thought on this pandemic affecting Japanese economy and society? What kind of companies you think can service after the pandemic? What kind of companies can be unicorns?

Mike: We had one of the best months this March. This is because there was enormous volatility in the market.

However, when there is a global coronavirus pandemic and recession, no industry is immune.

After the initial volatility, things have slowed down.

I believe the crypto industry must be prepared for a potential slowdown as well.

Many companies will not make it but the ones who make it through will be stronger.

Tian: What expectations you have for Japanese crypto currency industry in the future?

Mike: Japan was the first country to regulate crypto currency trading (spot).
And this was 2017.

Japan is now the first country to regulate crypto derivatives.
This is significant.

At the same time it is a challenge for exchange like us to comply with new and additional regulation.

And Japan will always lead the crypto industry from a regulatory perspective.
And most importantly Japanese retail traders are very active.
probably similar to Chinese and Korean traders.

So Japan will continue to be active from retail trading.
However, looking at real world blockchain adoption, I think it will happen outside of Japan.

Especially in countries like China, US, and even Russia.

Tian: How do you see Liquid in the future?

Mike: Our mission is to provide financial services to all.

We believe with mobile and digital currencies, the opportunities to bring crypto to the masses is here.
Financial inclusion is now possible.
there will be bumps and bruises but the golden age of crypto/blockchain is coming.

And Liquid would be a key part of that.

We see ourselves loved and used by everyone in the world.
And full compliant in every country we operate in.

Message to Chinese Community

Tian: Thank you very much for joining ChainTalk AMA tonight. Last, what’s your takeaway message for our Chinese community?

Mike: Yes, first and foremost, thank you for this opportunity.
I really am honoured.

And as I said above, the golden age of crypto is around the corner.

What I would like is to open up our services to the Chinese community.

As you know, China and Japan is very close.
Also the relationship is much better and important while the US-China relationship is becoming fragile.

I would love an opportunity for the Chinese community to sign up and try our service.

We might not have the best Chinese translation and I know Chinese people probably prefer a Chinese exchange, but I think you should try us out.

During our 6 years, we have never had a hack.

We are safe and we are regulated.

And most important, we welcome you with open arms.

We are safe and secure.

please try out liquid at
www.liquid.com

Thank you so much.

Attendees Q&A session

Q. Dear Kayamori Sang @Mike Kayamori : This’ Mr. Jin Liu, Chairman of ABCMint (Algorithm, Blockchain, Cryptography & Mathematics International Foundation) of Switerland, Great job you have done! thanks! Well! Do you Japanese crypto guys talk anything about quantum computer? and the near future impact of quantum threat against all the cryptocurrency? and Do you know any Japanese policy upon quantum-proof in the short future? @Mike Kayamori Especially do you know anything about the Post Quantum Crytography project of NIST (National Insitute of Science & Technology of the States) which will totally influence the whole crypto industry in near future?

Mike: My knowledge of quantum computing is probably average.
If it works (again 10 years or 50 years or 100 years), it might change how PoW works.


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Next week we will have a new guest. Can you guess?

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