DBS Digital Exchange, one of Asia’s first bank-backed cryptocurrency exchanges, last month reported an 80% year-over-year increase in bitcoin trading volume in 2022. The exchange, known as DDEx, said the bitcoins it holds in custody have doubled and the ether tokens in its custody are up 60%.
DDEx declined to elaborate on what this meant in terms of trading fees or the actual amount of Bitcoin and Ether in custody. The exchange said its customer base had doubled to 1,200.
In an email interview with Forkast’s Pradipta Mukherjee, DDEx chief executive Lionel Lim said investors are no longer blindly chasing yields after crypto exchanges and lending platforms collapsed last year. Instead, they are looking for secure, regulated platforms to access the cryptocurrency market, and DDEx has been a beneficiary.
The following questions and answers have been edited for clarity and length.
Pradipta Mukherjee: DDEx reported an 80% increase in Bitcoin trading volume. How do you intend to use this?
Lionel Lim: We remain focused on providing a secure and reliable gateway for investors who believe in the long-term potential of digital assets. We have observed that investor sentiment has shifted toward confidence and stability following the scandals that rocked the digital asset industry over the past year. The blind hunt for returns is over. Investors are now looking for safe havens, preferring trusted, regulated platforms to access the market. DBS was a beneficiary of this broader security flight.
Mucherjee: What is your goal for 2023?
Lim: We believe 2023 must be the year for the digital asset industry to rebuild trust and confidence, and regulated, bank-backed exchanges like DDEx are playing an important role in this process. Growing our business is important, but we will continue to do so in a prudent and measured manner.
At the same time, we strive to explore innovations that increase the value we offer our customers. For example, the self-directed cryptocurrency trading feature launched last September via the DBS-Digibank app. It provides access to DDEx’s trading solutions and today more than 90% of DBS wealth clients’ trades are executed digitally.
We are also very interested in adding more coins to trade on DDEx, focusing on coins based on Layer 1 blockchains or those with clear and distinctive use cases. Last October, we brought Polkadot and Cardano to DDEx, bringing the total number of cryptocurrencies available for spot trading to six — in addition to Bitcoin, Ether, Bitcoin Cash, and XRP.
To be clear, we’re in no hurry to bring back as many coins as we can. We wouldn’t be too interested in vanity coins.
Regarding Security Token Offerings (STO), we have seen strong interest from our corporate clients, but unfortunately, macro conditions have not been conducive to launch them in 2022. We will continue to explore origination opportunities for high quality STO listings in 2023. [An STO is a token on the blockchain that represents a stake in a real-world regulated asset, which can include equities or bonds.]
DDEx will not chase trends, especially when they pose an outsized risk to our customers. We stayed away from yield farming when almost every other exchange was offering it at the height of cryptomania in 2021. We received brickbats for not being progressive, but we were very clear that customers were at high risk that they might not have been fully aware of. The events of 2022 have shown us that we made the right choice for our customers.
Singapore Merlion Park. Image: Envato Elements
Mucherjee: Their customers have doubled to 1,200 registered users in 2022. Why are you switching to DDEx?
Lim: We are backed by DBS, the largest bank in Southeast Asia, allowing us to leverage the capabilities of the DBS Group.
One example is Digital Asset Custody Services. Unlike most other exchanges, DDEx does not hold any of our client assets. These are held separately by DBS Bank using institutional cold wallets. DBS also performs coin purity checks on all digital assets that come into their custody and the bank complies with all applicable anti-money laundering (AML) and know-your-customer (KYC) standards. These offer DDEx a clear competitive advantage.
Mucherjee: Are you in talks with the Monetary Authority of Singapore (MAS) and looking for clarity on when DDEx can open to retailers?
Lim: We focus on serving corporate and institutional investors, accredited investors and family offices.
With retail investors, MAS issued a consultation paper last October to gather feedback on proposed regulatory measures to mitigate cryptocurrency risk. We support the move to introduce guard rails such as a thorough risk assessment to better protect retail investors. DBS will align with the proposal and continue to work closely with regulators to create a safe environment for all Singapore clients.
Mucherjee: Many voices in the crypto community industry are saying that more traders will switch to decentralized exchanges. What do you think?
Lim: After FTX, the industry saw significant outflows from centralized to decentralized exchanges. This indicates a shift in customer preferences for self-custody to retain direct ownership of assets. However, the collapse of FTX was not so much a question of custody as the need for any company of this type to have strict governance protocols.
Centralized exchanges will continue to retain their popularity due to their relative ease of use, but we anticipate a change in how centralized exchanges work and a move towards the introduction of bank-grade infrastructure and risk management.
One obvious low-hanging fruit is the clear separation between custody and trading assets. DDEx already has such safeguards built in, and we engage other stakeholders and regulators to share our experiences and best practices.
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