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Running a crypto business is no easy job. And running a crypto exchange might seem like an impossible job to do.

Founded in 2019 in Singapore, Phemex has been operating as a crypto derivatives exchange. The platform rose to the “top 10 global exchanges in less than two years, with a daily peak trading volume of more than $12 billion.” Cointelegraph talked to Jack Tao, founder and CEO of Phemex, about the difficulties and risks of running a crypto exchange and where he plans to take Phemex next.

Tell us about the story behind the exchange and what it was like to launch a trading platform during the crypto winter?

The story behind Phemex is one that seeks to provide solutions to the many issues I witnessed in traditional finance. When I initially discovered crypto, I was really excited because it seemed to be a way that would allow me to address the inefficiencies traditional finance has.

One technology solution, in particular, is blockchain. Because it offers many possibilities, my initial motivation was just to try it out and learn more. This led me to setting up a few modest mining operations and experimenting with various exchanges and trading platforms.

My first venture into cryptocurrency ended in significant losses. Despite the enormous promise that cryptos presented, I realized the sector still had a long way to go. The exchange I was using at the time had a lot of technical issues, which resulted in frequent outages and hacks. There were no standards in place, and there was little trust. To fix this, I sought to discover a solution by combining my financial and technological expertise gained on Wall Street.

The end result is Phemex, a powerful and efficient platform that, despite its partial Wall Street background, is dedicated to assisting everyone, not just a select few, in achieving financial independence. Phemex is great because it leverages traditional finance standards and tools while remaining true to cryptocurrency's values of financial freedom and self-empowerment.

How does a decade-long experience at Morgan Stanley help you manage your company?

Before co-founding Phemex, I held the position of global development VP of Electronic Trading (MSET) Benchmark Execution Strategies (BXS) at Morgan Stanley. My experience in finance gave me the fundamental skills and insights that made it possible to launch Phemex.

Because I had over ten years of experience building high throughput, low latency, large-scale algorithmic trading platforms, I was able to pinpoint the primary problems that faced the TradeFi sector. Because I could recognize the problems, all I needed to do was find the solutions, which was to build Phemex as one of the most reliable cryptocurrency and derivatives platforms.

I'm proud to say that Phemex has grown exponentially since its launch, and we now offer a variety of crypto spot markets and derivative contracts with up to 100x leverage. We've risen to the top 10 global exchanges in less than two years, with a daily peak trading volume of more than $12 billion.

What are the most difficult aspects of operating a crypto exchange? Does location play any role in it?

Operating a cryptocurrency exchange is not an easy task. Major challenges include safety and security concerns to make sure we are providing the most trustworthy and safe platform to our users. System and user account security are one of our highest priorities, and we have designed and implemented a Hierarchical Deterministic Cold Wallet System, which assigns separate cold wallet deposit addresses to each user.

All the deposits on Phemex are periodically gathered in the company’s multisignature cold wallet via offline signature. Based on our sophisticated Wall Street risk control experience, we are able to detect any malicious actions and quickly act to protect our users’ assets and the platform. Qualified withdrawal requests are also processed via offline signature, thereby, all assets remain 100% stored in a cold wallet system with all operations conducted offline.

With regards to location, choosing where to operate a cryptocurrency exchange is not so different from choosing where to operate a normal business. The considerations are actually quite simple: you want a good business and supportive policy environment, a growing economy, a city or cluster with talent that is innovative and entrepreneurial, as well as other business-friendly regulations and compliance structures.

Singapore is one place that matches these criteria. Singapore has emerged as a major cryptocurrency hub in Southeast Asia. Singapore not only has a strong financial sector and geopolitical position, but the city has also created a crypto-enabling environment, which has been essential to Phemex’s growth in such a short time. We are rapidly expanding our team in Singapore, and I’m excited to see what the future holds. 

How does doing this business in 2022 differ from doing it in 2019?

The cryptocurrency and blockchain business has definitely changed from 2019 to 2022. I’ll give you a few examples.

In 2019, the crypto market cap ended the year under $200 billion. Right now, the market cap is at $1.6 trillion, and at one point in 2021, it reached $3 trillion. So the difference in this regard is quite obvious. There’s more attention to the industry, there’s more investor interest, both retail and institutional, and there’s greater adoption. So doing business in this environment now where there’s more demand than before has been very beneficial. 

Another difference now compared to 2019 is the actual cryptocurrencies on the market. An interesting exercise I’d recommend any curious reader do is keep a yearly tab on the top 50 cryptos from whatever base year and compare it to the next. It’ll feel like comparing different technology epochs. 

But despite the rapid changes in the industry, we at Phemex will continue to move forward, and we will continue to launch new products and give our investors access to the best cryptocurrencies on the market.

“Many businesses claim to embody the ideals of crypto and blockchain, but the reality is that they’ve simply implemented the same old models, driven by profits and self-interest, to a new space. Our slogan, “Break Through, Break Free” – what do you mean by this statement?

After working in traditional finance for over a decade, I became disillusioned by the many limitations and injustices I witnessed. The industry is plagued by unreasonable fees and inefficient systems. In various ways, these all serve to favor the wealthy and suppress the underprivileged. This is why I said that many businesses today only imply the basic principles of crypto and blockchain. However, many of these businesses merely apply the same old profit-driven and self-interested endeavors to their own business models.

Our slogan, "Break Through, Break Free," encapsulates our company's principles and objectives. Phemex has everything a person needs to break into a better system where true financial autonomy is not only encouraged but embedded into the system's core. We believe that any individual can have the power to change their own lives and choose their own reality.

What’s next for Phemex? What should your community and users expect in 2022?

From a basic new currency to facilitating decentralized transactions to reconstructing practically the whole traditional financial system on-chain, we've come a long way. We will recreate and invent any imaginable service or process in the next phase, not only financial ones.

I'm also enthusiastic about some of the recent patterns I've seen. Specifically, the metaverse and nonfungible tokens (NFTs) have sparked my interest. The current surge of NFT collectibles and art, while possibly inflated, nonetheless points to a promising future. We're rethinking what ownership entails, and we're just getting started with new uses for on-chain assets. 

Similarly, the metaverse contains innovative GameFi, play-to-earn, and wealth distribution mechanisms that have the potential to profoundly alter our digital activities. And this is only the tip of the iceberg in terms of what's possible and what lies ahead.

Phemex has aided the growth of the metaverse by listing assets such as AXS, MANA, YGG, SAND, SLP and many more to come. We'll continue to keep a careful eye on this powerful megatrend.