Xiao Huizong, Chief Revenue Officer of XREX: On what basis does the exchange judge the risk of FTX? Should there be a public warning?

This article is reproduced from XREX co-founder and CEO Winston Hsiao Facebook

In the past few days, I have received a lot of messages from friends. Some people have no savings, and some people have lost the down payment for buying a house accumulated over the years. These people who lost their money in the FTX storm are scattered all over the world. They have been involved in cryptocurrency for almost ten years. FTX A catastrophe of this magnitude is truly unheard of. Yesterday, the co-founder and CEO of XREX sent a Facebook post, explaining XREX’s actions since September, detailing the reasons for XREX’s judgment and internal risk control mechanism, and listed ten points in the article Both industry players and investors should pay close attention to the key risks. Why? Because this is an action where XREX directly shares its own risk control knowledge assets and warns at critical moments.

Read: Huang Yaowen, CEO of XREX: FTX bankruptcy follow-up effects and due preparations

The post sparked controversy on both sides. I also received some criticism, and some critical voices attacked us, saying: "I noticed something was wrong as early as the end of August, why didn't I tell the world?", "As long as there is such a message in the future, everyone should be warned.", " In hindsight, did you really notice it before?" To be honest, we have warned some partners in advance that we did not take credit for these funds, and we will not shout loudly, because we know how sensitive the cryptocurrency industry is. , Operating an exchange is really like walking on eggshells. In September, some people who received our message thought we were talking nonsense, but XREX's consistent principle is that we would rather misjudge than take risks. This time, we did judge correctly, but no one knows how many false alarms we have had, but we always plan for the worst. We are really trembling, and we are also very afraid that we are wrong. Even many times I hope that I am wrong, because in this way there will be no disaster like today.

I know that everyone is very emotional now, but please calm down and think about the explosions of the past few days, where did the initial panic come from, and why at this moment, I hope that XREX will send some sensitive emotions at all times, Immediately detonate the message of panic run? In all fairness, XREX did detect the risk of FTX and took action because of its own internal risk control mechanism, but we did not expect this situation at all. We are as unbelievable as everyone else about the thrilling events that followed. We are withdrawing However, we still continue to optimize and implement our risk control mechanism when every change occurs, and continue to plan for the worst. Wayne also directly disclosed ten things that we are also monitoring and judging in the post. risk.

Although the scale of XREX is small, we have always adhered to the principle of not alarmist, and hope that other industry partners will work together. This industry needs more and bigger participants. What we can do is not to be a policeman blowing whistles everywhere, nor a picket team who keeps pointing fingers at others. What we can do is to tell everyone how XREX itself is doing. What is our judgment standard? Why do we do this? What key factors are we looking at next? These are not only useful because of the FTX crisis, but so that we can all go together for a long time in the future.

Friends around me, as long as they are in constant contact or I know that they are using FTX, they must have received my express and hints, but every time I speak, I will definitely say: "After all, FTX is such an excellent and leading transaction So, you can judge for yourself." Although XREX activated the risk control mechanism without hesitation, we really did not expect that FTX would not be able to survive even one day from the start of the public opinion frying pan.

I want to echo here again what Wayne said in his Facebook post that the "warning signs" are subtle at first. Although XREX has a professional risk control team to monitor various data and market turmoil, in fact, what really triggers our sensitive nerves is often the information that everyone can read, or the abnormalities experienced by all exchanges. Many times people choose to ignore, or do not continue to study the possible storm behind a small news. Here, I would like to provide a few clearer time points and events. According to the time sequence and the situation at that time, I hope it can give you some reference, and it may also become the direction of building a risk control mechanism in the future.

[FTX all currency uniform interest rates cause doubts]

Our interest in FTX began when several of our users reported that FTX offers "simultaneous" interest rates for all currencies, and suggested that we work in this direction. Our team first researched FTX Pro's capital lending interest, and found that it is very different from FTX, and FTX Pro's capital rates for different currencies are also different. This represents the source of interest provided by FTX, not the lending from FTX Pro.

We have tried to think about other possibilities, and finally we think that it is impossible to do it according to common sense, at least XREX itself can’t do it. All currencies are aligned and have a very attractive high interest rate. We can’t even think about it come out. It is still possible if it is high interest rate but only limited to stable currency, or a combination but low interest rate. However, the combination of high interest rates, automatic compound interest, no lock-up, and no limit for all currencies is no longer a matter of risk, but the platform will definitely suffer huge losses, making it difficult to continue in the end.

We will launch such a product. From our point of view, if we want to acquire customers, it is at most just an initial strategy, or we just want to accelerate growth and sell the company. Blockfolio used this model before, sold to FTX and changed its name to the current FTX platform. Another purpose is to really absorb user deposits. However, FTX is the second largest exchange in the world. Is our speculation reasonable? This is the voice in our own heart at that time.

It is hard for us to believe that at the height of FTX, it will be necessary to continue this method of customer acquisition after the acquisition of Blockfolio, but not for customer acquisition, there is only another reasonable explanation, but this is even more puzzling, because FTX is so big and It is still in its heyday, and there should be no shortage of funds, unless the actual gap is so large that even FTX must fall into the spiral of post-funding and pre-funding. We can’t believe it, and even doubt ourselves, but we can’t rule out this hypothesis. After all, we all know that the FTX Group is one of the hardest hit by the Terra Luna crash. In addition, there have been many news before that FTX will buy Voyager at all costs. The reason behind this is the fear of public disclosure of funding loopholes. So far, XREX has activated risk control. In addition to controlling the proportion of operations in FTX, it also keeps an eye on all news about FTX.

[FTX Pro experienced transaction delay and API disconnection]

At the end of August, XREX's internal and external quantification teams reported on the transactions deployed in FTX Pro at the same time, and the abnormalities of transaction delays, API disconnections and order cancellations continued to occur, and the frequency became more and more obvious. more frequently.

Such incidents make us highly vigilant, and it is a serious fatal injury to the reputation of an exchange. There is no reason for a world-leading exchange like FTX to bet on its leading reputation for petty profits, unless it is the worst situation Under the assumption. If even FTX needs to do this, the reasons and pressure behind it must be so great that they have to do it.

At that time, we did not rule out coincidences and technical problems, and we have not lost trust in FTX, but XREX’s risk control principle is that hypothetical problems cannot be ruled out, and we must be prepared for them, so we tighten the screws even more tight.

【XREX completely withdraws funds from FTX】

On September 9th, the quantitative team once again informed that the frequency of the previously reported problems became more frequent. At this time, XREX has decided to withdraw all funds placed in FTX, which also means that our hedging, post-sale and some The mechanisms of arbitrage at FTX must be stopped immediately. Making such a decision, XREX has a risk, that is, XREX's income-based products, which can guarantee users' monthly fixed income ratio, will be affected immediately.

At this time, I called Wayne, who was still in Silicon Valley at the time, and told him our decision. He also exchanged market whispers he heard in the United States, insinuating that a large exchange was about to go wrong, but no one wanted to say Which one is it. As soon as I heard it, I immediately notified the team to start the divestment at a speed of 100 meters.

Not only was that sleepless night mentioned in Wayne's post, it was also the first day that XREX and FTX Pro were disconnected.

At that time, both of us felt very heavy, because we knew that if something happened to FTX, which we have been paying attention to, it would be a disaster for the industry, and the industry would be seriously unbalanced without an exchange like FTX. We don't want our speculation to come true, and we even always hope that we misjudged it and made a false alarm.

[FTX suddenly cut interest rates]

On September 26, FTX suddenly lowered the interest rate and stopped the simultaneous interest rate of all currencies. On that day, many cryptocurrency groups had a bunch of people scolding and urging a large number of withdrawals. At that time, I felt a little relieved. The mentality of users blindly pursuing high interest rates and ignoring risks has always been something I am very taboo and worried about.

While worrying about the risks of FTX, I also feel worthless for FTX because of the incitement to leave the platform because of FTX lowering interest rates. Isn’t this the core reason why many exchanges have to raise interest rates at all risks? XREX has also been criticized by many potential users in the past due to interest rate issues. We can see that, excluding the unhealthy interest rate structure, FTX’s entire wallet design is actually very simple and novice-friendly. It is also an industry example that we will use as a reference as an exchange, and it is a learning object for XREX to develop new products and new interfaces. .

Shortly after detonating user protests, FTX suddenly changed back to the original interest rate structure, and officially declared that this was a mistake. At this point, we can almost be sure that FTX has to quickly change back to the original unhealthy method because of the large number of withdrawals by users. This means that they really have a huge loophole, and even the withdrawal of users of this scale can put pressure on them He did not hesitate to choose to continue to lose blood.

At this time, we issued a warning again, and issued a warning to the community XREX club operators on the XREX platform, asking them to actively pay attention to their club members and remind them of risks.

[All coins are rising together, and the world's positions are exploding]

On October 26th, tens of thousands of coins went up and the world exploded. The data we saw once again confused us, because FTX alone accounted for 73% of the total amount of global liquidation. In the absence of decoupling, this means that FTX's user behavior is opposite to everyone's. Whether this is caused by the behavior of a few super-big investors and everyone else, or the user group of FTX is different from other exchanges around the world, we will not go into details here.

So far, we have confirmed that there will be a big problem, but we really have no way to predict its scale and method. FTX still had great support and confidence at that time. For exchange operators like XREX, what we can do is to continue to adhere to our own risk control principles, and indirectly express our concerns to provide our users and relatives and friends around us.

After that, everyone saw the liquidity crisis of FTX, the resignation of FTX founder SBF, the bankruptcy of FTX, and the hacking of FTX...

[I am afraid that the world will not be chaotic, or after the fact? 】

Unfortunately, we have no way to publicly inform us of hypothetical speculation during the internal risk assessment phase. But when such signs of risk emerge again, will we do so? I think what we hope is that all cryptocurrency operators and exchanges can detect such risks as we do, because everyone is willing to take different risks and judges differently. What if XREX was wrong this time? Will we go from being accused of being an afterthought to being accused of fear of chaos?

In fact, we have publicly raised our concerns on another major issue in the past. During the process, not only did different voices appear, but even attracted dissuasion from XREX investors, and the result was indeed a false alarm.

To be honest, even if it is a false alarm at present, we all think that our worries have not happened yet, which does not mean that we are relieved, so this matter is still in our risk control system, and we continue to monitor and deploy appropriate actions .

Since that incident, XREX has also made better use of our XREX Clubs (XREX Clubs) feature, through every club operator that has passed our audit, because of the trust built over a long period of time, news and information are passed on to our users . In Taiwan, I believe the users in Jack Club are the ones who feel the most. Since September, he has tried his best to give advice to his XREX club group. Needless to say, he was attacked and questioned in the middle, but last week he told us that he saved many people’s funds, and his XREX In the club group, many users have expressed a lot of thanks to him, which makes us very pleased.

Of course, the scale of XREX and the XREX club is still relatively small, which also makes us reflect that we should strengthen the community function of the XREX club, train more excellent club operators, and educate and protect users.

[FTX bankruptcy came too fast and suddenly]

The bankruptcy of FTX this time is a comprehensive disaster. I have entered the cryptocurrency circle since 2013. I have experienced many similar incidents. I even stepped on mine twice and almost lost confidence. During XREX, we pay special attention to risks and these subtle signals, and we also continue to learn from our mistakes.

Every seemingly doomsday tends to pass in a flash, and the vigilance left behind can easily be forgotten by everyone in the next bull market. I can only say that this industry is still immature, but it is hard not to be fascinated by the changes and innovations it has created while creating so many opportunities. Everyone may wish to think about how many institutions in the world belong to the first and second in the list of the hardest-hit households in the FTX bankruptcy. Even they cannot ignore and avoid such risks, which represents the characteristics of this industry, at least at this stage. People love to hate.

This isn't the first time and it won't be the last, if you make it out of this incident, other than congratulations, don't forget that we were all just flying low, and so was XREX, because I believe a week ago, No one could have imagined that the collapse would explode so quickly and on such a scale. Even though XREX started to operate in early September, two months to be honest, compared with this industry and most people, it seems to be very early. In fact, in any industry, there is such a large-scale disaster. Two months in advance is simply too short.

If you have suffered losses or even huge losses in this incident, please don’t lose yourself because of this. Most of the early predecessors on the stage have experienced these things like you, including myself. Some of them suddenly disappeared and no longer participated in any activities, but most of us, no matter what poisonous vows we made at the time, often understood and accepted the real reason for our failure after precipitation, and then used a more mature attitude Find new opportunities again.

As a person who joined the currency circle in 2013, stepped on two big thunders and traps of different sizes, once ran an early exchange in Taiwan but was hacked, and is still actively involved in the cryptocurrency industry, I run the XREX exchange. In other words, what I want to say is that blockchain technology will continue to bring great changes to the world, and I hope to see this happen and be a participant and contributor in it.

I also hope that you who continue to move forward with us can join us to see the arrival of that day with reason, self-discipline, risk control, principles and beliefs.

This article is reproduced from XREX co-founder and CEO Winston Hsiao Facebook

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