Author: Wu said blockchain

This article is an interview with Bybit CEO Ben Zhou during Singapore 2049. Wu said that he has been paying attention to Bybit for a long time, from the initial Bybit relying on product experience and no KYC to surpass BitMEX, to the crazy full expansion and bear market contraction and layoffs, and now focusing back on professional derivatives and spot, once ranked second. Bybit CEO Ben elaborated on this mental journey in detail and responded to many questions frankly, including the reasons for the transformation, the current strategy, how to view the rise of TON, how to deal with US regulation, and what is Bybit's corporate culture. Ben joked that he is currently the only founder of a large exchange who can speak out and accept interviews.

It should be noted that this article reflects the views of the interviewees and does not represent the views of Wu Shuo. Readers are requested to strictly abide by local laws and regulations.

Ben introduces his personal experience and the origin of Bybit

Colin: How about you start by briefly introducing your experience?

Ben: I went to New Zealand when I was very young, at the age of 11, and finished high school there, and then went to the United States to attend university. After graduation, I worked in New York for a year for a Fortune 500 company, and was later sent back to Suzhou Industrial Park to be in charge of an industrial project involving aerospace and factory management. But after a year, I felt that this job was not very interesting, and wanted to try something new, so I came into contact with foreign exchange.

At that time, through a classmate in Japan, I entered a small foreign exchange company that had just started. At that time, the company was very small and had just started a business. I became their fifth or sixth employee and worked there for seven or eight years. That was the golden age of China's foreign exchange market. Many middle-class people were interested in trading foreign exchange, gold, euros and dollars, and foreign exchange margin trading was very popular in China. But in 2015, with the tightening of policies, foreign exchange trading was restricted. I felt that this industry could not continue, so I started looking for new opportunities.

In 2016, digital currencies began to rise, and the craze in 2017 brought me into the industry. At that time, I experienced multiple CEXs as a trader, but BitMEX and OKX often crashed, especially when the market was volatile. I felt that the market needed a better derivatives trading platform, so I decided to do it myself and started Bybit based on my previous derivatives experience.

In fact, among several CEXs founders, I am the only one who actually has experience in retail exchanges, which gives us a great advantage. At first, we brought traffic through KOL promotion and developed derivatives business. But in 2021, we realized that although the derivatives products were good and the user feedback was good, the conversion rate was too low. There may be only 5 out of 100 cryptocurrency users who do derivatives, so we decided to expand our business and start spot trading. We poached the Huobi team and launched fiat currency and spot trading.

Now, our main way to attract new users is no longer to rely on agents or KOLs, but through cooperation with communities and projects, such as the cooperation with TON. Our strategy is different from others. We are more like a provider of infrastructure, and the protagonist is usually the project. We are very open, as long as the project has users, we are willing to cooperate. For example, we are the first exchange to cooperate with Circle USDC, and we also cooperate with Copper and Fireblocks. In contrast, Binance has its own ecosystem, such as BNB, so it is limited in cooperating with other projects.

I think it is this strategic contrast that has gradually allowed us to gain a foothold in the market. Our route has always been clear: we are the ones who pave the way, not the protagonists who create exciting nightlife in the city. We bring customers to the project parties, and it is up to them to decide how the project parties will develop. In the future, we will continue to maintain this open and cooperative attitude, and continue to promote cooperation with project parties and KOLs so as to develop together.

Colin: As I understand it, Bybit actually has several important stages in its development. The first stage was when you turned BitMEX around with a better product experience, especially when they were facing regulatory issues. The second stage was during the last bull market, when you gradually expanded from an exchange that originally focused on derivatives to a fully developed trading platform. You made a lot of adjustments in this process. The third stage is the recent bull market, in which you were obviously very successful. For example, in terms of capturing spot transactions, you have fast speed and many listings, and at the same time, you have better brand advantages than some small companies.

Ben: So we are not just simply listing, but focusing more on cooperating with top projects, and these projects also recognize our brand.

Colin: It sounds like you guys have a good middle position. Like OKX and Binance, they have more proprietary businesses, such as their own platform coins and stablecoins. Bybit also had a platform coin plan before, but later turned to the public chain. What are your considerations on the strategy of not doing platform coins?

Ben: I think it’s a question of energy and ability. Being a project owner and being an exchange owner are two completely different paths. You can’t have your cake and eat it too, so we chose to focus on the core business of the exchange. In the previous bull markets, many people said that exchanges should have their own ecosystems, such as the ecosystems of Binance, Huobi, and OKX. This ecological effect is indeed very strong, and new users can be quickly attracted through the flywheel effect.

But we were slow to start a platform coin, and by the time we started thinking about it, the effect had already started to wane. And we found that the effort required to surpass the existing ecosystem was far beyond our capabilities. So we decided not to build our own ecosystem, but to integrate into other mature ecosystems, such as TON and Solana. We felt that instead of building our own ecosystem, it would be better to become a part of these ecosystems, serve as their cooperative exchange, and support their development.

Colin: This strategy may be one of the important reasons for your success in the recent bull market, especially in spot trading.

Ben: Yes, during this bull market, the trading volume of spot trading has been ranked second for a period of time.

Understanding of TON Ecosystem and Tokens: The Effect Will Be Weakened

Colin: It sounds like you guys are paying a lot of attention to TON. Were you also one of the first to invest in their OTC? In addition, how many new users did TON tokens bring?

Ben: Actually, we were not the first to invest. We participated in the last round, which was about half a year ago when they did another round of financing. When we first contacted TON, they had not found a suitable development path. Although they have a huge user base, how to convert these users into ecological users has always been a problem. I think they have only recently found some effective ways, such as attracting users through gamification and combining token rewards.

Colin: A new assembly line has been formed between TON and CEX.

Ben：Yes, many people are imitating this model now. The success of TON has indeed made many people want to follow suit. However, this model has also begun to be abused. The Hamster token we plan to launch recently is a similar example. Some of the next token projects may need to be considered carefully, because some projects may just attract the same group of users to keep tossing.

Colin: Does your data show that the effect of attracting new customers is beginning to weaken?

Ben: Actually, not yet. A certain token has attracted millions of registered users, and there are about 400,000 to 500,000 users who have deposited funds.

Colin: Where do these new users mainly come from?

Ben: Mainly from Eastern Europe, Africa, South Asia, Nigeria, India, and some European cities. About three or four major European countries are also the source of this wave of growth. We expect that the next one may be Hamster. However, I personally think that the new user attraction effect of Hamster may begin to decrease, and the new user attraction effect of the next wave of token projects will also become weaker and weaker.

Colin: Yes, this kind of gameplay does require innovation. We can’t always rely on the same method to attract users.

Ben: Yes, they have found a way to attract a large number of users in the short term, but this method will not work forever. Therefore, we must continue to innovate in the industry to continue to attract and maintain user activity.

How to compete with Binance: Return to specialization

Colin: You are now thinking a lot about how to compete with Binance and OKX, and are there even some ways or paths for Bybit to do better than them?

Ben：Well, we haven't paid much attention to market share since the beginning of this year. We are now more focused on optimizing our products. I think at this stage, it is important to make our products the best. I focus more on seeing where our products can be optimized and what details can be polished. I think the core advantages of centralized exchanges in the future will be reflected in liquidity and product professionalism. With the increase in compliance requirements around the world, many countries either ask exchanges to withdraw or require leverage reduction, which means that high-quality customers may gradually disappear. If you can get a local license, you may only be able to operate in certain regional markets, such as Europe or Turkey.

Ben: Globally, the ones who can follow you are actually the institutional clients who can flexibly adjust their trading methods, such as going to BVI (British Virgin Islands) or Seychelles, or those senior users. These users can find ways to adapt to the new compliance environment. But not everyone can keep up with the compliance changes, so we focus on improving our professionalism. We launched UTA (Unified Trading Account), a system that allows various margins to be managed more efficiently. We think this is an important development direction.

Colin: As compliance is promoted, fewer and fewer retail investors from all over the world will enter offshore exchanges. However, those high-net-worth trading users will always find ways to trade, such as holding multiple passports.

Ben: Yes, that's true. They may have other ways to continue trading.

Colin: So, after the full expansion of the last bull market, are you now returning to a more professional stage?

Ben: Yes, that's true. We did develop very quickly during the last bull market, but some things on the system were not perfect enough. Although the appearance looked beautiful, the internal things needed to be optimized. We developed very quickly at that time. Now we have integrated the spot system and returned to a more professional state. Our talent team is the most senior group in the field of financial products. When I was doing spot trading, I didn't let the core team participate. Now the core team has taken over and optimized each system into a high-availability system. I think this is our current advantage, and professionalism will be the key direction of our future development.

Focus on Web3 wallet

Colin: In addition to spot and derivatives, what other areas will you pay more attention to or invest more energy in?

Ben: The first direction, as I just mentioned, is to continue to improve professionalism. The second direction is Web3 on a global scale, which is why other exchanges are laying out in the Web3 field.

Many people misunderstand that Web3 is only for serving non-compliant markets, which I think is wrong. In fact, Web3 is for serving compliant markets, because many users can no longer trade through global centralized exchanges. When a market is merged, the products that centralized exchanges can provide may be limited, and local users' demand for decentralization and Web3 may increase. Through decentralized exchanges (Dex) and wallets, you can still provide services to these users.

In such a market environment, I think Web3 wallets are a key entry point. Our strategy in this field is to play the role of a broker instead of doing everything ourselves. We will cooperate with projects like MetaMask and ultimately rely on traffic to make profits. Although liquidity is shared by everyone in the decentralized field, the advantage of centralized exchanges is that they already have a brand effect. Users may have used your product before, so they may switch to your wallet.

This wallet does not have to be complicated. Simply provide some benefits to users so that they can get more "wool" through you, thereby gradually cultivating user loyalty, and eventually users will think your wallet is not bad. We mainly cultivate this kind of user mentality.

Internal Culture: Fast!

Colin: I am also interested in Bybit's internal culture. For example, when you laid off employees before, the letter you sent was very touching. It was a rare layoff in the crypto industry that was handled very well. In contrast, many companies' layoffs were a mess. Bybit gave generous severance pay and received praise from employees. But on the other hand, this year you also had a lot of adjustments to executives and middle-level managers, which sparked widespread discussion. What are your thoughts and ideas on internal management? Some people mentioned that you may have a more moderate overall management style because of your Western educational background, especially having lived in New Zealand. Everyone thinks New Zealanders are more friendly, which may lead to your overall management style being more moderate.

Ben: Yes, we do want to maintain a relatively humane management style. I think in this industry, you may not see each other until you look up or down. Many employees may go to our partners or even some competitors after leaving. Therefore, we don’t want to make it too ugly when we break up. In fact, many employees even returned to Bybit after leaving, whether it was because of our layoffs or they chose to leave on their own. I think this culture of mutual respect is very important, especially in a relatively small circle in an industry. Everyone will always meet again in the future, and it is very necessary to maintain a good relationship.

Ben: As for my core management philosophy, I think the most important thing is execution and speed. Often, the problem is that some employees may not be able to keep up with our pace, some employees may not be able to roll, or their speed cannot keep up with the development of the company. So we always emphasize the ability to iterate quickly. I am sometimes surprised by the reaction of colleagues from other exchanges to our speed. They think that our internal work speed is very fast.

We have a very high staff efficiency ratio, with only about 1,600 people. Compared with the top exchanges, our number of employees is relatively small. This means that we have to iterate our products quickly. Although this rapid advancement sometimes leads to the problem of incomplete products, I think in this industry, if you move too slowly, the opportunity cost will be very high. By the time you want to make everything perfect, others may have already done it, and you have lost the opportunity. So I have always believed that the most important thing in this industry is to execute quickly, rather than waiting until everything is perfect before taking action. This is our choice and our management approach.

Dealing with US regulation: Even employees with US green cards are not allowed to have

Colin: Many exchanges are now facing regulatory pressure from the United States. Will Bybit face this kind of pressure?

Ben: If I say no, no one will believe me. I think all the top five exchanges will be targeted by regulators and investigated. This is normal. When you become big, you will naturally be noticed by regulators in various countries. Bybit's strategy is different from other exchanges. We are very clean in the US market and have never planned to enter the US market. We have 1,600 employees, but not a single American employee, not even a green card holder.

Colin: So you kept your distance from the US market from the beginning?

Ben: Yes, we decided to stay away from the US market from the beginning. We have no US employees and no US business. This is based on the fact that I was educated in the US and I am very familiar with the US regulatory environment. I know that US regulations are very strict and it is difficult to get out once you are targeted, so we have always maintained a strategy of staying away from the US market.

Colin: Yes, this is indeed a big problem, especially as compliance requirements become increasingly stringent, it may be difficult for outsiders to gain a foothold in the US market.

Ben: That's right. For other countries, it's relatively easy. You can hire locals to take care of compliance matters. For example, in Indonesia or Europe, Chinese and American companies can operate well. But in the United States, especially when you are at the top, it is difficult to avoid being associated with political factors. I think the risks of the US market are too great and it is not worth touching.

Ben: I have also observed that the expansion speed of OKX and Binance has slowed down significantly recently, which is largely due to the regulatory pressure from the United States. In contrast, our strategy makes us safer in this regard.

Recognition of regulatory continuity in Dubai

Colin: You decided to move your headquarters to Dubai rather than somewhere else. What made you decide to do that?

Ben: The reason for moving to Dubai was mainly that in discussions with regulators, we felt that we needed a place that really welcomed this industry, rather than treating us as "guilty" from the beginning. The feeling we got from Dubai or the entire UAE was that they saw the crypto industry as an opportunity. They realize that oil may not last forever, and they want to attract more fintech and cutting-edge technologies. Therefore, they are very welcoming to us from the government to various departments, and have provided substantial policy support. This is completely different from the situation in some other regions. Dubai not only gives support, but also provides convenient measures such as visas to make you feel welcome. Therefore, we decided to set up our headquarters in Dubai.

Colin: There is a view that as offshore exchanges grow, they will inevitably give up some markets or gray areas, and then small exchanges will have the opportunity to rise. Do you think this kind of compliance arbitrage law still exists now?

Ben: The pattern still exists! And it’s a great opportunity for emerging exchanges. We gave up some markets, such as Germany, because we started to implement KYC, which was equivalent to giving up some markets. Exchanges that were a little slower or more relaxed on KYC had an advantage. I think you will see a bloody reality this year, and the top three exchanges will inevitably withdraw from the European market, especially in the derivatives field.

Europe is one of the largest markets at present, but with the increasing regulatory pressure, many exchanges will have to reduce their business scope and can only do something like discount business after obtaining the license. And those exchanges that are not restricted by regulation may not get the MiCA license, which gives them a breathing space.

Colin: You would choose to get a license, right?

Ben: Yes, we will definitely get a license, because we want to develop in the European market for a long time. We cannot give up Europe, although some small exchanges may get some opportunities under lax supervision in the short term. But for the exchanges that are open, at least they cannot be too aggressive and must maintain certain regulations.

Colin: Indeed, for regulators, no matter whether you are transparent or not, they can always find out what you are doing. The regulatory pressure will only become more and more challenging for this industry.

Ben: Yes, compliance will become an increasing challenge. Well, that’s all for today. Thank you for your time.

Colin: Thank you.