ValueWalk’s interview with Adam Todd the CEO of Digitex Futures. In this interview, Adam discusses his and his company’s background, how he got into cryptocurrencies, his views on how to buy and sell bitcoin, offering 100x leverage on cryptos, and how he would like to remove the KYC regulation.
Interview with Digitex Futures CEO Adam Todd
Can you tell us about your background?
I started out as a pit trader in the open outcry pits of the London International Financial Futures & Options Exchange (LIFFE). It was a frenetic and highly aggressive environment full of young foul-mouthed men. I learned quickly that to be successful trading futures, you didn’t need to know anything about the underlying financial instrument you were trading; you just needed to get disciplined in your trading strategy and learn when to buy and sell it.
I pursued an aggressive strategy known as scalping, which aims to build up small profits over a long time. Scalpers hold their positions for a very short time, sometimes just minutes or even seconds before selling and taking advantage of very small price fluctuations. The bane of my life with this type of buy and sell trading was always commission fees. Many days that should have been profitable ones ended up as losing days after paying fees.
After four years, I decided to leave that stressful environment and took some time off to go traveling. I crossed the continents and took all kinds of jobs imaginable, even working as a deckhand. But I always had this dream in my head of being able to trade futures without trading commissions.
I discovered Betfair (a peer-to-peer betting exchange) in 2002 and started trading horse bets. I had no idea about horses or racing but the mechanisms of it looked just like the futures markets to me. All the bets that were willing to be laid and all the bets that were trying to back were just like bids and offers, so I started selling bets instead of futures contracts--while I was traveling in South Africa.
I used Betfair to trade and travel the world from internet cafes, carving out my longest winning streak of 240 days! I really liked Betfair but it was lacking a decent trading interface, so I decided to build one for it. I borrowed the futures markets ladder trading interface, got myself a programmer and we launched the ladder trading API in 2004--and it’s still going strong today!
I discovered Ethereum in 2015/2016 and with that, turned all my focus to creating Digitex Futures.
When did you start Digitex Futures and what does it do?
I think I always had the idea for Digitex Futures, ever since my trading days in the pit, but it wasn’t until I discovered Ethereum that the wheels really started turning in my mind. The ability to create your own token meant that we could create a trading ecosystem that removed commission fees for traders if they traded in that token.
I realized that we could switch the revenue model from one of fee charging to token issuance. This would mean that short-term traders like myself would be able to finally make a living out of scalping and disciplined trading without losing fees to the house. I wasn’t sure how my idea would go down at first, but I set about writing the white paper and figuring out all the details in my mind. The more people I put it in front of, the bigger and better the response it got, so I kept going.
In January 2018, we held our ICO and it sold out in just 17 minutes! I couldn’t believe it, but it was clear from that moment on that demand for commission free trading was enormous. As well as removing the commission fees, Digitex will also provide traders with non-custodial accounts. This means that traders will not have to trust the exchange with their money and they won’t have to pay fees.
We’ve had our ups and downs during development of the exchange. It is a world first idea and it’s not easy being a pioneer, but we’re now on track with one of the smartest development teams in the Ethereum ecosystem and we’re set for launch very soon. Digitex will shake up the way people trade cryptocurrencies in both derivative and spot markets and of course, they’ll be using a one-click trading ladder interface that was so successful with Betfair!
When did you begin to buy and sell cryptocurrencies?
I heard about Bitcoin back in around 2014, and I thought it sounded like an interesting idea, but it wasn't until I found out about Ethereum in 2015/2016 that it really opened my eyes. I remember thinking that it was like the missing piece of the internet.
It opens up worlds of possibilities, there is just so much that can be done with Ethereum. Being able to mint your own token has made my whole dream of creating a commission-free trading environment possible.
What is your view on bitcoin?
Bitcoin is absolutely game-changing. I think that it will change the way that people interact with each other for good. It will (and already has) allow many people to find financial freedom and level the playing field financially for generations to come. That said, there are other cryptocurrencies that I think overshadow Bitcoin, and the main one is Ethereum. There are more Dapps on Ethereum than any other platform, it has the biggest developer community, all the smartest people in the blockchain ecosystem are always the Ethereum devs. I think that the price of ETH is going to sky-rocket soon, it’s just so low right now, once the scaling solutions are decided upon, the sky's the limit for Ethereum.
How do you value a new currency or asset like bitcoin - how do you decide if you want to hold buy and sell?
As I mentioned before, to be a successful trader, you really don’t have to know anything about the underlying asset; you just have to be very clued up on market trends. It really depends on what type of trader you are. If you’re a position trader, you’ll study the market and take a long or short position over a long time period, so you’ll hold until a certain date maybe a long time in the future.
If you’re a short-term trader like me, you’ll be glued to the computer and get ready to buy and sell, buy and sell on the smallest of fluctuations. The type of trader you are is really as unique as your personality and there are all types in this market.
You offer 100x leverage to buy and sell cryptos can you tell us about that?
That means that a trader can amplify his or her position by 100 times. This gives them the chance to greatly magnify profits and trade with funds that they don’t have (they borrow off the exchange), but of course if they make the wrong call, 100x leverage can get them in trouble pretty quickly and they run the risk of getting their positions liquidated.
The crypto markets are already highly volatile so adding leverage increases the risk but also ups the reward potential. We don’t recommend leverage for novice traders, but every trader has to get rekt a few times before they can really call themselves a trader.
Don't you think it's dangerous for individual investors to use that much leverage?
I think I answered that above. We don’t recommend novice traders using 100 x leverage. Yes, it can be dangerous for them and also a risk vector for the exchange. This is why we have an insurance fund in place and a mechanism for penalizing those highly leveraged traders that get blown out in volatile markets.
Any restrictions on who can take that much leverage?
The trader must keep their maintenance margin topped up (their initial deposit)
What types of cryptos do you allow users to buy and sell?
We will be launching with just one market to start with, the BTCUSD perpetual swap contract. We will then be adding ETH and LTC, and other markets as we see fit and as demand rises.
You have formulated a token, which features economics that allow them to be "zero fee", can you explain?
Zero fees are made possible using the DGTX exchange token as the native currency of the exchange. As a utility token, all account balances are denominated in DGTX and all trading profits and losses are settled in it. This therefore creates a constant demand for DGTX tokens as the lifeblood and passport to the exchange and commission-free markets.
Instead of siphoning liquidity out of the pool constantly in the form of commission fees and penalizing short-term high-frequency traders, we cover the operational costs of running the exchange through token issuance. That is, minting a small number of new tokens each year from 2022. How many to mint and when is voted on by the Digitex community.
There will likely be a small inflationary effect on the DGTX price but this will be offset by thousands of traders who are attracted to zero trading fees and who will start buying DGTX tokens. Moreover, by utilizing decentralized governance by blockchain it is the DGTX token owners themselves who are in control of that inflation cost and will gladly absorb it to continue funding commission-free trading into the future.
Are you SEC, SIPC or FINRA registered?
No. We are registered in the Seychelles just like BitMEX. We are not available to U.S citizens, they may not use our platform and we will be staying abreast of regulatory changes as they come. We have all the necessary KYC in place to operate in our key jurisdictions. We also have a provably fair matching engine. This is actually better than being regulated in my opinion and something that I think we will see more exchanges implementing.
Instead of opening up your order book to the regulators, you are essentially opening it up to blockchain technology that is constantly and randomly checking it to ensure its integrity. Our order book will be transparent and public for anyone to see on the blockchain. Our exchange won’t be able to get involved in any shady practices and market manipulation such as front-running, last look and queue jumping. This is a massive advantage to traders who know they are not being traded against, like on BitMEX and it will encourage more people to use our platform.
I honestly think that right now, not enough regulators really understand the technology, and when they start to realize that exchanges can self regulate with this type of mechanism, they will see the benefits.
Removing KYC! No, seriously, I am not a fan of regulation because I don’t think they are getting it right. The U.S. is stifling innovation and sending a ton of money offshore. Other countries are also trying to play Big Brother and decide who can and can’t use this permissionless technology. Adding regulation is totally missing the point. I firmly believe that we should be looking back to the technology and not to the regulators. Making order books transparent using blockchain technology is better than being regulated by some draconian association. It’s also cheaper and much more efficient.
A lot happens in a short space of time in this industry. We’ve come a very long way since the wild west days and I just think that this whole thing is going to keep growing despite regulation. Digitex is launching just at the right time as futures and crypto derivatives markets are on a tear around the world and we’re going to be offering zero fees and non-custodial accounts. Watch out, we’re about to unleash the beast!