(2020.01.22)Bankbit AMA
Isaac Lee, the CEO of Division1 Co., Ltd, who runs Bankbit conducted an public ‘AMA’ (Ask Me Anything) through telegram chat. The following is a summary of the QnAs covered at the AMA.
Q. 1: The site is very intuitive and self explanatory. How does the project provide over 20% annual interest rate and additional profit?
A: Bankbit is currently offering a high interest rate in partnership with a cryptocurrency fund management firm, called Griffin X Capital. Griffin X and Bankbit are affiliated and I am representing the both companies as CEO. Griffin X is a cryptocurrency fund that has been trading high frequency arbitrage since early 2017. (I’ll explain more about Griffin X’s trading strategy in a later question.) As the market changes, we trade by adding new financial products like futures and options. Griffin X’s annual average return (relative to Bitcoin and Tether) is about 60%. Bankbit has a contract in the form of short-term bonds that loans funds to the manager (Griffin X) at a fixed rate, and the manager must deposit certain funds in Bankbit. As it is a loan agreement, the manager is obliged to return the principal and interest.
Q. 2: I’m curious about what blockchain services Bankbit is using for these investment products. Also, what businesses have the Bankbit team been building on before this De-fi product?
A: The bankbit team had worked in multiple industries. To name a few: traditional financial sectors, cryptocurrency exchanges, cryptocurrency funds, domestic and international conglomerates, and thus our team has strong understanding of both the crypto and traditional financial markets as well as IT services. I worked in Blockwater in 2018 as a managing partner and had a great experience working with people from the Bank of Korea, Citibank, Morgan Stanley and more. In 2019, I left Blockwater and opened an exchange called Dflow, but have failed to adapt to its rapid market changes. Since then, we have reviewed various business models and launched the service called Bankbit, taking advantage of the company’s resources and strengths from early on. Dflow is now under preparation to transform into a global De-fi platform as for the same business model with Bankbit. Bankbit was launched by bringing professionals together who worked in various fields such as domestic prop trader from securities firms, global top-tier gaming company, and domestic conglomerates.
Q. 3: I see that Bankbit is a comprehensive digital asset trading platform. I’m curious what triggered the release of the deposit among many other de-fi products.
A: In addition to the deposit products, various products will be introduced soon. We plan to launch products we call it loans, staking, prime, and OTC, and these will be introduced this year. We decided to provide deposit products first because there is no competitor in the domestic market and Griffin X’s outstanding performance is expected to be able to compete in the global market. Upon launching the scheduled services, we are preparing various functions such as intuitive wallet, mobile app, etc. to manage digital assets more convenient. High interest rates are important for business success, but I believe asset safety, Sustainability of profitability, and service accessibility are also important.
Q. 4–1) How are deposit interests raised through partners?
A: Partners borrow from bankbit at fixed rates. Currently, the major fund managing partner is Griffin X, and we are discussing with other global crypto fund management firms. The manager must trade with high-frequency arbitrage and probabilistic arbitrage strategies with loaned funds and be able to make stable daily profits. The trading method of betting on the market direction is very risky and there is currently no agreement with this type of manager.
Griffin X currently has the following strategies:
1. Flagship
-Periodic adjustment of relative overvalued and undervalued asset ratios through probabilistic analysis
-High frequency arbitrage between tokens; Asset changes by every second
-Trading about 100 coins simultaneously and mostly trade in Bithumb, Binance, and Upbit,
2. Pegasus
- Arbitrage trading in spot to future and future to future; If the premium based on probabilistic analysis
is undervalued or overvalued, buy at low and sell at high.
-Maximizing yield by maker-oriented trading on the futures exchange
3. Phoenix
-Kimchi Premium and Counter-premium trading. In case of under or overvalued, buy or sell at Binance and Bithumb
4. Chimera
-Options trading. Establishing a short butterfly in the interval where the probability of occurrence exceeds a certain point. Liquidation after volatility occurs.
Griffin X does not have a strategy for betting on market direction. The market is very difficult to predict, and I think the risk is too great for user assets to be used in market betting strategies. Bankbit therefore operates by reviewing and validating strategies with low volatility and low MDD, and then lending out the user assets to the managers.
We currently offer very high interest rates compared to our competitors, which is one of our strategies for getting services right positioned to the market. However, as more quant traders enter into the cryptocurrency market, and as deposit funds increases, the interest offered is likely to decline gradually.
Q. 4–2: In case the partner had a trading loss, how are my assets and interest guaranteed?
A: In the event of a trading loss, there are two safeguards: 1) Since the manager makes a loss preservation contract, the manager must make up for the loss. Managers must deposit funds in Bankbit as collateral to borrow assets from Bankbit. 2) The Bank organizes a ‘Bankbit Insurance Fund’ in case of possible insolvency, and it is accumulated with 10% of Bankbit’s revenue each month and initially 10BTC are deposited. Bankbit insurance funds will protect user assets and user assets only, in the meantime Bankbit will do our utmost effort to minimize any potential losses.
Q.5: You said that you are making a product that can be used as a means of investment rather than a means of speculation. What is the unique technology of Bankbit in the cryptocurrency market that is not yet established?
Also, Bankbit is currently operating Bitcoin deposit with a 23% annual interest rate product, and that said there will soon be products with other base tokens like Ethereum. What are the coins you plan for next products?
A: I think the difference between speculation and investment is how well we measure and set risk parameters and managerial risks. As the cryptocurrency market and market participants change, I think that the traditional services provided by Bankbit will definitely be highlighted in the market. Bankbit’s business model is similar to Celsius Network in Western countries and Babel Finance in China. As a cryptocurrency banking model, the primary goal is to securely store user assets and provide high yield products. Bankbit’s team is now well aware of the trading landscape in the cryptocurrency market, and quickly launched a retail service. With experience working at cryptocurrency exchange and cryptocurrency fund industries, we have a high level protocol for safe asset storage. Also, Bitcoin, Ethereum, and Tether products will be released in January, with plans to add a variety of stable coins and alts with high market caps.
Q. 6–1: You have disclosed that the Bankbit is operated by Division1 Co., Ltd., and is established and managed by De-fi experts along with its parent company, Exchain Co., Ltd. in Korea. However, the revealed information is very limited except for the location of your office. Is there any reliable public information such as financial statements?
A) Bankbit is located at 501 Teheran-ro, Gangnam, Seoul, Korea. The company was founded with USD50K initial capital and it has been operating with additional funds of USD 600K, injected by founders as temporary receivables in accounting. As you mentioned, we agree that we need to disclose more information to assure customers, and we will start considering disclose our financials after internal discussions. In the meanwhile, sharing you the latest transaction history of our asset manager seems more promising at this point.
Q. 6–2: Bankbit is to launch a tether-based deposit products with annual interest rate of 100% and 23% soon. I’m curious how you could afford to offer 23% annual interest rate with only 2 ~ 4 weeks deposit, but 100% is rather shocking.
A: The tether deposit product with 100% APY is an event product planned for a clear purpose: publicity, and its interest is spent on bankbit’s marketing funds. Also, the fundraising amount is very small, only 10,000 USDT. We plan to provide these exceptional rate products with a limited deposit amount at the time of launching a product with a new base token or for other events. We’ve had a Bitcoin with 100% yield product, and will continuously offer these special event products in the future. Like I said, these are event-driven products, and we may shorten the deposit period for this type of product for your convenience.
Q. 7: You have mentioned “Bankbit has entered into loan agreements with private/institutional lending partners to protect users’ assets. Thus, even if the lenders fall bankruptcy, Bankbit would protect user deposits not only with our in-house Insurance Fund, but also with the lenders’ security assets.” What are the rules and policies regarding investor asset protection? Please also explain the Bankbit Insurance Fund in detail.
A: Bankbit operates its own insurance fund to refund customer assets in case of emergency. Bankbit Insurance Fund currently has 10BTC as initial funding to protect customer assets. As the number of customers and deposits increase in the future, we will continue to increase the size of the fund. To this end, we plan to deposit 10% of the bankbit revenue every month. From the user’s point of view,when considering whether to use the deposit service, the biggest concern arises from the question of whether the principal can be safely returned. The Bankbit Insurance Fund was created to address this pain point, but I realize that the initial amount is below your expectations. If you have any other ideas, please share them with the Bankbit team. We are eager to make progress and improvement at all time.
Q. 8: The high annual interest rate you offer is definitely a plus, but in the same time it is questionable whether you can deliver your promise since major exchanges do not provide such high rate. So, what is your mechanism that allows you such high yield and where are the deposited assets used?
A: Bankbit currently offers the highest annual interest rate in the industry. The reason for our such high yield offering is for initial user acquisition and to get strong recognition in the market. Ultimately, the interest rate for short-term deposits may be gradually lower than the current rates. Nevertheless, it will remain unchanged that Bankbit’s vision is to provide industry-leading rates. Bankbit can promise a higher rate of interest even now, because it has established a cooperative relationship with more stable and profitable asset management firms than our competitors. Bankbit has secured a number of partners that can offer safe and high return over the years. Based on this experience, we plan to continuously operate this proven loan method only with asset managers who has proven record of making average annual profit over 30%. We are constantly researching ways to identify good asset managers with stable profits by collaborating with Griffin X who has substantial experience in the cryptocurrency trading field with members from the financial sector. In addition, the Bankbit Loan (Lending) service, which will be launched within this year, will allow loans to selected partners to secure stable margins for more efficient operation.
Q.9: I think the registration is always simpler the better to insure success of online and mobile platform. How is the bankbit’s registration process?
A: Bankbit carefully reviewed the usability of the platform in detail from the initial planning stage and we focused on minimize and alleviate everything except that corresponds with safety and legislation in the existing cryptocurrency trading environment. Through this, we implemented simple sign-up and deposit process via quick mobile verification. In the future, we plan to make it as compliant as possible depending on how the domestic and international legal environment is being settled.
Q. 10: As for the nature of your business, trust is vital, but even at the homepage or official sns, you don’t disclose any of your team members yet. Are you willing to make improvements to gain trust?
A: I agree and clearly understand the need for it. However, we believe that the success of the platform is prioritizing the number of customers, deposit of customers, and smooth operational environment rather than the history of the team and its qualification. To that end, all members of Bankbit are currently focused on their work in the behind but, every one of our team would like to engage and communicate with customers. As soon as the initial goal we set is achieved and the service is stabilized, our team will be actively meeting the public.
