Guest: George Cao (CEO) & Shane Molidor (Business and Development Director)
Note: Here is the transcription of the event. Please note that the transcript was edited for comprehensibility and coherency, while the content was not changed.
George: Thanks for joining my weekly AMA as usual. Today we have a special guest Shane. Shane is the head of BitMax business development department, and we’ll have a joint AMA session today.
Shane: Hey everyone, good to be here. Eager to field some of your questions.
George: Let me brief on what’s happening in the past week and what the plan is going forward. It has been exactly 20 days since we stopped mining. From the data we can see a rough deflation of 2.5 million, meaning that we permanently locked 5 million tokens in the past 20 days and released 2.5 million private sales tokens. Personally, I am very happy with the speed of deflation.
George: We know that the market sentiment is bearish at this moment, but the team is more confident now with the review of data. Here are some projects that we are currently working on:
1) Future contract. This is an important add-on to the services we currently provide to our users.
2) OTC. We are working on the legal contract. Due diligence is finished, and once legal research is done it’ll take another two weeks to go live per current estimate.
3) Re-structuring our trading server
One year after we launched, we’d notice the user’s patterns were different compare with what we had before. We have 150 times more API trading request than website click, which reflects a user shift. We want to redesign our trading engine to adapt to the market.
4) Our anniversary meetup/ conference. We will host our one-year birthday meetup in Beijing on oct 19th.
5) Smart contract upgrade. We are in the process of swapping BTMX smart contract so that we have more transparency on token distribution and max supply.
6) We will soon have a new trading page. I personally like the new design a lot. It’s clean and sleek. The team is working 7/24 as usual.
Statement about DEEP Delisting and Q&A
George: it is really a tough decision for us to make. BitMax has never gave up on any projects in the past. This is the first time that we delisted a project and actually we spent a lot of money and effort on it. To be honest I have been upset about it for a while, but we know that this is the right decision to make. So, here are some statements we would like to make.
1. Prior to the listing of DEEP, BitMax.io was not made aware of any expanded private or presale allocation or onboarding of additional “strategic investors” resulting in an increase of the initial circulating supply of DEEP.
2. Within 24 hours following listing of DEEP, the BitMax.io noted DEEP deposits to BitMax.io wallets in excess of the initial circulating supply that was originally communicated to the BitMax.io team. Only after confronting senior management at DeepCloud AI about the discrepancy regarding circulating supply was the BitMax.io team informed about the expanded private / presale allocation.
3. After communicating concerns about potential market backlash regarding the circulating supply to senior management at DeepCloud AI, BitMax.io utilized principal capital to conduct a $300,000 buy-back program of DEEP. This capital came directly from a segregated account owned by BitMax.io and was distinct from any capital used to provide liquidity of DEEP order books. (read more here: https://BitMaxhelp.zendesk.com/hc/en-us/articles/360031161374-BitMax-io-BTMX-com-to-Initiate-DEEP-Buy-back-Program).
4. 100% of the orders placed by the liquidity provider contracted by DeepCloud AI provided liquidity (i.e., “maker orders”) to the market. Accordingly, the trade activity of the liquidity provider gave both buyers and sellers the opportunity to trade, rather than engaging in any sort of profit-motivated “pumping” or “dumping” of DEEP that could only be accomplished by aggressively removing liquidity with “taker orders.”
5. On information and belief, subsets of the DeepCloud AI private / presale investor base were granted DEEP allocation at a cost basis well below the team’s communicated price of $0.10. Failing to disclose such information to the liquidity provider, in additional to an uncertain circulating supply may have created information asymmetries, resulting in the entity providing patient orders to buy DEEP at inopportune pricing levels to the unknowing benefit of private / presale investors that could then sell at profit.
6. Neither BitMax.io nor its affiliated entities were contracted for any marketing or consultancy services as has been suggested by senior management of DeepCloud AI in public forums. Despite this, BitMax.io committed significant resources to co-branding efforts leading up to and following the public sale of DEEP on July 18, 2019.
Delisting Specific Q&A
Q: There are conflicting reports coming from both the DeepCloud side and your side. But the charts clearly show the same pattern for all smaller cap coins except your own project, UAT. How do you explain that? Are the profits being made from listing projects being funneled into UAT? Also, do you think your legal team is prepared to take on a 5-party lawsuit against BitMax?
George: To answer your questions, you can reach out to project team and ask them about the service we provide. Simple truth is 1) We injected 150k-200k principle capital to help DOS to stabilizing their price. 2) We provided an interest free loan to DUO to help them when other exchanges delist them for no reason. 3) We paid for the marketing from our own pocket to support DUO when they were in trouble 4) UAT is a separate project. All accounts are separate there is absolutely no way to move asset between projects as it’s illegal.
We never broadcast the help we offer to other people as we view every project we list are our long-term partner. But all comes under a condition that transparency and integrity are in place within the team. The decision of delisting DEEP was not because of its price action.
[forwarded message from Max Rye of DeepCloud AI]“Aside from a handful of WeChat posts right before the public sale, BitMax marketing team had no clue what to do, we stepped in to do all marketing ourselves including AMA’s, promotions and other media (even though we paid $200k for marketing/ success fees).”
Is the +/- $200k true? And is the marketing execution indeed as poor as described?
Shane: To restate what George mentioned earlier, neither BitMax.io nor its affiliated entities were contracted for any marketing or consultancy services as has been suggested by senior management of DeepCloud AI in public forums. Despite this, BitMax.io committed significant resources to co-branding efforts leading up to and following the public sale of DEEP on July 18, 2019.
We did indeed discuss marketing collaboration at length with the DeepCloud AI team while determining the scope of our engagement. When it came time for the marketing team from our affiliated entity to engage DeepCloud AI to begin content creation, distribution, etc. the DEEP team changed its stance and asserted that they wanted to outsource all efforts to external agencies. I cannot say for sure what the catalyst was behind their decision to outsource rather than leverage the resources of our affiliated marketing entity.
[forwarded message from Max Rye of DeepCloud AI]“Although the amount we raised was more than we planned, all of it went into the MM fund which we believed would only help. Regardless, BitMax’s MM fund was the recipient of the majority of all funds raised from presale and public sale itself.”
Did all the received funds went into a MM fund owned by BitMax? If not, can you prove this on chain (share the wallet address).
Shane: The DeepCloud AI team allocated ~ $700,000 worth of BTC and USDT to support the trading activity of a contracted Liquidity Specialist. Based on the size of the DEEP team’s communicated private sale, pre-sale, expanded pre-sale, and public sale, this figure seems to be well short of a majority of the funds raised. The DEEP team has full access to the transaction history report from the account they funded with this “Trading Deposit.”
Q: Is it true that it is mandatory for a project to hire your own preferred market maker (with other words; there is no free choice)?
Shane: With respect to listing, part of my job is to encourage projects to leverage the support of external agencies such as marketing firms and Liquidity Specialists to promote success following listing. This approach to listing is not unique to the crypto industry – for example, private companies pursuing an initial public offering (“IPO”) leverage the services of financial institutions as “underwriters” to assist with marketing efforts, issuance, and active liquidity provision following listing on exchanges such as NYSE or Nasdaq.
To clarify, BitMax does not operate a Liquidity Specialist; however, we do have an affiliated entity and trusted third parties that we encourage projects to work with. I am not employed by any Liquidity Specialist, nor do I maintain any discretion over the trading strategies these specialists employ. There are certainly risks associated with working with a Liquidity Specialist, but that risk is ultimately something that projects need to assess on a case by cases basis.
The team may have preferences on Liquidity Specialists based on past performance that we've seen. Accordingly, which service provider a project chooses to work with is one of the many metrics we use to decide whether or not to proceed forward with a listing.
Q: Following the public sale, BitMax used its success fee of $200K along with another $100K from Deep Cloud to do a buyback to appease the frustrated investors. You mentioned that BitMax used their own funds to invest $300k into a buyback of Deep. Is it true that the whole fee for marketing has been used for this?
Shane: The capital used for the $300,000 buy back capital came directly from a segregated account owned by BitMax.io and was distinct from any capital used to provide liquidity of DEEP order books. As mentioned in previous comments, BitMax’s affiliated marketing entity committed significant resources to co-branded efforts and content distribution leading up to and following the public sale of DEEP.
Q: Max, CEO of DEEP said that he tried to contact BitMax to present the unlocking process, but you did not answer and BitMax intentionally dumped, damaging investors.
George: We communicated with DEEP team 24 hours before making the delisting statement. But nobody communicated to us. Pumping and dumping is strictly illegal. 1) we don’t have a single piece of DEEP token. 2) I personally declined free tokens offered by deep team before listing. As I view it as a conflict of interest 3) we have a confidentiality clause in the agreement with deep team that prevent us publish data. I am requesting deep team send us a written consent so that we can publish all related data and conversation with deep team. Transparency is what we believe. As an Exchange we have all data ready and we are keen to make it public. If we just look at the data, almost all the projects Lunar has advised their price went to 0. But can someone claim you or Lunar is destroying projects? Can someone say you are a terrible investor/ advisor? Of course not. In fact, if someone says it I will be the first one to defend you coz at lease from my experience you do want to help projects. We can’t just look at the data we need to find the rationale behind the data and at least get a full picture. And then use our judgement.
Q: So, if we can summarize it: you are saying the article of DEEP is purely one big lie? Let's hope they accept your proposal so stuff can be made public.
Shane: I would encourage the DEEP team to disclose any sort of materials, proposals, contracts, etc. to showcase the agreed upon scope of DEEP's engagement with BitMax. Again, I feel compelled to state that despite conversations / negotiations regarding marketing support — this scope of offering was outright rejected by the DEEP team in the weeks leading up to the public sale. The team stated they felt more comfortable using outside agencies in this capacity, which they are free to pursue.
The "success fee"/"cooperation fee" stipulated in contracts based on BitMax.io facilitation of the public sale remained constant despite the refusal of marketing efforts. We are not shying away from this.
Q: Many projects that have listed with BitMax seem to have issues with price action as the charts display. Deep cloud has clearly opened out to instate their problems they have had with your Market Makers and aggressiveness that has allegedly caused the funds set aside for Market Making to be burned rapidly.
Shane: Exchanges/Trading Platforms like BitMax.io are basically public utilities that facilitate trades. Exchanges are not investment advisors and certainly do not provide guarantees on the future performance of each asset they list. Unless the platform is willing to "pump" the price of assets (which we are not), then the price of each asset listed on the platform is entirely dependent on the appetite of buyers and sellers to interact with one another (i.e., supply and demand) which in theory should be driven by the fundamental value of the asset – of which the exchange has no influence over.
[forwarded message from Max Rye of DeepCloud AI]“If you or your team really were concerned why is it that none of you replied or reached out to myself or my team. As a matter of fact, how did you expect us to rebuild our MM ability after your inhouse MM burned through over a million dollars of funds? What exactly was your plan to support us other exchanges without any funds?”
George: The truth is 1) the mm got 680k cash equivalents from deep. Not 1m 2) the mm was never communicated about the increase of supply and the cost base. There are at least 300k worth more tokens are deep team sold privately without comminuted to the community and mm and us. 3) as a result, how can you expect a mm to perform if they don’t even know the market cap 4) it’s clearly a breach of contract therefor a delist is a must 5) please approve our request to release ALL conversation and data
Q: Why did you not delist when you found out about the extra capital then? Why wait till now?
George: It’s my problem. We had an internal discussion about delisting. But I feel maybe we can “save” the project. So, I made the decision to spend 300k and lots of resource. I will take 100% of the blame.
Shane: There are definitely lessons to be learned from this past week’s experience. BitMax needs to continue developing our initial screening and DD process for all future projects and continue building out a robust platform to attract both institutional and retail players so we can achieve our goals.
Other Business Related
Q: Data Usage Reward Distribution Pool is still decreasing. When are we going to see some trend inversion?
George: Based on the models we have, we will see pool stabilizing in 3-6 month without future trading. Sooner if we have future.
Q: Can you give some numbers of active users and if possible, how we are positioned vs other market participants?
George: Active users we can’t disclose as its confidential. We will have more marketing promotional efforts starting from this month. At least 1 per week.
Q: You say you’re happy with the speed of deflation. But people who have private sale aren't happy at all. This way most of us die before they get their tokens transformed. Also, the price of BTMXP dropped a lot for the same reason so people in private sale or btmxp are rekkt. What is your strategy for this?
George: Like I said I my previous AMA, I care how much money private investor can take home. That’s why team and equity had never sold a single piece of token. We are the only project that never sold anything after one year of listing. Once again we are doing something that nobody has done before. For any decision we make we need to be very careful of the possible consequences. I won’t completely rule out speed up releasing but not in the current stage given the market condition.
Q: any investigation into the root cause on recent extreme BTMX price flash crash when BTC drop from 10k to 8k?
George: Sure, I am happy to share the data. During the time when BTC and other major tokens had a massive drop in price. Many users unfortunately had margin calls and forced liquidation in their account. As a result, we see 80m BTMX tokens being sold in 15 mins. The price had a sharp drop. Although this is the market behavior, we decided to share some of the loss with our users who sold below 0.05. It is not any form of compensation as we didn’t do anything wrong. It’s thank-you gift that we sent to our loyal users.
Shane: I also think it’s worth clarifying that the fundamental goal of a Liquidity Specialist is to promote trading efficiency for an asset. This is facilitated via strategic liquidity provision, which in turn provides other market participants the opportunity to buy and sell with minimal market impact. Because the goal of a Liquidity Specialist is to promote trading efficiency, they exclusively provide liquidity, rather than take liquidity. Accordingly, it is impossible for a rule-abiding Specialist to “pump” or “dump” the price of an asset because their trades do not have market impact or “move the market” as would an aggressive order to take liquidity.
Certainly, there are risks in working with a Liquidity Specialist. Most pressing of these risks is drawdown in Trading Capital throughout the course of liquidity provision. To minimize drawdown, the Specialist tries to balance its obligations to maintain liquid conditions regardless of price with the fact that many traders executing against the Specialist’s liquidity are trying to be on the “winning end” of trades. When there is significant order imbalance coming from aggressive sellers, this is difficult to do and in the worst-case scenarios, a Specialist can have their orders “run over”. This is further exacerbated when there are virtually no "organic buyers" posting liquidity on the order book.
Increased circulating supply with an uncertain cost basis is almost surely to inhibit a Specialist’s ability to manage capital effectively. Am I saying the Specialist did a fantastic job in providing liquidity for DEEP? Absolutely not, and there are certainly lessons that the traders employed by the Specialist will need to learn from the outright client dissatisfaction.
Q: Sometimes there is roughly $3000 BTMX consumption on a single day. The biggest driver right now for permanent lockup are the purchases of multiplier cards, which will decline over time as well, since the distribution pool got a steep decline
George: Market condition changes constantly. As we see Binance volume drop from 5b a day to 700m today. We will see fee and pool increase if the volume increases. At this stage the most important thing is to bring in new users and increase volume. Token economic is not as important as before
Q: Can you elaborate on what operations are you responsible for at BitMax?
Shane: Sure. Overseeing the listing process on BitMax is just one aspect of my job. A majority of what I do relates to the exchange / trading platform itself. I am involved in strategic initiatives such as building of the innovative trading products, design of fee structures, institutional of buy-side and sell-side institutions, etc.
Again, a project can leverage services like marketing and Liquidity Specialists to promote success – but this is by no means a “silver bullet” or a guaranteed catalyst for an asset’s long-term success.
I am not discouraged by negative price action of listings because I recognize the overwhelming bearish sentiment in the marketplace is likely to drag down newly listed altcoins.
Q: Why does BitMax not continue listing coin of other exchange?
Shane: We've got a lot of great projects in the pipeline. I personally think follow-on listings (endorsed and supported by the project) can be highly successful to both BitMax and the project team. I think a good example of this is listing of $ERD following Binance Launchpad. The project saw a dramatic increase in overall marketplace liquidity and spread tightened significantly after listing on BitMax. The activities (such as BitTreasure) also yielded a great response from the community. I think it’s really important to remember that there are other important KPIs for a project aside from price appreciation.
If you have more questions or suggestions, please reach out to me or to the team. Thanks for joining me today everyone. It’s great to chat with you.