Interview Transcript with Liquid CEO Mike Kayamori

In this new Global Coin Research podcast episode, Joyce Yang and John Chen interview Mike Kayamori, CEO of Liquid.com.

Mike Kayamori is the co-founder and CEO of Liquid. In April, Liquid announced that it raised capital from investors at a valuation of more than $1 billion, making it one of the few unicorns in the crypto and blockchain space.

As of May, Liquid has more than USD50 billion in transactions over the past 12 months.

Mike brings over 22 years of experience in investments, business management, IT and venture capital across Japan, the United States, India, and Southeast Asia.

Prior to Liquid, Mike was a Senior Vice President at SoftBank Group and Senior Director at Globalspan Capital Partners, a Palo Alto-based venture capital fund with over USD1.2 billion under management.

In our conversation, we spoke to Mike about the founding story of Liquid, the regulatory environment in Japan, and advice he has for new projects looking to enter the Japanese market.

The Global Coin Research Podcast is produced by https://globalcoinresearch.com

Connect with us: ‎@Globalcoinrsrch


Joyce Yang 

Welcome to the Global Coin Research, a podcast where we hear from leading global operators and investors in crypto with their thoughts on the global blockchain and cryptocurrency space. 

John Chen 

This podcast aims to provide context and insights to what’s happening in various parts of the world. We also have a newsletter that highlights all the important crypto news and happenings around the world, with many translated by our staff directly from the local media. Check it out at [globalcoinresearch.com]. 

Joyce Yang 

This is your host, Joyce Yang.

John Chen 

And John Chen. 

Today we are joined by Mike Kayamori. Mike is the co-founder and CEO of Liquid. In April Liquid announced that it raised capital for investors and a valuation for more than 1 million, making it one of the few unicorns in the crypto and blockchain space. As of May, Liquid has more than $50 billion in transactions over the past 12 months. 

Joyce Yang 

Mike brings over 22 years experience in investments, Business Management, IT and Venture Capital across Japan, the United States, India and Southeast Asia. Prior to Liquid Mike was a Senior Vice President at SoftBank Group, and Senior Director at Global Spin Capital Partners, a Palo Alto-based venture capital funds with over $1.2 billion under management. 

John Chen 

In our conversation, we spoke to Mike about the founding story of Liquid, the regulatory environment in Japan, and advice that he has for new projects looking to enter the Japanese market. 

Joyce Yang 

Hi Mike, thank you for coming on the show. Could you please tell our audience a bit about yourself and the history of Liquid? 

Mike Kayamori 

Yes, absolutely. First and foremost, thank you for inviting me. I co-founded Quoine, it’s now the brand is called Liquid. So Liquid is our exchange and our in-service name. So we started in May 2014, we recently had our fifth year anniversary. And it’s interesting because when we started an exchange, that was right when the Mt Gox hack happened, and people were looking around for a safe in a secure exchange. And we thought there was an opportunity for us, an exchange built by people who worked at financial institutions. So that was more than 5 years ago. And the interesting thing is that when we launched our exchange, there was no Ethereum, there was no ERC20, it was only essentially Bitcoin and a few others. So if you were to offer an exchange, it had to be Bitcoin and Fiat. So from Day 1, we worked with banks, we work with regulators because if you were touching fiat, it was important that you have to work with the necessary framework and guidelines that were required by banks to open an account to accept deposit and withdrawals of Fiat from consumers. So that’s where we are, that’s how we’ve grown. And we’ve started out in Singapore, we expanded into Japan, and now we expand globally. We don’t offer services in the US, but hopefully we will launch in q1 or q2 next year. 

John Chen 

So on that note, we know that the exchange space is very crowded. And you’ve talked a little bit about why Liquid has been able to be successful so far. What do you want Liquid to be remembered for 10-20 years from now?

Mike Kayamori 

Yes, that’s a great question. So the interesting thing about this space is, for example, in the security space, or in the capital market space, there’s an exchange and there’s a broker-dealer. So an exchange will allow a broker to trade with another broker, and you’ll have also market makers to come on board. Well, the brokers will be the ones who will do customer acquisition, customer KYC and also be that counterparty in terms of trade and executions. So it’s clearly defined between…. I can recognize an exchange and a broker. In the crypto space, it’s blurred. So there’s an element of an exchange that is part broker-dealer, and also an exchange. When you look at the capital markets, there’s hundreds and thousands of broker-dealers, but there’s not a lot of exchanges. So when you look at this crypto market also probably moving into a similar space. Not everybody needs to become a pure exchange, they can be a wallet company, they can be a broker, an OTC dealer, they can be a service provider. They may offer limited tokens as their service. When they need Liquidity, they will tap into a Liquid exchange. And we want to be that exchange where individuals, high-value traders, institutions, family offices, brokers, dealers, wallets, everybody in the ecosystem, when they need to tap into liquidity, they will look at us as a preferred exchange. Regulated, properly working with regulators, tax authorities, making sure that the exchange itself is operated in an in a proper way so that all these people in the ecosystem can come and tap into liquidity when they need to. So I look at the exchange space probably consolidating, but then there’s going to be a lot of service providers who will be offering tokens and cryptocurrencies to their customers.

Joyce Yang 

To follow up on that, you’ve been a veteran in the exchange space since setting up Quoine in 2014 and you generally have a very global perspective from where Quoine has come from and now where Quoine is kind of going towards? Where do you see the adoption kind of starting out? Is it going to be in the West or is it maybe in the East or is going to happen together?

Mike Kayamori 

Yes, I think it’s going to happen in multiple places. I look at it for example, from the securities space or derivatives space. I believe that everybody is keen to understand where the SCC is, how they look at ICOs, IEOs, security token offerings. So from that perspective, I would say, the US market, which is the largest financial capital in the world will continue to lead. And global exchanges, governments, governmental institutions will all look at US in terms of where they are. But as you know, in the utility token space, I would look at Asia leading the ecosystem. There’s a lot of interest within the users and traders in terms of if it’s a utility token and if there’s actually a utility that they want to trade, buy, sell and use those tokens. So it will happen in different places. There’s probably going to be use cases as well where this token could be used for remittance. And for those, it could be between a developed country and an emerging country. Right, so when I look at that, the beauty of crypto and tokens is that it could happen globally without one central power to push this through. That said, I am a big believer of Facebook Libra, which will open the door into stable coins to the mass market. Hopefully, that happens next year. And that should open up a new horizon in terms of user adoption and recognition in terms of cryptocurrency and tokens.

Joyce Yang 

Just curious, what is Japan’s general reaction to Libra?

Mike Kayamori 

I think it’s more of a “Let’s try to understand, let’s not come to a quick conclusion, try to understand what this is, how this could potentially impact.” I think they’re, they’re more of “Let’s learn and research.”

John Chen 

That makes sense. And zooming into Japan, because I think a lot of listeners from the West particularly are really curious about this, and it’s where Liquid has found its roots. So most of us know that Japan is a crypto powerhouse, but there’s very sort of little insight into what’s happening. And so we’d love to get your thoughts on the market generally, but also some of the most common misconceptions about the crypto market in Japan.

Mike Kayamori 

I’m trying to understand for example, what is the image from a global perspective, I’m deeply in Japan. So I’m trying to understand if there is a misconception or not. But let me start out and highlight. Japan was the first global economic powerhouse to regulate cryptocurrency. It didn’t do an outright ban like China or other markets; it embraced innovation. And cryptocurrency and blockchain was something that the government embraced. Because the Japanese users who are very active in terms of retail, forex, or FX trading; to them, cryptocurrency was the next new, shiny, innovative currency for them to trade on. So it became natural for Japanese retail FX traders to start trading cryptocurrency. And this was 2015/2016, that was for me. So the interesting thing was the Mt Gox incident happened in Japan in 2014, that actually created awareness within the user base in Japan and the people who were interested in these early adopters, they came in started trading. So Japan was in 2016 April, so more than 3 years ago, passed the legislation to regulate cryptocurrency within the Japanese payments act. So that was more than 3 years ago. And it came into effect 2017 April. So in 2017 April, if you were a virtual asset service provider or cryptocurrency service provider, you will need to be regulated. And regulated means proper statutory reporting, KYC, AML, transaction monitoring, all of these things. So starting 2017 April when it came into effect, all the exchanges needed to be registered or licensed in Japan. Fast forward 3 years, obviously compared to 2016 and 2017, cryptocurrency and tokens itself also evolved. Now there’s more margin trading, CFD’s, Derivatives. There’s ICOs, IEOs where you use tokens to raise capital. And now with security tokens, stable coins, there are so many things that have evolved since 2016/2017. So the Japanese regulators passed another bill this April which will come in effect next April, which will regulate cryptocurrency and virtual assets as part of the capital markets product. So within that, you could do derivatives, you could do capital raising, all of the things that were not covered and the initial payments act. So that will take effect next April. So Japan will be the first government or nation that will be regulating cryptocurrency both from a payments perspective, but also from actual capital markets product perspective. And it’s laying the foundation or clarity in terms of what can be done and what cannot be done. The actual implementation will take a little bit of time, but it’s good for people in the space to have that clarity.

Joyce Yang 

Yeah, that is very interesting. And something that I think folks have been looking forward to in Japan, given what we hear from the outside is that many regulators are working heads down in coming up with very helpful and friendly regulations to regulate crypto.

Mike Kayamori 

So going back to John’s question; is there a misconception of that in from the global perspective, I’m not sure. But because of thesee legislations, and these are all in Japanese, it might not be initially clear or easy to understand. But it’s very clear in terms of a regulatory and legislation perspective. The more important thing is in actual implementation, how much of overhead requirements, due diligence that needs to happen in terms of for example, if you want to fundraise, doing an ICO or an STO. If you want to operate derivatives or ETFs or Stable Coins, what are things that you need to do. We’ll need to get a license, but the actual practice and implementation, that’s a little bit of a different story which the providers, the self-regulatory organization, with also the regulators will need to work hand in hand to work together.

Joyce Yang 

Got it? And there is recent news that we saw about Coincheck exploring IEO. Liquid also conducted an IEO previously as well. Is that a trend that we’re seeing Japanese the market?

Mike Kayamori 

 So we conducted our own IEO, it was called an ICO at the time, but we did it on our platform. So we did it on our exchange, we did for KYC. We got the approval from the Japanese government. Again, this was 2017. So we raised our token in Japanese Yen as well. So that was that was two and a half years, that was more than 2 years ago. So fast forward, after some of the hacks and things that have happened, it is true that in actual practice it is difficult to list new tokens, and there’s a whitelist, it needs to go through full due diligence, but it’s warming up. And part of that will also be listing and also offering on an exchange. But the actual IEO will only happen after the new legislation comes into effect which will be next April-May time frame.

John Chen 

Great. Now that makes sense. And so on that point, but this year, we sort of read a lot of news about exchange hacks in Japan. What do you think is happening and what are the regulators doing now?

Mike Kayamori 

Well, hacks have never been like…. It’s never gone away, it’s not only Japan. You see it happening with other exchanges globally as well. I think in Japan, it’s more clear because you also need to report it to the government, you also need to make announcements, you have to make public updates and progress updates, because it’s part of the regulatory mandate to disclose all these things. While I think in global exchanges, they can just follow up. So it’s a little different in terms of the required disclosures, and information sharing to customers. Hacking has and will continue to be a part of this industry, and people tend to forget until it happens to themselves. So when users or traders select exchanges, which exchanges to trade on, security is something that they need to do a lot of diligence and research on their own, to make sure that they select the right exchanges to trade on.

Joyce Yang 

That makes sense. And how does Liquid think about kind of listing new tokens? I know under obviously the current Japanese regulations that they have to go through FSA approval, but kind of outside of Japan…?

Mike Kayamori 

Yes. So we believe listing, we believe in the token economy, we believe in utility tokens, and we believe in stable coins and security tokens. We believe in derivatives as well. We look at this as an industry that is still very new, very nascent, and it will continue to expand; there’s going to be more products, there’s going to be more features, there’s going to be more people coming into this space. So as an exchange, and it’s important that we want to be that preferred exchange for retail investors, high frequency traders, institutions, family offices, other exchanges, wallet providers, crypto media. Any anybody in this ecosystem, when they want to offer for example, an exchange or buy or sell option to their customers, we have full sets of API’s where they can tap into it, so that for their own customers they can provide that feature, but they don’t need to hold an inventory, they don’t have to manage risk, they don’t have to manage any of these things if they connect to our exchange. We want empower this entire ecosystem. So from that perspective, we believe in IEOs, STOs, stable coins and any of the derivatives, ETFs that will emerge in this ecosystem.

John Chen 

That’s great. And how should projects that are thinking about entering the Japanese market, like what advice would you give to them?

Mike Kayamori 

 Yes, the important thing is you’re talking about like token issuers? 

John Chen 

Yes, that’s right. 

Mike Kayamori 

Yes. The Japanese market, Japanese customers are very much open, they’re interested in these tokens, but in order to do that, you need to go through a proper process. In Japan, unless the token issuer itself gets a crypto license, they will need to work with an exchange. So essentially in Japan, it’s not only raising capital. If you want to be listed, you will need to work with an exchange. That exchange will work with the SRO and will get that token to be whitelisted and get that consensus approval, and it will be listed in one of these exchanges that we’re working or sponsoring with that token issuer. So there’s a process, it’s not something where you can just go and say “Hey, we’re going to list it.” You need to work with an exchange and get that token whitelisted and go through your process to be listed.

Joyce Yang 

My last question is regarding some of the promising things that are coming to Japan and the regulations in the next coming year. Obviously a lot of folks are very excited about Defcon, and people are planning their trips to Osaka. What else would you recommend them to check out and kind of keep an eye on while in Japan?

Mike Kayamori 

Well, I think Consensus is also going to do it a conference in Japan. Also, Japan is trying to tackle crypto up front, putting in proper regulatory frameworks and guidelines. So when a token issuer or blockchain company when they come, obviously attending conferences are good. But also visiting exchanges, visiting the association, I think those are things that I recommend. 

Joyce Yang 

Which associations are those?

Mike Kayamori 

Well, there’s one association that is approved by the Japanese regulators, and that is the Japan Virtual Currency…. JVCEA, so Japan Virtual Currency Exchange Association. 

John Chen 

Mike, this has been fantastic. Thank you so much for taking the time. How should our listeners best contact you or learn about Liquid? 

Mike Kayamori 

Yeah I mean, please come to [liquid.com]. And within the landing page you should have…. If you’re a token issuer, I think there’s a listing section that you can reach, there’s “Contact Us” pages as well. So please come and visit our website.

John Chen 

Thanks so much Mike. To learn more about the topics discussed today, check out the descriptions underneath the podcast episode. 

Joyce Yang 

Also, be sure to follow us on Twitter @globalcoinrsrch.

John Chen 

New episodes come out once every 2 weeks, so if you haven’t already, please rate review and subscribe on Apple podcasts. If you liked this episode, share what’s your friends on Facebook, Twitter or LinkedIn. Thanks for listening.

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