Exciting articles several times a month
20 September 2016
Worldcore recently had the pleasure of interviewing Sergey Ivliev, COO and Co-founder of Lykke, a new efficient blockchain-based P2P marketplace aiming to change the way FX and other financial assets and instruments are traded and settled. Sergey told us about the key issues and emerging trends of blockchain systems and cryptoeconomics, their unique market approach and recent Initial Coin Offering.
Lykke is a leading Swiss startup ranking in Top 10 in Swisscom StartUp Challenge, Top 30 in Swiss Fintech Startups to Watch list. Could you tell us more about your company? What is your strategy?
In the modern world of finance there are too many complications and intermediaries between sellers and buyers. The blockchain technology – the distributed ledger – pioneered by Bitcoin allows us to create a marketplace where you can trade peer-to-peer, settle immediately and own assets directly.
The idea of Lykke is to build a single global exchange to trade all kinds of assets. We all seek for fair, reliable and accessible financial services. All you need to trade at Lykke Exchange is Internet connection – just download the iOS or Android Lykke Wallet app and give it a try. Commissions are zero.
As part of the strategy, Lykke Exchange and all its tools and services are open source – you can go to GitHub to have a look at it and participate. Open source software nurtures transparency, enables people from around the world to contribute and makes it easy to integrate our services with other applications.
Our corporate organization is inspired by the mechanisms of nature and its unmatched efficiency. It is very open, sharing knowledge and competences being one of its key values. The crowd-based approach opens Lykke to contributors and provides us with speed and versatility. We are currently developing a competition platform to crowdsource most initiatives.
What makes Lykke different from other blockchain-related startups, like iProtus or Xapo?
Lykke is not a cryptocurrency or distributed ledger technology venture; we are building a marketplace for trading financial instruments issued in the form of сolored сoins that integrates seamlessly with the existing financial system.
Lykke Exchange is different from other cryptoexchanges like BitFinex, CoinBase, Poloniex as it does not keep its clients’ assets and thus is less attractive to hackers and safer for clients.
We call our exchange semi-centralized. Orders are matched in a centralized order book to speed up trade and give the best price and the lowest spread, and settled securely on the distributed ledger.
What is your target customer base?
Everyone. Literally, as everyone needs financial services that are simple and fair. If you want to invest your money in different currencies, if you want to buy shares or issue those of your own, you are most probably a potential user of Lykke Wallet.
But first of all, we are looking for those who like to explore new opportunities, who will do us an honor to try our product out and help us to further develop it. We are looking for your advice.
Your company charges a 0% transaction fee. How do you earn money?
We anticipate ample trade volumes. We plan our revenue to come from providing liquidity, offering issuance services, and supporting institutional clients.
Lykke is positioned as a global marketplace for all assets and instruments. Do you give preference to any particular currencies or assets?
We launched the exchange initially for the main currencies and Lykke coins. Then we added two innovative projects: colored coins for music rights and colored coins for CO2 certificates. Perspective asset classes include futures & options on digital assets, crowdfunded loans for retail and private equity financing for Small and Medium-Sized Enterprises (SME), contracts for difference, zero coupon bonds and other fixed income, natural capital bonds and many more.
You have issued your own cryptocurrency, Lykke Coins (1 Lykke Coin represents 1 share in the legal entity). Could you tell us more about it? What is the current exchange rate?
Lykke shares are issued in the form of colored coins. One Lykke colored coin is 0.01 (one one-hundredth) of one share of Lykke Corp. 100 Lykke colored coins make one share of Lykke Corp.
From September 13 till October 10, 2016 Lykke is having its Initial Coin Offering, a crowdsale event during which the company hopes to raise 1.5 million Swiss francs through the sale of thirty million Lykke coins. The price is 0.05 CHF per coin, it’s fixed. After October 10, the price of Lykke coins will float with market demand. Ten percent of capital will be held in reserve to buy back coins and support the price.
In July, you hit $135k turnover. What’s the company’s ultimate goal?
By the end of 2017 we plan to reach $1 bln average daily volume. This is a reasonable goal even for retail FX trading alone.
How did you meet Richard Olsen and became a Lykke’s co-founder?
This happened at the conference related to High-Frequency Trading. In fact Richard is a pioneer of high-frequency market data analysis, and his famous book is in a sense an ABC for HFTs.
What inspired you to leave your key position in the IT sector and join a new promising yet perplexing Fintech startup? How did you decide that this would be the right move?
Startup feeling is a like diving in the ocean after swimming in the river. A bit scary, but much more freedom and passion. I impressed by the complexity of the target we set for ourselves: it’s a matching engine, trading platform, settlement layer, algorithmic liquidity provision, payment system, competition platform and many other projects. Each of them alone is a very challenging problem. Don’t know if I ever come back to the industry.
Lykke has assembled an international team. What are the challenges and benefits of working from different countries?
We had to learn how to do it. We extensively use Slack and Telegram for work structuring. All the tasks are managed in Jira, and the code is in the Github. However from time to time it makes sense to meet – so we meet up at various places, Perm, Zurich, Montenegro.
Lykke was launched in fall 2015. How much has the company – and you – changed for that year?
A lot has been done since then! By now we have got hands-on experience, an international team of experts to serve as the seed of the emergent structure and a growing global community organized around our common ideas.
The exchange we had dreamed of went live in March with the industry testing starting in June. Now we have got a native iOS and Android app for trading with 0% commission and settlement on the Bitcoin blockchain.
The first months of Lykke Exchange operations showed the viability of the semi-trusted architecture that allows a compromise between usability, liquidity and security of funds in the toxic Internet environment.
All your interviews concern the blockchain technology. What do you think about its potential and future implications?
The blockchain technology incorporates a protocol for decentralized data storage in the chain of blocks, where the consistency of the data is guaranteed by the cryptography and consensus of multiple nodes – network participants.
There is no central authority in the blockchain – it’s decentralized, so no one can manipulate the data or block the procedures. The blockchain enables people who do not know each other to build a global notary service – it is a safeguard against fraud and reduces risk. It’s peer-to-peer – as there is no intermediary, transaction costs are low, and transactions are faster than in many existing systems. Contracting parties can immediately have direct ownership, which reduces complexity. And it’s easily accessible.
Blockchain is disruptive owing to its key characteristics – decentralization (this means cheaper and faster transactions without intermediaries, equal rights to all users) and safety (unchangeable data). The technology will influence all the industries: quick and cheap financial services, reliable registries of ownership right and fair elections, self-executing smart contracts, interaction of devices in the Internet of things and much more. Those who want to win should be grabbing the opportunities blockchain offers.
What is Colored Coins and how it differs from Bitcoin?
A colored coin is a way to associate real world assets with addresses on the bitcoin blockchain. Colored coin protocol makes it easy for you to use the distributed ledger technology for any type of financial instrument. You can buy one Bitcoin on the market and then divide this one Bitcoin into million increments. Then use each one of those increments to specify with the colored coin protocol the terms and conditions of that particular financial instrument.
A colored coin may represent a share of a company or any type of ‘IOU’, such as a commitment to make a payment to the holder of the colored coin, if so requested. Colored coins can have International Securities Identification Numbers (ISINs) to map them into the existing back office and risk management systems of banks making the system compatible with the existing financial architecture.
What are the key milestones for the next 6-12 months that you want to achieve?
We expect margin trading, regulated retail FX and offchain settlement scalable to 100’000+ transactions per second to appear in Q4 2016. Early next year Lykke will add Ethereum support as it’s the second largest blockchain, and the demand is high.
Lykke Exchange will become a comprehensive marketplace for both retail and institutional clients. We are forging partnerships with banks, corporations, and municipal entities to speed the adoption of our wallet software.
Exciting articles several times a month