Crypto exchange KuCoin currently occupies the fifth spot on CoinMarketCap’s rating of crypto exchanges, only topped by Binance, FTX, Coinbase and Kraken. Three of the top four exchanges boast significantly deeper pockets than KuCoin. Binance, the world’s largest exchange by volume, reportedly generated at least $20 billion in estimated revenue in 2021. Coinbase, a publicly-traded company, made roughly $7.84 billion in revenue last year. In January, FTX raised a $400 million venture round, taking its total funding to $1.8 billion, per Crunchbase.
Launched in 2017, KuCoin has become one of the world’s top exchanges, reaching 18 million users, according to the company. Its rise in ratings has happened despite having relatively limited resources compared to larger exchanges. KuCoin now has improved resources, though, having recently raised $150 million in funding, taking its total venture funding to $170 million at a valuation of $10 billion.
I spoke to KuCoin’s CEO, Johnny Lyu, to find out what crypto investors need to know about KuCoin, its business model of listing altcoins, the role of traders from developing countries in the crypto market, the exchange’s plans to onboard new crypto users, competing against the Binances and the FTXs as well as KuCoin’s plans for Africa.
Oluwaseun Adeyanju: It’s interesting that KuCoin launched in September 2017—roughly two months after Binance launched. Binance has gone on to be the largest crypto exchange in the world. And, of course, KuCoin has come a long way to become one of the world’s largest exchanges too, but certainly a tad behind Binance. The significant difference I see between KuCoin’s and Binance’s respective launches is an initial coin offering (ICO). Binance launched after raising an equivalent of $15 million in an ICO; KuCoin didn’t conduct an ICO. Would you say an opportunity was missed by not launching via an ICO in 2017? Do you think it played a part in why KuCoin didn’t initially grow as fast as Binance?
Johnny Lyu: We did not conduct an ICO because we had sufficient funds necessary to start and grow our business, so a token sale wasn’t our priority. And I don’t think there was a missed opportunity because we’ve been able to develop our platform as intended. We have our own plans and priorities to remain competitive. Instead of focusing on our competitors, we are more prone to focus on the people with us as well as our product. That’s how we accumulated our first one to two million users in the bull run from late 2017 to early 2018.
Adeyanju: That’s interesting. This would suggest you financed initial operations via a friend and family round. Is that right?
Lyu: KuCoin was funded by the founding team in the first year. We raised 20 million dollars in a Series A funding round in November 2018, backed by IDG Capital and Matrix Partners. The funds were used to expand KuCoin’s global reach and create the infrastructure to promote a lineup of new products.
Adeyanju: I’m curious to know just how you achieved that sort of growth—acquiring 2 million users within months after launching. I would imagine you didn’t have a large team at the time.
Lyu: When KuCoin started, we had seven co-founders and three employees. We were a 10-man team in total. Seven of us were engineers and the other three handled customer support and token listing operations. I believe that we did two things successfully to make KuCoin boom at the time. The first one is the launch of KCS, our native token. Actually, the price of the KCS token surged almost 100 times in the 2017/2018 bull run, which helped us attract a lot of traders. The second one is that we listed many altcoins in the early days, which also helped us get a lot of users through word of mouth.
Adeyanju: Was this strategy of listing altcoins pivotal to growing your userbase to the 18 million users you mentioned in your recent fundraising announcement?
Lyu: Yes, that’s right. Listing promising altcoin is a big part of our strategy. From the early days, we figured that, while bitcoin and ether will continue to be the major tokens, most traders will want access to more tradable assets. That’s why KuCoin is one of the few exchanges that started to list many promising altcoins. But alongside this, we also spent the bear market of 2018/2019 strengthening our infrastructure and product offering. We introduced many new features like margin and futures trading, and we are also one of the first platforms to introduce staking services for proof-of-stake tokens. We also followed the market trend and introduced our own launchpad platform. These initiatives helped us attract many new users when the recent bull run arrived.
Adeyanju: I’d like to go a little deeper into your strategy of listing altcoins. But let’s spend some time talking about where you’re headed as an exchange, especially after recently securing $150 million in funding. What’s next? Is there going to be a change of strategy?
Lyu: In general, we will continue to be the people’s exchange just as our slogan says, and this means we will evolve ourselves on the basis of the needs of our customers. We will continue to find and offer the next crypto gem on our platform. Also, the industry is still in its infancy, and we need to bring in more users. KuCoin is focused on onboarding as many users as possible. I believe three major barriers prevent new traders from starting their crypto journey. The first one is policies and regulations. The second one relates to on-ramping from fiat to crypto. And the third one is about how to start the first trade.
For the first part, the regulation part, KuCoin is trying to apply for licenses in many markets, and we’ve already gotten some of them. We are trying to expand our fiat on-ramp gateways for the second part. In November, we launched our fiat account feature, which allows users to deposit fiat such as euro and US dollar to the platform. We’ve also announced another fiat improvement relating to our integration of SEPA, which is quite popular in Europe. For the third part, which is about making the first trade, we noticed that many new traders could hardly understand the order book as well as terms like limit orders and stop orders. So we are trying to offer a simplified interface for them. We’ve also noticed that those who know how to make a trade still struggle to make trading decisions. That’s why we’ve introduced social trading features called KuCoin S, which allows users to get to know more about how other people trade and to get to know what is happening in the market. All this info could help them to make better trading decisions—to improve their chance of making a profit. On the product side, we will invest in improving our offerings in terms of social trading because we believe this is the trend of the future.
Adeyanju: How does the social trading feature work? I’ve seen this idea mooted in the trading of traditional financial assets. Specifically, I believe eToro offers that feature. How did KuCoin’s social trading features evolve?
Lyu: We found that social trading could help our customers because many crypto newcomers are overwhelmed by the new jargon and experiences. If others in crypto could help them to know this industry better through social interactions, we believe it will be easier for more people to get into the crypto space. That’s the initial reason why we created this idea. I also think that the industry is evolving really fast. And we know that other players are keeping an eye on the market. So, we believe that once more players have recognized the social trading idea, maybe more exchanges will follow this trend. But we don’t worry about that, though, because we believe this is the right move for the industry to gain mass adoption.
Adeyanju: Is access to the social trading feature on KuCoin free, or does it require a subscription? Again, as I mentioned, I have seen some experiments of this idea in the stock market, where you follow a trader and pay a subscription, part of which the trader receives. Does KuCoin’s work in a similar way?
Lyu: Currently, it is totally free, just like our trading bot features, which were launched earlier last year. Currently, over 7.9 million bots have been created on KuCoin, but it’s still free. Users don’t need to pay an extra fee to use these tools, but of course, they still need to pay the trading fee.
Adeyanju: What then is the incentive for a trader to allow others to copy their trades?
Lyu: We’ve also noticed that we may need to incentivize professional traders to share their trade. We may consider adding more platform incentives to encourage experienced traders to share their strategies in the future. That may include compensation from the people who follow their trades, but that’ll be in the future, not now.
Adeyanju: You mentioned that KuCoin is taking regulatory compliance seriously. As you know, the original ideas that saw the birth of crypto revolved around decentralization and privacy. These ideas and regulatory compliance don’t always agree. How does an exchange balance the need to satisfy regulatory requirements while offering privacy and decentralized access to users that want these features?
Lyu: First of all, with regard to regulation, I would like to say that technology is innocent and irreversible and that both blockchain technology and cryptocurrency exchanges have brought revolutionary advances and innovations to the world. These innovations have enabled the global free flow of value. I think regulation can ensure that this technology and innovation reaches the next level. The emergence of any new technology starts with a period of immaturity. The point of regulation is not to suppress new technologies and systems but rather to cultivate a favorable environment for further development.
Also, the entire crypto industry doesn’t have to be fully decentralized to achieve its original intentions. In fact, centralization, as a feature, is what has helped crypto grow as fast as it has. That said, I think the decentralized and centralized markets can coexist. That’s why, although KuCoin is currently a centralized exchange, we are also developing some decentralized products. We recently launched funds to support Web 3.0 innovations such as DAOs, metaverse and NFTs. We also launched a decentralized wallet that will essentially serve as a gateway to the Web 3.0 world. Our wallet supports multi-chain aggregation, which makes it possible to transact with several types of crypto assets in one place. We intend to add DeFi, NFT and GameFi functionalities in the future.
Adeyanju: Okay, I see that. I would like to start concluding with a few additional questions. First, from which region do most of your users come—I’m assuming it’s Asia, right?
Lyu: Actually, not particularly. Most of our users are generally from developing countries. But in terms of contribution to trading fees and revenues, developed countries in places like Europe contribute more.
Adeyanju: Okay. This tells me that you have deep interests in Europe and developing markets. Do you mind sharing insights into how European markets differ from developing markets? Are there any misconceptions?
Lyu: In general, traders in developing markets are more active; they are very willing to try out new things—whether a new project or a new activity. And in terms of their investment amount, traders in developing markets prefer to trade frequently, but the trading amount is relatively smaller compared to their European counterparts. On the other hand, Western traders are generally more rational, probably because the financial industry in the region is more advanced. If they believe in a project, they are willing to invest in it long-term. They also tend to trade less often but in larger amounts. Yeah, that’s the general situation.
Adeyanju: That’s interesting to know. Do you think this trend is driven by the fact that Europeans are generally wealthier than traders in developing markets, and therefore they see new projects as a way to make fast money?
Lyu: I believe traders in developing markets are more active and willing to try new things for short-term investment returns, partly because this is how they understand the finance world. Their European counterparts grew up in a very developed financial world. So, in general, I believe it’s because the financial industry works differently in many developing countries compared to European countries. But I think, in the crypto space, where there are a lot of innovations every day, we do need those active traders who want to try out new things, those early adopters. Take the recent hype around GameFi, for instance. We noticed that the most interesting GameFi projects are from Asia because most players are from Asia, right? Without these early adopters, those innovations can hardly go to the masses. I believe that the activeness of Asian traders, as well as those in other emerging markets, brings volatility to the market. And volatility is very important for a financial market because every volatility is an opportunity for everyone in the industry.
Adeyanju: That probably explains why you list a lot of altcoins—since most of your users are from emerging markets. But isn’t that too risky, considering these coins are susceptible to pump and dump schemes? Do you have measures in place to prevent or limit this susceptibility?
Lyu: First, traders and investors must understand the risks and take personal responsibility before making investment decisions. The basic and most important recommendation is to check all the information about an asset and not buy coins that grow in price very quickly. In the investment field, risk and return are equal; expecting high returns will inevitably entail high risks
That said, at KuCoin, we focus on quality while trying to bring a wider range of promising coins to the public. We have an expert research team who complete due diligence before listing coins, which ensures that we can prevent our users from most scams in the industry. But as I said before, this industry is full of uncertainties—including market impact and human factors. Users still need to understand these uncertainties before investing.
Adeyanju: I also want to touch on this new trend in the crypto exchange business. Ultimately, I think the exchange business will be a market of capital, where whoever has the most cash to run an exchange might build an outsized moat. And we see markets like Coinbase FTX and Crypto.com spending big on traditional marketing. How will KuCoin compete in such a market?
Lyu: We’ve noticed these big moves from other exchanges. In general, different companies have their marketing strategies. But for KuCoin, this might not be the best direction for us. To be honest, a lot of sports teams have approached us to discuss potential collaborations. But after discussions, we decided that, even if we have such a budget, we would like to invest in our product. Because if you have a lot of marketing and advertising … yes, you could increase your brand awareness. But brand awareness is not everything, right? Even if many users know your exchange but your product is not good enough, the awareness is nothing. So for KuCoin, we are more willing to invest in our product to ensure that we can better serve users’ needs. This is what matters to us the most at the current stage.
Adeyanju: Let’s wrap up by talking about Africa, a region I cover. How does KuCoin see Africa, and what are your plans for the continent?
Lyu: I believe blockchain technology is a significant opportunity for all the developing countries and the people in Africa. To be honest, Africa is a very important market to us. We have about 15% to 20% of our users from the continent. Nigeria and South Africa are two of our biggest African markets. I think KuCoin can help in two ways. First is education. In general, we need more education and training to help the traders in Africa to start their crypto journey better and find genuine projects to invest in because we all know that there are still a lot of scams in this industry. I believe traders should have the expertise to differentiate between authentic and fake projects. This is an area where we are willing to help. We would like to have more educational or training programs to improve the professionalism of the African investors.
The second way we can help is to invest in and incubate promising projects from the region. We have an investment arm named KuCoin Labs, which invests in early-stage projects. We are willing to support African entrepreneurs to build localized services that speak directly to African residents.
Adeyanju: Thank you for your time.