The money transfer business is a highly regulated activity. In Singapore, this business activity is regulated by the Money Changing and Remittance Businesses Act (Chpt 187) (the "Act") and related Notices. In Section 6.2, it states that the penalties may include fine and/or imprisonment. The key directors and shareholders of Chynge are Singaporeans, and we take this business very seriously, we take this Act very seriously, and early on when we started Chynge, we made a strategic decision to work with regulators with an application for a money remittance license in Nov 2015, and receiving said license two years later in Oct 2017.
I highlight the various parts of the responsibilities of a licensed money transfer operator (MTO) which form part of my responses to your questions:
1. Section 21 of the Act, regarding record keeping.
2. Section 24 of the Act, regarding the liabilities of directors and partners.
3. Section 26 of the Act, regarding customer segregated accounts.
4. Section 27 of the Act, regarding annual audits.
Related to the Act, MAS Notice 3001.
5. Section 3.1.a of the Notice regarding customer due diligence.
6. Section 3.1.b of the Notice regarding high ethical standards.
7. Section 3.1.c of the Notice regarding assisting and cooperating with law enforcement authorities.
8. Section 4 of the Notice regarding Risk-based assessment and Risk Mitigation.
9. Sections 6.13 through 6.17 of the Notice regarding Know-Your-Beneficiary (KYB) Identification and Verification of Identity of Beneficial Owner.
10. Sections 6.19 through 6.32 of the Notice regarding Transaction Surveillance and Transaction Monitoring.
11. Sections 6.33 through 6.37 of the Notice regarding Non-Face-to-Face Transactions.
12. References to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Chpt. 65A) by the Act and related Notices.
13. References to the Terrorism (Suppression of Financing) Act (Chpt. 325) by the Act and related Notices.
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A. If you all are using Stellar, why would I have to use Chynge?
The key difference is customer experience, for example, you are sending money from Singapore to your mom in Indonesia.
If you are using Stellar, you would sell your SGD and buy XLM. You would then send XLM to your mom. Your mom (or you) would then sell XLM and buy IDR.
With Chynge, you would give your SGD to Chynge in Singapore, and your mom would receive IDR in Indonesia. The customer experience is status quo, and there is no need for the Sender or Recipient to handle cryptos (XLM in this case). There is a lot of customer inertia in banks and money transfer operators, and changing the customer behavior from dealing with fiat and fiat only on both the Send and Receive sides to dealing with crypto is significant customer friction, and retards customer adoption.
When a customer uses Chynge, the customer experience is sending money to mom. When you use Stellar, the customer experience is using crypto to send money to mom. Maintaining a status quo customer experience is the first step to customer adoption of the technology without their realizing that they did. Chynge abstracts the digitization of payments from the Customer (Sender and Recipient), reaps the benefits of blockchain and crypto, and passes those benefits in terms of costs and speed back to the Customer.
B. How do you guys create liquidity pools? We can just do it with anchors on stellar isn't it?
The Chynge Liquidity Pools guarantee the completion of the transaction. Sticking with the example of sending money from Singapore to Indonesia via Stellar anchors, you need to find anchors on both sides to trade XLM. If you can't trade XLM on either side of the transaction in Singapore or Indonesia, you can't send money to mom.
At Chynge, we believe that we need to control both ends of the transaction to provide a compelling customer experience. Thus, staying with our example, we will have Chynge Singapore and Chynge Indonesia and they both will be licensed and regulated by the local authorities. Our Chynge Liquidity Pools ensure that
transactions are matched, settled, and completed.
C. I'm really not sure what other additional benefits there are to having a token.
The Chynge Token, XCLP (say clip), is a store of value and a means of exchange very similar to XLM, BTC, and ETH. Unlike those classic payment tokens, XCLP has two additional benefits: as a store of exchange rate, and a store of AML (anti-money laundering).
When a customer uses Stellar anchors (for SGD and IDR) to send money from Singapore to Indonesia, at the start of the transaction, she doesn't know how much the Recipient will receive in IDR until the transaction has completed. Customers do not want uncertainty; they will shop around for rates and go with the best rate (you will see this in Lucky Plaza for PHP, People's Park for RMB, City Plaza for IDR, etc. in Singapore). Singapore is a very competitive market with thin margins with major players such as Mustapha and the Arcade at Change Alley. The XCLP stores AML and the customer doesn't care about this. They know they are honest people, worked an honest day, and are sending an honest living back to their homes. The AML is our method to track compliance with the regulators.
D. If the KYC are already done by the anchors, so Chynge is just another anchor.
KYC is just one-third of the compliance requirement. There are two sides to a transaction. KYC is the Sender, and then there is KYB for the Recipient (Item 9 above) and then, there's transaction surveillance (Items 10 & 11). The bulk of compliance is in transaction surveillance and this is where Financial Institutions (FI) fail resulting in fines ($360B globally), loss of licenses (2 banks in Singapore), and jail terms (4 bankers in Singapore). Regulatory compliance can cost up to one-third in fees, and we apply technology to increase efficiency and effectiveness, and build that into the XCLP.
E. If so, why the need for a token sale?
Please refer to T below.
F. I'm already using coinsPH to send peso tokens through stellar.
This is an excellent example. MTO's are required to be regulated for outbound transfers but are not required to be regulated for inbound transfers. The Philippines market is unique in that it is one of the very few countries that require inbound transfers to be regulated, and that Coins.ph is a regulated entity for this business activity. Coins.ph is the Receive side of your transaction. You started somewhere else, say in the US (sell USD, buy XLM) or Singapore (sell SGD, buy XLM) before you can sell XLM to buy PHP. In Chynge, we would like to be at both ends of this transaction, the Send and Receive sides.
Chynge is unique in that we've made a strategic decision to work with regulators, and to work with regulators in multiple jurisdictions.
G. You can't remove FX risk just through liquidity pools though.
In the Chynge Whitepaper, we describe perfect matches for both sides of the transaction. When you achieve perfect matches, the FX risks for both directions of the transaction are removed. Our transactions are on-sight, thus, there is no credit risk, and we use Stellar blockchain to record sub-transactions, thus, settlement risk is removed. FX risk is eliminated with perfect matches. This is classic hawala or hundi, a centuries-old practice. We've taken hawala from underground to above ground, and we've put hawala on steroids from 1-to-1 matching to n-to-n matching on blockchain.
When transactions do not match, and one side is heavier than the other, the Liquidity Pools top up the difference. The FX rates are locked for both directions, and the FX risk is removed from the Customer. However, the FX risk has to go somewhere. The FX risk goes to Chynge and Chynge absorbs it. There is a risk premium to absorbing this FX risk, and this risk premium will be reflected in the FX spread. In an ideal case where both sides match, the FX rates are thin at single-digit bips. As you add FX risk, liquidity risk (due to low demand of the currency), and currency risk (due to currency controls by the central bank), the FX rates shall widen. Our target is to have FX rates
of no wider than 30-50 bips which are significantly cheaper than the banks.
H. And what are your liquidity pools?
In an ideal world with perfect matches, there won't be a requirement for Chynge Liquidity Pools. The Liquidity Pools are to compensate the imbalances, if any, in counter-party transactions. There is a cost to Liquidity Pools and it is the exposure to real-world fluctuations in FX rates. We will build models to forecast how much liquidity is needed for, say three days of business, and then forecast FX rates. We then forecast the size of the Liquidity Pools based on these variables, among others. We also factor in seasonality such as Christmas, Ramadan, and Diwali for transactions to the Philippines, Indonesia/Bangladesh, and India respectively.
I. Are any crypto VC or funds supporting?
We are in discussions with many institutional crypto buyers, and are in termsheet negotiations with a few. We will be announcing some exciting news very soon.
J. How does AI and machine learning help to implement secure transactions?
The challenging part of regulatory compliance is in transaction monitoring. The current practice is via business rules with static thresholds or worse, via manual processes. We've gone through accelerator programs with United Overseas Bank (UOB) and PayPal, and we are looking forward to UBS next, where we've refined our AI/machine learning to predict customer mis-conduct related to money laundering (Item 12), terrorism financing (Item 13), and fraud. Our analytical models close the feedback loop based on decisions made by Compliance Officers and our models self-learn and self-adjust the thresholds in the business rules in real-time, and also detect patterns of patterns to create new business rules. We reduce compliance risks and increase the safety and security of our transactions for the betterment of our customers.
K. You guys are using SCP right? And if so, that would be using stellar's in built cross-asset hopping to find the best FX no?
We work very closely with Stellar on such concepts as Stellar Consensus Protocol (SCP), Lightning Network, and others.
Markets such as the Philippines, Singapore, and Malaysia are highly competitive with large volumes and razor-thin margins. The best path for these markets are a straight line with a single hop, and one FX rate. However, with liquidity, or lack thereof, there may be a need for multiple hops such as RMB-SGD-PHP. We will look at single-hops, multiple hops via Chynge, and multiple hops via Stellar, and find the best rates for our Customers.
L. If Dr. Malick is the one guiding, would that not be dangerous and risky? Just 1 person - and everything is kind of centralized, in terms of all the algorithms and etc.
Dr. Malick is an expert in market risks for banks, stock exchanges, and he's publishing a paper with models on cryptocurrency risks and pricing. We don't look to Dr. Malick for day-to-day dealing, trading, or treasuries. He's not scalable. We have extensive experience in building analytical models, and will build models to optimize dealing, treasuries, and settlement. We will have hold-out samples to validate the models and refine the models with Dr. Malick's guidance. Dr. Malick will then periodically provide advise and guidance to refine the models in multiple markets. Thus, we will implement different models in different markets to reflect localized business requirements.
M. What are the different currencies for the nostro accounts?
The nostro accounts shall hold local currencies only. Thus, the nostro accounts in Indonesia, UAE, Brunei, the UK shall hold IDR, AED, BND, GBP respectively. We shall maintain nostro accounts in markets where we operate, and add nostro accounts as new markets come online.
N. Is Chynge an SGD anchor yet? Not yet right.
We are in discussions with Stellar on strategic items, and an anchor at multiple markets where we have licenses such as Hong Kong, Singapore, Brunei, UAE, and the UK, and adding new anchors as new licenses are awarded to Chynge.
O. How are you guys different from other players? Ther
e are so many remittance players using Stellar - and relatively successful ones.
There are many players that are not licensed and not registered. There are several players that are licensed and regulated. There are very few players that are licensed and regulated in multiple jurisdictions, and Chynge is but one of the few. We have a Smart Compliance engine to reduce the risks for money laundering (Item 12), terrorism financing (Item 13), and fraud. Our Chynge XCLP token locks FX rates and removes the FX risk from you, the customer. In the crypto world, removing the FX risk is supremely compelling.
P. What's the token economics for the Chynge token? Are there any staking, incentives for holding?
The Chynge XCLP token is a pure payment token plus a store of exchange rates and a store of AML. No staking and definitely no incentives for holding which will contravene the Securities and Futures Act (Chpt. 289) in Singapore. We are regulated by MAS thus we have to be extra careful with the other money-related Acts. In the whitepaper, tokenomics is described in Chapters 21 through 24.
Q. If its a pure payment token...
R. The pseudo smart contract code on the whitepaper is pretty horrible, its essentially just // comments
I started out my career as a software engineer and //comments are key to documenting good code that is transferable to other software developers. The lines without the // are the actual commands to be executed to the computer. This pseudo-code will be converted to source code which will be published to github. As we develop the Chynge blockchain on Stellar with Lightning Network and produce new source code, we will follow these steps: pseudo-code as a bridge between business users and engineer, and source code that goes to General Availability (GA). Both the pseudo-code and source code shall be published for inspection by the community.
S. I see that the team has experience in compliance, which is good. Why do a token sale, when none has any blockchain experience?
The Chynge team including our stellar (not Stellar) Board of Advisors has a wide variety of experience comprising compliance, banking, enterprise software, analytics, marketing, legal, and working with multiple verticals including telcos, insurance, banking, airlines, and retail. Blockchain is yet another database, with a procedural language attached to it. Stellar is not perfect but we committed to the technology based on current knowledge and the features in the pipeline. We shall incorporate SCP and Lightning Network as these features GA. We are regulated in multiple jurisdictions and we can't write Chynge transactions to the public Stellar network. The Chynge transactions shall be written to a private Stellar blockchain to maintain data protection, customer privacy, and data sovereignty in compliance with regulators (Items 1, 2 & 3 above).
T. Why not just stick to Chynge? Is it because everyone is doing a token sale and you can raise funds fast?
There are many ways to raise funds including angel investors and institutions with pros and cons to either. An ICO is no different, and it may appear simple on the surface but in actual practice, the costs are high with respect to people, time, and money. This ICO is a token sale for the blockchain project and the Secondary Coin Offerings are for Liquidity Pools. We remain explicit and we will continue to use a blend of ICO, SCO, angels, equity financing, bond sales to optimize resources for Chynge.
We will also implement industry best practices and work towards transparency to the best of our ability. For instance, we are subjected to audits (Item 4 above), and we shall share our auditor's report for FY2018 and the ensuing fiscal years with the community although we are not required to do so. This will instill confidence in the community as we continue our post-ICO activities.
We appreciate your questions and are honored to respond to them. We continue a path of transparency with an ethical business conduct (Item 6) and close cooperation with law enforcement (Item 7) to raise the confidence
of the community in the Chynge business, in general, and in the Chynge blockchain project, in particular.
