Large Companies May Take Metaverse Market Share from Small Startups

Ishan Pandey: Hi Adrian, welcome to our series "Behind the Startup." Please tell us about yourself and the story behind HollaEx?

Adrian Pollard: Hi Ishan and thank you for this opportunity! I hope to shed some light on what goes on behind the exchange platforms and a little about what I think the future holds for the industry.

My background starts pretty far away from crypto. I started in design for print media and marketing and it wasn't until I fell down the Bitcoin rabbit hole back in 2014 that I switched heavily into UI/UX and product design and it wasn't until 2016 that the startup stuff really got rolling.

The first creation was what we called a 'Bitcoin social payment' app that allowed bitcoin enthusiasts to find one another. Back then, the space was still very, very small and very experimental, no one knew if bitcoin would survive, and so ideas around payments and connecting people in the space were a big focus. The belief was in small transactions, but bitcoin ended up being better at larger transactions and as an in-between trading currency.

Fast forward to 2022 and Bitcoin is established. People fluently use exchanges, read order books, draw predictions on charts, and regularly use blockchains for global money transfers.

The crypto exchange platform is where everything happens, which is what HollaEx has focused on the last few years. HollaEx allows anyone to start their own exchange and the software is technically labelled as a 'white-label exchange' because of its highly customizable nature and straightforward rebrandability.

Ishan Pandey: What are your views on the metaverse? According to you, what are some of the primary ways metaverse will alter users' lives?

Adrian Pollard: Honestly, people attribute the metaverse to Mark Zuckerberg. He did, after all, buy Oculus super early. But people forget that Oculus did nothing for a very, very long time. Mark even tried to launch his own crypto Facebook money called Libra, which would have no doubt been a huge metaverse play had it worked.

But what I really think will alter users' lives is digital scarcity because nobody is going to care that much about the metaverse if the stuff in the metaverse isn't worth very much. Ultimately people need to earn real value in the metaverse. More jobs in the virtual world can be paid out in tokens. Crypto exchanges and DeFi protocols are actually the first metaverse because they do the economics part.

Ishan Pandey: How does the white label exchange software solution work? What are its intricacies, including hosting and maintenance?

Adrian Pollard: The exchange kit works a lot like a web builder. With WordPress, for example, you are asked where you'd like to host your website, on what domain and with what features.

One popular way to use trading software is to run it yourself, which will require you to configure the exchange, add your coins, host it, and maintain the server yourself. We call it the 'DIY exchange', and it's free. The other option is the no-fuss cloud exchange quick launcher where your platform is automatically hosted and, depending on what subscription, has access to certain features. The cloud exchange skips much of the technicalities and includes the maintenance of the server. Cloud exchanges also include support.

All the standard exchange features found on any modern crypto exchange are included. Features like automatic coin deposit and withdrawal wallets, charts, order entry, orderbook and historical data on all trades.

There are many videos on YouTube showing the intricacies of the admin panel. Soon the admin panel will also include controls for better coin/token creation and simpler coins and token pricing.

An important ingredient to the software is that it is open-sourced, giving teams a wide range of possibilities.

Ishan Pandey: How is the settlement and clearing of cryptocurrencies different from stocks and/or securities?

Adrian Pollard: Atomic swaps just happen to be one of the mechanisms that reduce settlement. Automic swaps are just a fancy way to say 'instantly swap' but aren't commonly used amongst regular centralized crypto exchanges because they don't settle every trade on chain. Instead, centralized crypto exchanges still use a traditional database for the trades but where they differ from a regular stock market is on the settlement.

In traditional trading markets, multiple parties are involved, which makes the settlement notoriously tricky.

Take the New York Stock Exchange as an example (NYSE). They will need to work with a clearing house (DTCC), multiple custody providers (bank), brokers (Robinhood) and then finally, the actual users or traders. All these guys have to work together in unison and you can imagine that is insane when millions of trades are happening at once. To reduce the work, they just defer the settlement, so we have T+2, meaning 2 days to settle. This isn't a problem most of the time, but I think the system is near its expiry date in the age of the Internet.

To boot, these traditional stock market systems aren't very effective globally. They are like walled gardens and it isn't because they want to lock people out but simply because of settlement.

On the other hand, the crypto exchanges handle everything themselves and only interface with the blockchains. At the end of the day, settlement only matters when the user requests a withdrawal. As long as a user can globally withdraw in minutes and take control of their coins we've already got a system that is a million times better than T+2.

Bitcoin is on every single crypto exchange for this very reason. It does a fine job of global settlement.

Ishan Pandey: What are the best cybersecurity practices for cryptocurrency exchange?

Adrian Pollard: There are loads of ways to secure a platform, but the users themselves play a big role in securing their funds at the end of the day. For example, users that activate their two-factor authentication or OTP have already done a bulk of the work needed to secure their assets. Activating two-factor authentication on your email is also critical.

There are also nuances like SMS two-factor authentication that shouldn't be used. You only need to search SIM swap hacking to find out why. But suffice to say, users do play a huge part in security which is why HollaEx prompts users to take security measures.

As for the crypto platforms themselves, internal cases are the biggest threat. Having rigorous internal access policies and good secure hardware. This is why we use specialized HSM IBM tamper-proof machines, the same stuff the military and banks use.

Beyond secure hardware, it is all about the knowledge in blockchains themselves. Each blockchain has its own quirks and if exchanges don't know these quirks, a lot can go wrong.

We are very careful not to rush into the latest and greatest blockchain. Instead, adopt a more meticulous and cautious approach to adding new chains.

Ishan Pandey: What are your views on DeFi hacks and smart contract security?

Adrian Pollard: DeFi hacks are tough to foresee because they mesh multiple chains with different prices, rules and languages. Smart contracts are supposed to smooth at these differences, but when things go wrong, they are amplified since they are pretty much on autopilot – immutable. If there is a problem, there is no easy fix and that is the point. Immutability cuts both ways.

DeFi hacks also reveal a lot of governance issues too. It is only then you start to see who is in control of the system as they rush to fix it.

One way the software deals with this is to use only tried and true standard smart contracts and protocols. For example, the ERC-20 token protocol used for token XHT has very robust smart-contract rules for staking. Beyond that, the DeFi features within the Kit are rather tame in comparison to other DeFi platforms.

Less is more. You only need a small blend of DeFi to provide a lot of value.

Ishan Pandey: What are your views on NFTs and their future?

Adrian Pollard: NFT seems to be an extension on ownership rights. Particularly digital right ownership. NFTs could even extend into physical rights ownership, but that would require all the lawyers and older mechanisms to agree to use NFT as a means for defining ownership.

Software doesn't care so much, so I think ownership rights with NFTs for digital goods are very realistic.

The most exciting part is getting game companies to adopt NFT technology properly. Game companies probably will have a hard time opening their game economies up because they benefit from being closed, but the ones to do it will make a killing. Gaming companies will also need their own crypto exchange to help bridge their internal game systems of value out into the real world.

Ishan Pandey: What role has the pandemic and the persistent lockdown across the globe affected in the development of the blockchain industry and what will the scenario look like in the post-pandemic era?

Adrian Pollard: It looks like lockdowns have only pushed people into trading more. Most didn't have the luxury of a job that could be done through their laptop, so they did what they could and started speculating. This happened in both traditional stocks with gamestop and crypto. I can't say if it turned out to be positive, but what do you expect when people can't work.

Looking at it another way, people have become more business savvy online. Operating a crypto platform just happens to be one of those savvy ideas. My hope is that people see beyond the speculation and focus on clever ways to use crypto tech to enhance their long term business prospects.

Ishan Pandey: According to you, what new trends are we going to see in the blockchain industry?

Adrian Pollard: As mentioned before, I'd like to see the larger video game companies allowing players to actually buy and sell stuff from the game and have it properly reflect real value in the physical world. They haven't really been allowed to do that because game companies aren't financial companies, but this shouldn't be a limiting factor anymore. They should just run an exchange system in parallel and allow their users to connect to the big public blockchains.

I also think NFTs, once the hype goes away, should help play a part in better copyright and ownership rights. The trend will probably heavily focus on NFT profiles, art and other means to show off prestige online, but hopefully, NFTs will be used in more traditional ways too. Real-estate would be the peak, but we are probably a little far away from that now.

Crypto coins and tokens will always trend up on a longer time horizon. Exchanges happen to be the lifeblood for that to happen: the more exchanges, the better. More exchanges mean more decentralization, robustness and an ecosystem with healthy competing interests.