As the CEO of top-ten cryptocurrency exchange KuCoin, Johnny Lyu occupies an enviable position. The company he leads is responsible for safeguarding billions of dollars of customer funds while innovating to stay ahead of the competition. In November 2020, KuCoin suffered a major security breach that saw $281 million of crypto assets stolen. Thankfully, all of the funds were later recovered through a variety of means, ensuring that KuCoin users weren’t left out of pocket.
Rather than downplay the incident, Lyu has faced it head on, using the experience as an opportunity to rebuild and restore community trust. Here, the KuCoin CEO reveals the reasoning behind this decision and the dividends it has reaped not only for his company, but for its six million users.
Johnny Lyu, KuCoin CEO
You’ve been extremely frank about the hack that KuCoin suffered last year, when other exchanges might have tried to put the matter behind them and move on. What were your motivations for highlighting the incident, and how has KuCoin benefited from this decision?
As the People’s Exchange, we believe our customers deserve to know the truth. The incident has already happened so we cannot ignore the elephant in the room. Instead of covering it up, our choice was to face it and solve it. And only if we solved it properly could we move on with our community. As an exchange serving 6 million users worldwide, we did what we were supposed to do to handle the incident, protect our users and their funds.
We know there are things we did not do perfectly with this incident, but when I look back again today, I see it more as a learning opportunity, which let us find existing problems with KuCoin. As the incident broke out, we were able to respond before it developed and became too difficult to solve. The saying “what does not kill you makes you stronger” resonates with us. I believe that KuCoin today is stronger than we have ever been.
Can you elaborate on the security measures you’ve taken to prevent a recurrence, and explain why you’re confident that such an incident couldn’t occur again?
In the investigation after the incident, it was noticed that the private key leakage of some of our hot wallets was caused by a complex APT attack which damaged our internal network, allowing the attacker to bypass our security system. We have confirmed that the related vulnerabilities were fixed immediately.
Besides, a number of security measures have been implemented by our wallet team and security team to prevent a recurrence, including but not limited to redeployment of all hot wallets, security system upgrade and network security architecture system upgrade. We have also achieved close cooperation with top security and anti-APT agencies to improve the overall security level, and the results will be reviewed by one of the Big Four accounting firms later this year with a security standard certification.
It is worth noting that with the help of our exchange, project and security partners, 84% of the stolen funds have been recovered while the remaining 16% have been covered by KuCoin ourselves. So all users have gotten their tokens back in full as we promised.
While operating an exchange, security is always our main priority. After recovering from one of the most severe security incidents with all users’ funds secured, we will not fear any security challenges going forward. The security level of KuCoin has been greatly improved, and we’ve also proved that we have the responsibility and capability to protect our users even in the face of challenges.
What has the response been from KuCoin’s users to the way you handled the affair, and the measures you took to ensure they weren’t left out of pocket? Do you believe that you have increased trust and restored KuCoin’s reputation?
Since the inception of the incident, we have been trying our best to handle it in an open and transparent way. A few YouTube live streams were arranged in which I was there to introduce the latest updates. And we were also updating the progress of service resumption and funds recovery on a daily basis through our official announcements and social media channels.
Regarding the response of our users, I was personally quite moved that rather than blaming us, many of our users encouraged and supported us in this very difficult time. It’s also totally understandable that a few users are panicked or impatient, but as they got to know the difficulty of dealing with this kind of incident, and as they saw a growing number of services had resumed and funds been recovered, many of them came to appreciate our quick actions and are even getting more confident in KuCoin.
Building trust is a long-term journey and it took us three years to build the strong KuCoin community today. We will continue to build, gain more trust and grow our community.
This year we’ve seen some remarkable scenes in the traditional markets, with “the revenge of retail” punishing Wall Street short sellers and the subsequent backlash driving mainstream users to crypto. What are your thoughts on this trend, and do you believe it could create a perfect storm for crypto and defi adoption?
The dissatisfaction of retail against Wall Street has been accumulating for a long time and the WSB affair is simply what triggered the outbreak. This is surely an opportunity for crypto as lots of celebrities are now talking about crypto – mostly Bitcoin and Dogecoin – lately, driving lots of new traffic to the crypto space.
The attention from outsiders will increase mainstream recognition of crypto but will not in itself improve the intrinsic value of the industry. The value blockchain and crypto can bring to the world still depend on us builders. The good thing is that as a result of the WSB incident, the value of censorship-resistant dApps has become apparent.
Take Mirror Protocol, a DeFi protocol that is newly listed on KuCoin, for instance. The protocol allows users to issue and trade US stocks, and many people see Mirror as the decentralized counterpart of Robinhood. As Robinhood stopped users from buying GME and AMC stocks, Mirror decided to launch GME and AMC. If it’s approved, GME and AMC stocks could be issued and traded on this platform.
These initiatives have helped Mirror attract lots of attention and users. According to the latest data, 30K of transactions were completed on the platform in 24 hours with a fee of 100,000 UST (a stablecoin that pegged to the US dollar), reaching a total locked value of over $322 million, while the price of MIR tokens reached an all-time high on KuCoin.
The rise of decentralized exchanges has given their centralized counterparts food for thought. Do you see CEXs as being in competition with DEXs, or is there scope for both platforms to coexist? And how does the rise of DEXs play into your decision to list defi assets that are native to AMMs and decentralized finance?
The growth of DEXs looks promising but I don’t think DEXs will eventually replace CEXs. Rather, they will coexist in the future as they each cater to the needs of a certain group of traders.
As the home of crypto gems, KuCoin is happy to list and support all promising blockchain projects; actually many DeFi tokens are pleased to have primary listings on KuCoin even though they have been listed on top DEXs. And we are also working on our decentralized trading solutions as the mission of KuCoin is to be the bridge-builder in the blockchain-based future, connecting global investors and valuable blockchain projects worldwide.
One crypto growth area that KuCoin is supporting is NFTs. Do you believe NFTs are the next big growth area in crypto, and if so, why?
NFTs are actually not a new concept and can be traced back to 2012. But starting from 2017, significant growth has been seen with the market cap of the NFT industry up 482%, 17%, and 50% in 2018, 2019, and 2020 respectively, according to data from Cointelegraph. The value of NFTs transferred also reached a new high in 2020, topping out at about $250 million.
The future growth and prosperity of NFTs is driven by our inner need for ownership. Crypto allows people to be the real owner of their money, and NFTs have the potential to allow people to truly own other types of assets, from property and football tickets to gaming items.
KuCoin has been working with a number of NFT projects like LUKSO, DEGO, VIDT and SENSO, and all of them have seen holder growth and adoption increase in 2020. LUKSO, for instance, is dedicated to integrating NFTs with the fashion industry, and their NFTs have been implemented in many events like the Helsinki Fashion Week last year.
To further contribute to the NFT industry, and support more promising NFT projects, KuCoin’s NFT exchange will also be launched in the first quarter of 2021.
You’ve noted that there are plans to enhance fiat onramps with the addition of support for PayPal. How important do you believe better fiat integration is to onboarding retail users, and are there plans to further augment KuCoin’s existing on- and offramps?
From fiat to crypto is still one of the biggest obstacles for crypto adoption. The process is easier in countries where clear regulations have been introduced. KuCoin is offering services to over 200 countries and regions, and we noticed that in many developing countries, lots of investors are willing to embrace crypto while the door is closed to them.
For example, our traffic from Bangladesh is on the rise throughout 2020, while before KuCoin became the first exchange to offer peer-to-peer fiat trade service in BDT, crypto traders in Bangladesh could only complete fiat-to-crypto trade in Telegram groups where the admins perform as the intermediary to match the transactions. This is a method with low efficiency and high risk.
KuCoin currently offers two major ways to buy crypto: buy with credit card and peer-to-peer fiat trade. We will continue to support more fiats and payment tools, and we also have plans to introduce fiat pairs later this year.
Can you elaborate on any of the plans that are in the KuCoin roadmap for this year, such as adding isolated margin trading, leveraged tokens and DEX support?
At the product level, KuCoin is going to introduce more services to better cater to the trading needs of both novice and experienced traders. A lite version of the KuCoin app and KuCoin in-app trading bot are more for crypto newbies. And features like isolated margin and leveraged tokens are designed for traders with a more advanced trading strategy.
At the asset level, KuCoin has listed over 200 promising projects and we will continue to find the next crypto gems. This will be achieved by our blockchain project research team in multiple continents, and we will also focus more efforts on our native token KCS, making it one of the most precious gems on KuCoin.