What Proof of Reserves Can Tell You With LeveX

[00:00:03] What does a crypto exchanger's proof of reserve actually tell you? What questions can largely remain unanswered? Yeah, a snapshot might look reassuring, but understanding when it was taken, what it includes and what it leaves out, well, that might require a much deeper look at how the business operates. Well, joining me today is the co-founder and CEO of LeveX.

[00:00:30] We will discuss his move from venture capital into running an exchange, the responsibility of holding customer assets, and the challenge that comes with balancing security, privacy and performance. And he'll also explain today why proof of reserves has limits, how his team approaches verification, and what he has learned about funding product development in a competitive market.

[00:00:57] And we will also discuss community features and AI, and also separate ambitions from capabilities that are already in use. Ultimately, if you're interested in the tech and the business decision behind a trading platform, today's conversation will hopefully offer you something a little bit different and help you take a peek beyond the marketing headlines that we often see in our news feeds. But enough from me. Let me introduce you to him right now.

[00:01:24] So a massive warm welcome to the show. Can you tell me a little about who you are and what you do? Hi, thank you, Neil. Thank you for having me here. This is Harvey. I'm CEO and co-founder of LeveX. LeveX is a platform we built since 2023. It's a centralized exchange. My background, I was having, I hold a computer science undergrad degree. I had my MBA at INSEAD in France.

[00:01:52] And then later I took my career for over 10 years at the venture capital firm in China. Then obviously after many years in venture capital, I realized there's some entrepreneurship or some company, something I want to build. Basically, I decided that we need to build an exchange where the exchange will really treat the users as a partner. So we build all the tools around the users and make sure the traders would have a better experience on our platform.

[00:02:22] We also focus focusing on community. We're building a great idea sharing community inside our platform so users can share their ideas. Also, they can follow their favorite KOLs who actually has very deep relationship with our platform as well. So, yeah. Awesome. And there are so many crypto exchanges out there, but yours is one of the, certainly from what I understand, one of the very few, where you can actually connect with each other, connect with other traders. Where did that community aspect come from?

[00:02:52] What inspired you to go with the community and connecting other traders there? Myself, as I mentioned, I had a tech background and I started learning investment and business. So back in 2013, when I first get into crypto, so when I met so many like earlier crypto investors back in China, we have this offline clubs and the investors clubs. So, so we joined frequently, maybe weekly, even monthly. We just share our ideas.

[00:03:22] But at that time, we think it will be way better. We have an online community. We basically just simply has a trading platform where you can just simply communicate with each other and share the trading ideas, even share live trades. So since that time, I would, I already had the idea to build exchange with all these kinds of features altogether.

[00:03:45] But I think as time goes on, I think the opportunity is more mature when it's back in 2022, 23. So that's when I was able to finally make the decision to just leave the venture capital industry and start to building the company and myself. Yeah. I love it. I particularly love that ability to connect with others because I think the world of crypto and blockchain in particular is incredibly complex.

[00:04:12] And learning from each other, speaking with other people is so important. And on this podcast every day, I try and demystify areas of tech that people, they want to know more about, but often afraid of asking because they want to, they feel stupid or something like that. So, for example, if we look at a lot of exchanges now, there's been some big changes there. Many now publish proof of reserves. But what does that evidence prove and what can it still hide?

[00:04:37] Yeah, actually proof of reserves from, I think, from transparency point of view or from building trust, that point of view, it's quite important for the centralized exchanges to actually publish that. Because using that proof of reserves, the users can easily see or even backtrace their account on the on-chain do verification, make sure they're basically their assets is safe on the centralized exchange.

[00:05:06] So that's why also so many centralized exchanges doing that is an important part of building the trust with the users and also prove themselves it's not simply moving the money around. So, but I think, as I mentioned, it's a good thing to have, but it definitely there's something we need to also to understand the limitations, right?

[00:05:27] So the proof of reserves actually only a snapshot, basically if they do it monthly or do it quarterly, depending on the time they actually do that snapshot. It's just, it's static. It's not dynamic. So that's one thing is only proof at that time, the platform would have that the reserves to actually make sure the user's fund is not, it's fully covered basically.

[00:05:51] And, and the secondly, I think it's also important to know the proof of reserves is only proving was the, the assets is non-chain. But you don't know if like in real world, the companies may have like a, may cover loan from the bank or have a debt from the debitors and then look all that kind of things. So you don't know. So, so that's, that's the side. Yeah.

[00:06:15] And I think the last point is that you, you also need to know actually the proof of reserves is only useful when the proof of reserves contains the quality assets. Basically the proof of reserves, some of the platforms will have their own platform token. If that token accounts, a big part of this proof of reserves, and that may be also a question you, you may want to ask. Right.

[00:06:39] So only, I think the best quality of the reserves will be Bitcoin, Ethereum, Solana, USDT, those kinds of assets will be the best. Yeah. Awesome. So when a user lands on an exchange, say any exchange here, they're looking at that published proof of reserves. Does it ever say anywhere when that last snapshot was, when they do snapshots or are users still in the dark on that? Is there any way they can find that information out?

[00:07:06] Well, I think mostly, I think the company or the central exchange will publish when they will do the proof of reserves. Yeah. Also, I think there's ways if you are savvy enough, I think the exchange will actually label their wallets on unchain. So you can do on-chain analysis, make sure the money has been there all the time, not just last minute. They move it into those wallets and then just to show it at a snapshot that we mentioned.

[00:07:35] But it could be that you can check their bullets and make sure the money has been there for a longer period so you know that they are not just moving at the last minute. Got you. I'd love for you to take us inside some of the engineering choices that are required to provide verifiable solvency without slowing a trading platform down or even exposing it to sensitive information. Can you give us a little peek under the hood there? I think it's like you mentioned, it's a verifiable solvency.

[00:08:06] I think when you're trying to do that, the architectural choice, I think for myself, I'm not fully the technical engineer for my company. I'm overseeing some of the teams doing it. But I understand that it will be a balance, I would say, across security, privacy, and performance. So basically, we want to choose the, first of all, we choose the Merkle tree. That's one of these, basically the users will generate it at the tree leaves.

[00:08:35] The users kind of will be like tree leaves. The tree leaves will grow. Then eventually it's going to build up the tree so they can show the entire assets of the platform. So that's the cryptotology that we use to actually display the proof of reserves. So that's the choice of the mechanism that we use. And also, we don't want really publish any privacy information, right?

[00:09:01] So we only would say we're using, we don't display user IDs or anything. We only display a certain maybe numbers, just showing the user's assets. The user, it will be a chain of, it's chain of code. It was, I can put it that way. So the user, each user will get that code. Then they can go on to the Merkle tree and verify that. Then their account is located in the Merkle tree and they can see their assets there. So this is very variable. So basically.

[00:09:31] Also, it's also performance. It's never good. Actually, you actually do a live code out of the system. So basically we will do, we'll offload some of those datas to maybe like an intermediate server. So, so, so the snapshots will take from there. So it will be way better, lower load for the system, the whole system. So I think that's the way we set up to do it. Yeah. And we started our conversation talking about your origin story.

[00:09:59] What made you want to go out there and create this? But what I'm curious, looking back, what did you learn from building LabX that maybe challenged your earlier assumptions about how exchanges should handle trust and transparency? You probably set out with a certain set of beliefs and why you were doing it. Did that change? Did you learn anything along the way? Oh, definitely. I learned lots of, I think it's learned lots of things from the hard way.

[00:10:23] I think from the, from the experience, like from the paper, I think back in the days, people think of CentralX Exchange will be like all of them is making good money. Right. So people from that point of view, they want to get into the business. But I think at the first day when we started, we didn't really think it's going to be a very small journey.

[00:10:44] We, we had the preparation for the difficulties, but I think the, the lessons I learned at the beginning, we, we have put a lot of investment into tech, in the tech side to just make sure we have the best technology. We have the best security. Also we, we, we are able to do, to provide the transparency as well using proof of reserves, that kind of thing.

[00:11:05] But I think the lessons I learned, I've, we should have invested more basically, and we invested more in the sense that we can get our products developed faster. I think time is very important for, for a business like CentralX because the competition is very, very, very strong. Right.

[00:11:27] So basically we had one story I had is that we have this idea of, I would say a Binance Square, like everybody use Binance, right? So, so we had this idea back in 2022 at the beginning, we have this idea to build a Binance Square. That's a product actually is not, it's not exist at the time. So, but Binance has more investment and the more development team. So, so they build it faster.

[00:11:56] So we are still trying to, to put our own type of a square, a public square product out, but I think it will release this quarter. So we really be slow because the, our team is, is way smaller in Binance. But the, the story is learned that if I think at the beginning we should invest more on the tech side, get more product team, we can develop the, the product of way faster ahead of the competitors. So that will give us more edge over the other exchanges.

[00:12:26] But I think it's not, it's still not too late because I think we did very good investment on our infrastructures. One approve, one approve is that last year when, when 10, 11, the, the crypto prices crashed. And there's lots of centralization experience outage. And we didn't because we had, we have our technical team has built a lot of redundancies in actual server, server, server capacity.

[00:12:54] So we made sure we didn't really experience any, any outage during that time. So that's something we really think we've done it right. And we should have done it more. Yeah. I think you're in somewhat of a unique position here because you've worked as an investor. Now you're working as a founder. How has that changed the way that you judge whether a trading platform has a durable business model rather than a good growth story and, and anything else that you might see differently?

[00:13:22] I think it definitely changed a lot. I think from the investor point of view, you basically, when I was, was working for the venture capital firms. So we basically acting as a minority investor, basically we go in there, we find a promising project. So you invest maybe a minority state, 20, 20% the most, maybe 10%. And we, we would maybe invest a, a similar project, maybe in the same industry.

[00:13:51] We just, just plot our fees, right? So, so we, we wait for it to grow and maybe quarterly, we give some guidance to them and make sure they are not, they are actually, they, they doing the right, proper business management, that kind of thing. But I think it's more relaxed as a venture capitalist than actually go, you're going to business, run it yourself, basically.

[00:14:12] So it would rather be, when we building our own projects, I would be very concerned about, first of all, we, when the product rolled out, we have to make budget and we have to bring users. So basically user growth is very important. And at the same time, we also need to control our budget and control our costs.

[00:14:34] So on the viable business in the actual business world is that you definitely, at certain point, you need to have a positive cashflow. So you, you don't have endless cash. So basically you plan your business based on your cashflow and you managing that. I think that's the most important part. And at the end of also the last most important part is that as a founder and the CEO of the business, you eventually you need to be responsible for what, whatever happens to the company.

[00:15:04] And if there's end users losing any kind of assets on a platform, you have to be responsible for it. I think that's, it's totally different than you running as a, like an investor from a venture capital firm. So that's the major difference. Do you need AI agents that you can trust? Well, with an AI data layer providing real time connection within your data platforms, you can trust your agents to provide accurate solutions.

[00:15:33] So scale your business by trusting your agentic AI, accurately getting the work done for you. Trust its capabilities with Denodo. And you can do that by simply visiting denodo.com to learn more. And I would also imagine that as you, you digital asset markets, they operate across so many different jurisdictions. So that would must bring challenges or problems there.

[00:15:58] So what practical problems have you seen arise when technical architecture, capital requirements and local regulation, if those things don't align? Any stories you can share around that? Yeah, that's, I think it's very, let me put it a simple way. I think we run our companies registered in Panama. So we run a global offshore centralized exchange. Basically we go on the offshore model.

[00:16:24] So we don't particularly target a certain market. So, so basically we only do advertising in English. Yeah. And we do when, when there's strong local authority or strong local regulations, we actually, we just act proactively like forbid those, forbid access to those, those areas. For example, US, UK, Singapore, mainland China, we just blocked access. So we, we are bringing a global brand.

[00:16:53] But if locals are authority, like the strong authority will oppose trust and tell us that maybe certain things that we don't need to do. We, we always happy to, to cooperate. At the same time, we, we also looking at, to get the proper license for the bigger market. For example, Europe. So in Europe, we can, we're trying to get Mika in, in the Gulf regions. We're trying to get Vera from UAE. And that's also in the progress.

[00:17:18] I think in the future we will be, we will also looking at maybe just going to the local, localized market when those proper licenses is in place. Yeah. And for any founder listening, especially in this space behind the technology, when people are trusting a platform with their money, what responsibility should founders accept when engineering or risk decision could have on maybe direct financial consequences for their users? Any advice here?

[00:17:46] This must be, I would imagine it's one of those things that might keep you up at night, but anything you could share around that and the, the heavy burden of responsibility there too. Yeah. I think there's lots of things you need to consider. For example, I think especially in the crypto world for securities is most important. So recently there's exchanges being, being exposed to hackers. So they lose money.

[00:18:09] I think eventually this, this type of thing as a founder and CEO, you have to take responsibility for it. But I think that the top priority for us is to make sure we run a periodic security audit is hacking with this top security forms. Make sure we don't have any vulnerabilities on our platform. That's on the, on the infrastructure side. Also on the, I think on the operational side, we also have rules.

[00:18:37] We have just identify maybe fraudulence and like system loop balls. We have a kill switch. When we see something really going bad, we can, we can just do a temporary suspension on certain operations. So make sure there's no, no money actually losing from the platform to the hackers on the platform. So that's very important. I think on the operational side also, I think it's not, not just only the, the securities will cause users loss.

[00:19:06] Maybe a certain type of like a fraudulent projects. Like maybe just there's so many shit coins, meme coins, or this kind of like a project sort of similar eventually going to cause investors to lose lots of money. So we are actually very, very strict on the listings on our platform. So we only listing some of the top or major, major projects in the system.

[00:19:30] And also we look at maybe better quality projects like stocks and the U S stocks and commodities. Those does have investment grade values, like those kinds of projects we list them. So make sure the users who buy or trade our platform, they, they get the real values and eventually they can make some money. So that's what we believe. Yeah. And of course, as this is a tech podcast, we have to bring in AI at some point. It's almost the law now.

[00:20:00] How are you seeing AI and improving the industry? What excites you around AI in the industry? Anything you're seeing there? Well, there's, there's, I would say it goes both ways. I think AI in one hand, they will help us to, to improve our efficiencies. In many ways, actually they, they, we can, we are building right now, we are building AI agents to help the user to place trading orders. So that makes the user more convenient.

[00:20:27] We also do AI analysis for the coins that maybe, maybe make some just suggestions to the users or traders. And internally, we also using AI tools to assist us to do coding or creating new features and do internal audits using AI tools.

[00:20:45] But I think there's also a downside to AI is that I think the increasing usage of AI, especially the increasing capabilities of AI may potentially causing some threat. Because I think lately there's many, I would say many bugs or, or many system faults actually had been out there for a long time, but recently being cracked by AI, AI big models.

[00:21:12] And the hackers actually utilizing those bugs and then trying to, to get the, try to hack into the, the centralized systems to get the user response. So that happens also. So I think eventually what AI might also do is that there's people just talking, maybe just when the AI and then maybe the quantum computing comes together, they might eventually crack the, the, the, the Bitcoin private keys and all that kind of things.

[00:21:41] So, but I think a, I think when technology grows, I think the, the capabilities of the counterparty grows as well. So I think all our users and programmers and founders, they also aware this potential risks. So we, we would invest more just to increase our security and prevent the disasters to happen. And we have also, we build a systematic plans.

[00:22:09] When something really bad happens, we will, we will, we'll have a kill switch or backup plan to stop it. Yeah. And the industry has come so far in the last decade, it's really evolved and matured now. And I'm curious, if you were to look to the future, how do you see the future of DeFi and decentralized exchanges and, and even how prediction markets could fit in the next generation of financial platforms? How do you see all this evolving? Well, that's, that's the exciting part actually being part of this industry.

[00:22:38] I think given as a founder of the centralized exchange, I do see there's greater potential maybe in the decentralized exchange. And also as the success of hyper liquid is actually creating examples for everyone else. I think decentralized might be, I wouldn't say a hundred percent alternative, but I think it's very good supplement to what centralized is doing. The exchange is doing.

[00:23:05] So basically what it does is allow users to, to still have their own, manage their own cryptocurrencies, but at the same time they can trading on the platform. And also the, the decentralized exchange will create a new type of ecosystem. Basically there's the projects can run their own market making or run their own, how do you say the liquidity pool of those decentralized exchange.

[00:23:34] So, so help the users to better understand or better get involved with the project itself. So I think LabX, as a centralized exchange, we also looking at maybe expand. We are actually a little bit planning on starting a similar projects maybe in the future, but at this moment we want to focus maybe on increasing more features on our own platform.

[00:23:59] Maybe put more gamification on the, on the trading, lots of new tournaments. So get users more involved. And in the future, we definitely, we, we might as, as a, as an investor, maybe we, we take part of, of DeFi as well. So I think this definitely will give us more, more, more future like rooms. Yeah.

[00:24:22] And I'm sure you're locked down and can't reveal too much, but on behalf of all your community that could be listening, hoping to find out a little bit of news or a hint of what's on the horizon. Anything you could share about what we can expect from you guys in 2027? In 2027, definitely. We will lots of new things to come up.

[00:24:43] We have, as I mentioned, we will have a public social square where lots of the top KOLs working with us, like MMCrypto, Caldermoon. They are closely working with us. They will share their private content with us. Or at the same time, you can get on our platform, interact with those top KOLs as well and share your opinions. I think that's going to be very exciting.

[00:25:06] At the same time, we will, we will launch public tournaments and also when we will have competitions as well. So when you trade against your online platform users, then you eventually will win. The prize will be very, very generous. I think that's something we plan to go on. At the same time, you can follow the top traders as well. We will have copy trading, automatic, like a social, social based copy trading.

[00:25:34] You can follow them on our platform as well. And there's lots of exciting things to come. Yeah. Awesome. I think we've given everyone this thing, something to look forward to there. Yeah. Although this is a tech story, I just love everything about your journey and how you've created this environment where traders can not only access a central market functionality, but also learn from each other, talk with each other. And I always say technology works best when it brings people together. And that seems to be what you're doing here.

[00:26:03] So just a big thank you for sharing that journey and how you brought it all to life. Thank you. Thank you. I think Harvey's story today leads me thinking about the distance between presenting evidence and understanding what evidence can support. For example, a reserve snapshot can answer a question in a moment, but it can't describe every liability, every operational control or what happens when conditions change.

[00:26:29] And also his founder's perspective, I think, adds another responsibility here. Product development, resilience, spending and user expectations. They all arrive on that same desk and community features. They may make a platform more connected, but they don't remove the need to question its claims or understand the risks that could be involving it. So big thank you to Harvey for joining me today. I'll include all the links, as I said, on the blog post associated with this. But over to you.

[00:26:58] What evidence would you want in a financial platform to explain clearly before you trusted its account of security, transparency and the way it looks after customer assets through changing market conditions? Love to hear your thoughts on this one. It's not my area of expertise, but I know many of you are passionate about this space. So please let me know. Tech Talks Network dot com. But that is it for today. I'll be back again tomorrow with another guest and a completely different topic.

[00:27:27] That's how we do things here. But I'll speak with you again then. Bye for now.