Fatfish Internet Group (FFG) announced today the company has entered a legally binding term sheet to invest $1 million USD of seed capital into Kryptos-X, which is an early stage cryptocurrency exchange founded by Australian entrepreneur Tony Mackay. Mr. Mackay was the founder, CEO, and Chairman of Chi-X Europe and Global, the alternative stock trading platforms which operate across various international markets.
Kryptos-X is being established as an electronic marketplace for high-volume and high-frequency trading of bitcoin and other major cryptocurrencies. Singapore has been chosen as the place of establishment for the exchange as it is a well-regulated environment which currently has two crypto exchanges, Coinhacko, and FYB-SG.
The proposed transaction will see FFG and Mr. Mackay enter into a joint venture arrangement. FFG will be issued with preference shares in the capital of the holding company which will own and operate the electronic exchange and marketplace. FFG’s interest will be equivalent to 27% of the total voting shares on issue. Following the issue of the preference shares, FFG will be entitled to appoint two directors to the board of Kryptos-X. Additionally, FFG has invited Mr. Mackey to join its Board as a Non-Executive Director following the transaction. The parties will seek to enter into a formal joint venture agreement on industry-standard terms.
The investment in Kryptos-X is consistent with FFG’s activities as an internet venture builder and incubator. Fat Fish Internet Group stock, trading on ASX, was up over 50% today on the news.
The Proposed Operation of Kryptos-X and Regulatory Environment
The operations of the electronic marketplace will initially be based in Singapore and open to Singapore citizens and residents. The strategy will be to expand into other jurisdictions where the regulatory frameworks permit the trading of cryptocurrencies.
The exchange will deal exclusively with blockchain technology-based digital assets and cryptocurrencies that do not carry features of securities nor Collective Investment Schemes (CIS) in accordance with the definitions in Singapore Securities and Futures Act (SFA). The exchange will accordingly not need to be regulated in accordance with the policy of the Monetary Authority of Singapore (MAS) stated in its announcement titled “A Guide to Digital Token Offerings” published on November 14th, 2017.
Further to this, the MAS allows digital tokens that are deemed to have features of securities of CIS to be offered on a primary platform like Kryptos-X if the primary platform has obtained a Capital Market Services (CMS) license and the digital tokens are offered according to the prospectus requirements or exemptions under the SFA. SmartFunding Pte. Ltd., an investee of FFG, currently holds a CMS license. Kryptos-X may in the future seek to partner with SmartFunding Pte. Ltd. If it elects to provide services that are subject to regulation under the SFA in the future. Kryptos-X would also need to comply with relevant policies on money laundering and countering the financing of terrorism (AML/CFT) requirements drawn out by the MAS via public notices. The MAS also intends to establish a new payment services framework in the future that will specifically address the AML/CFT requirements in the relation of dealing with cryptocurrencies that Kryptos-X intends to comply as and when this payment services framework comes into effect.
FFG has obtained legal advice on the legal and regulatory requirements of establishing an operating an exchange in Singapore FFG has also sought legal advice to confirm that there are no legal requirements in Austrailia that would prevent an Australian company from making an investment into an exchange in Singapore and that there is no requirement to hold an Austrailian Financial Services license.
Preparation for the Exchange
FFG notes that Kryptos-X exchange is in the early stages of development and is working with the Kryptos-X team to commence the preparatory steps outlined below:
- Design and finalize the software requirements
- Identify third-party providers to supply or build the software infrastructure for Kryptos-X
- Integrate relevant KY/CFT requirements of Singapore
- Identify and partner with financial institutions to allow for the integration of payment gateway or related services into the Kryptos-X exchange
- Identify and hire the relevant personnel to manage and run Kryptos-X
- Identify and partner with service providers that could supply or act as a clearinghouse for cryptocurrencies.
The $1 million proposed investment from FFG will be dispersed over a period of approximately three months from the date of signing off a definitive investment agreement between FFG and Kryptos-X. The proceeds from the investment will be used by Kryptos-X in the following manners:
- 20% – incidental setup cost to build up the operation
- 40% – for hiring key employees of Kryptos-X
- 40% – for building the software system required to run the operation of Kryptos-X
Kryptos-X’s day-to-day operation will be led by Tony Mackay and it will initially have four employees to assist in the development of the platform. The FFG team will be headed by FFG’s CEO Kin Way Lau and a team of 3 other FFG employees.
The management of FFG believes the strategic investment into Kryptos-X will be an important piece of FFG’s overall strategy to include investments within the blockchain and crypto industry. FFG intends to use its unique co-entrepreneurship and venture building model to accelerate the growth of Kryptos-X.
Regarding the proposed venture, FFG CEO Kin-Wai Lau said:
“We believe the global financial services industry, as we know it today, it about to be upgraded by a giant wave of disruption caused by the adoption of new blockchain derived technology. Cryptocurrency exchanges are beggining to play a role in this digital finance industry and they will come more regulated across the globe with their increasing adoption. With Tony’s background in setting up electronic financial markets in major financial hubs, he is the perfect partner to take on this new world finance in a professional and regulated envorinment. It is disruption meeting mainstream capital market, in a perfect combination.”
Kin-Wai Lau is a well-recognized technology entrepreneur in Southeast Asia who founded his first technology company when he was 23 and has since then taken three technology companies public.