Beosin CEO Joe // Web3 Accountant Radio Ep18 Transcript
As a practitioner with 20 years’ career in Hong Kong’s financial industry which spans investment banking, asset management, regulator and market operator, and most recently in Virtual Asset Service Providers (“VASP”), Joe is very confident that his expertise, experiences and especially his networks with the financial institutions, government authorities, regulators and law enforcement agencies, are quite unique.
His latest career endeavor combines all his skillsets to promote web 3 data analytics solutions including risk assessment, monitoring and investigation tools to empower businesses, authorities, regulators for a transparent blockchain experience.
Founded in 2018, Beosin is a world-leading blockchain security and compliance solutions company. Its formal verification technology and on-chain data intelligent analysis technology are internationally leading. The company has discovered more than 45,000 security vulnerabilities, and has accumulated over 2 billions of wallet address labels.
Beosin’s business covers smart contract security audits, VASP compliance audits, exchange security and anti-money laundering solutions, stablecoin monitoring solutions, and all-in-one solutions for stolen virtual asset tracking.
Business includes
- Smart contract security audit
www.beosin.com/service/audit
- KYT (Know-Your-Transaction) AML anti-money laundering solution
www.beosin.com/product/kyt
- On-chain stolen virtual asset tracking service
www.beosin.com/service/tracing
In this conversation, we dive into:
1.How would a exchange / platform know that incoming digital assets is safe?
2. Is KYT mandatory or optional?
3. On-chain Monitoring
4. What to do when you are receiving tainted digital assets
5. Fund tracing
6. Why did Joe decide to enter the Web3 space?
7. Hong Kong VASP scene
8. One key finance / compliance lesson from Joe
9. What is Joe looking forward to in the Web3 space?
And more!
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Connect with Joe & Beosin👇
Linkedin: / xyzorong/
Website: https://beosin.com/
Email: [email protected]
Tg: @xyzorong
Hi everyone, welcome to the Web3 Accountant Radio, the podcast where we dive into the fascinating world of Web3 Finance and Compliance. I’m today’s host Diana and my partner is Wei Xiang. Hello Wei Xiang.
Hi Diana. And today we have a special guest called Joe, and as a practitioner with 20 years career in Hong Kong’s financial industry which spans investment banking, asset management, regulator, and market operator, and most recently in virtual asset service provider. Joe is very confident that his expertise, experience, and especially his networks with the financial institutions, government authorities, regulators, and law enforcement agencies are quite unique.
His latest career endeavour combines all his skill set to promote Web3 data analyst solutions including risk assessment, monitoring, and investigation tools to empower business authorities, regulators for transparent blockchain experience. And welcome you Joe. Nice to meet you.
Thank you both. Thank you so much for having me today. Thank you.
Today we are very lucky to have Joe on the podcast itself. Today if we are payment service or exchange compliance head and you would like to understand about KYT, about how do that the funds from customers is safe. This is a very special opportunity to listen directly from Joe for 15 minutes about this topic.
I think Joe before we start the podcast, very happy that today Bitcoin has reached all-time high. Everybody is very happy. Yes.
When we were chatting with the client, we were just watching the screen and when the BTC became ATH, because we were betting that the future of the blockchain or Web3 would be bright and this kind of ATH today actually happens at the right time. Yeah I think it’s very exciting as we record this podcast Bitcoin has reached ATH. For an exchange itself or any platform when they receive funds maybe on behalf of customers or receiving funds themselves, they would face an issue if they do not check the funds coming in.
How would a platform know that incoming funds are safe? In the traditional world, in the Web2 world, the banks would do the checking but how about in the blockchain world? Right, you actually point out a very big difference between Web2 to Web3? Most of the time when some of our clients want to upgrade from Web2 to Web3, they are really worried about the KYC part because in the traditional finance, everything goes through intermediaries which means banks or sometimes custodians, they will do the very strict KYC process in which they will actually check their identity as well as the address proof and fund proof of the clients to finish the onboarding process. But as you might know in the Web3 world, most of the time when you face the wallets, all you see is a bunch of address and this really makes a lot of compliance officers or some of the government officials or even some of the potential Web3 entrants who are very worried. What we can do to alleviate all these kind of worries, this is something I want to introduce you which is called KYT, Know Your Transactions.
That is the equivalent of the KYC in the Web3 world. What we do is we’ve built a huge database of the address, wallet addresses with the tag. We tag them with the labels that we know of and from some of the base labels which we know they’re already really risky, for example we collect this from OFAC, we collect them from some hackers reports, we collect them from the social media where you have this kind of security instance.
These are all those public addresses. So that we have a base of the address that we use our AI and big data to track those transactions that they actually do and in this case we are able to track down those root addresses and those that interact with them. We tag those addresses with the label.
For example, as we already know some of the addresses are from scammers, then we can track down those scammers address and we can go through all these address and track down that those address that have interacted with those address and tag them. So that once we have this database everything else is very similar to what we do in the Web2 world where normally in your KYC system you do a world check, you have a KYC system, you input your name, then the name will then search in the database and give you a result. In our case it’s the same.
When you do the transfer from wallet address to your custodian or in your account, what we do is that we use this information to match our database and give you a score of all the LRA addresses that actually have come through the address. That will give you a risk scoring. In this case when the client they were actually real-time scanning all those LRA addresses and you have a basic understanding of who you’re trading with.
In this way we actually built this kind of way called KYT to help our traditional finance guys or those kind of Web2 people to understand more about the risks and do their risk management. I think this has been widely used in exchanges or even some DEFI or even OTCs. Is KYT mandatory or optional? Right now for I think for the license exchanges these are mandatory.
But for the DEFI where they basically there are no regulations. I don’t think they are quite regulated or there if there is any regulations saying it’s compulsory. It is up to the DEFI guys whether they want to be more compliant, whether they want to know who they are trading with.
But I really strongly suggest them to do so based on my background as a regulator. Oh okay. Other than KYT itself can you tell us about on-chain monitoring? Okay on-chain monitoring is basically like a monitoring system where you can keep looking at some wallet address so that once they are trading with some other addresses you will be alerted when there is anything wrong.
Everything happened on-chain it’s quite transparent. What we actually do is just to increase the transparency and use of the system to see the money flows within these wallets or in and out of those wallets. We are able to do that.
It’s called ongoing monitoring as well. Ongoing monitoring. The thing is today I have a customer that onboards onto my exchange.
His wallet is clean because he has just started. However if he does subsequently do dirty things and his wallets become tainted, will a system flag it out for me? Because I realized in the web2 world when we do a name check we only do it at the start. We don’t do a name check every day.
Yes you are quite right. With our ongoing monitoring system actually every time if they ever traded with other risky address and the risk rating changes you will be alerted. This is one of the services that we provide to our clients.
We understand that every day they are doing transactions so it’s highly likely they may have traded with some polluted or tainted addresses that they need to be aware of. We do take care of this part. So don’t worry about this and you’re raising a very good point as well.
Nobody wants their wallets to be tainted but in the Web3 world one of the issues that I face or any exchange face is we cannot stop money from coming in. So today if a tainted wallet were to send funds to our wallet we would also have to receive the funds because we cannot block the money. But in this case will it make our wallet also become tainted? Because this is actually some of the questions that I face when I speak to people like our customers they are concerned about this.
There are some ways that you can eliminate those risks. For example once they are in, once you already receive them you can freeze their accounts. That’s one way to do it.
For the second way is that when you are about to transfer especially for those exchanges that they are dealing with other wallets every day they will ask these senders to send their address as a quick proof so that they don’t trade it yet but you check it before they send it. These are the ways that you can prevent your wallet from being polluted or being tainted by those poisonous or problematic addresses. I see thank you.
At this point in time after hearing so much about KYT and on-chain monitoring are you able to introduce the Beosin platform to us? Actually our Beosin we are three parts of a business. Three parts. One is smart contract audit which is where we started in 2018.
We were among the first company that does this kind of business and then we are on our way to serving our Web3 projects. We developed the KYT system as well as the fund tracing part. So overall we have three parts of business.
One is smart contract audit. The other is the KYT ongoing monitoring which I already mentioned and there is one more part called fund tracing. It’s more for the investigation and law enforcement or even some investigation specialists or professionals.
So what we do is that the KYT part is more for the pre-monitoring or compliance to prevent those addresses or prevent those wallets from getting some problematic money. And for the tracing part is when the damage has happened just like what you just said. For example you have sent money out to an address which you then realize that it’s some scammers took your money and then you want to trace it back.
Again using blockchain’s traceability or this kind of special attribute of blockchain you can actually map where your transaction is going. That’s what our tracing do basically you can track each wallet one by one to go through the addresses and until you reach some destination where you realize this is some exchange accounts then you can issue a letter to the exchange account to ask for forensic and then they will then get the KYC data. You will then get the identity of this address.
This is how you close this kind of loop. It’s pre-monitoring and then you got trace three parts. Wow so Joe I think you have shared a lot about how we can keep funds safe and in the event that funds are stolen how we can use tools to actually trace it and including law enforcement itself.
But in today’s episode other than hearing the professional side of you we would also like to hear the secret side of you that is not shared publicly. Diana the time is over to you. Okay so let’s move to today’s free talk session and in this session we will explore with you, your inspiration for entering the Web3 field and your outlook for the future.
The first question is why did you decide to enter the Web3 space because you have had a role with the Hong Kong exchange and the SFC. What drew you to the blockchain? That’s actually my profile is not that secret. You can log into LinkedIn and find me J-O-E.
You can actually see my profile which is quite public and the question you raise is actually something that I’ve been thinking how did I end up here and one of the explanation is that blockchain is something I’m a computer guy. If you look at my academic background I have my computer science degree so that I’m from engineering background. When the blockchain actually came out to existence I realized this could be something that could change the world.
I became really fascinated with it and then after a few years of studying it we actually had some chance to get closer to it when I was in Hong Kong exchange. Somehow they studied the blockchain and trying to maybe trying to launch some product like CME did launch Bitcoin futures. That’s when I started to study Bitcoin and the blockchain.
Basically I realized this is very interesting topic because it will change the way the settlement and clearing works. I decided to give it more study myself and after a while after I been with the exchange for a while I became trying to do something on my own. I did some mining myself and realized that it actually happens and the blockchain has this kind of good things about it so that people are beginning to do more things about it.
For example they have more coins, more chains, more layer 2 chains, more Web3 Dapps around it. The ecosystem become more and more. I think it’s becoming more developed every single day.
Developing very fast and at the same time we also heard so many negative news about it. For my background as a blockchain regulator I really wanted to do something about it. On one hand I believe in the future of blockchain.
On the other hand I also wanted to join a licensed exchange because my background was with the Tradfi exchange. I decided to join the licensed exchange to see how it really works. When Hong Kong approved the first VATP which was OSL in 2021, I became the first head of BD there trying to expand my business.
At the same time I really want to observe how to regulate this kind of cryptocurrency. That’s how it all began. Then I was with Hashkey also trying to explore more about Web3 and blockchain.
Bit by bit I realized that there are so many new things surrounding the blockchain especially the Web3. I think you have mentioned OSL, Hashkey. What do you think is the direction where the Hong Kong VASP scene is heading? Because I think one year ago everybody was very excited when Hong Kong was going to launch the VASP license and many people joined the list itself.
Subsequently for some reason quite a number of players decided we are going to drop out and then yes currently there’s still some players on the list itself. So where is the direction heading in the next one year? That’s a good question because I was among those exchanges that dropped out during that time because after Hashkey I joined another global exchange which was going to apply for license then somehow they dropped out of the process. So that’s another topic.
But I think this year if you join the Hong Kong FinTech Week you will see everything is different and the narrative is more institutional. Compare with Singapore, I was also at the Token 2049 in Singapore in September and you can realize that the atmosphere of Hong Kong is very different from Singapore.
In Hong Kong we are more, the government is pushing more on the stablecoin issuance as well as the RWA and at same time to try to make sure the OTC is regulated. Everything put together I think Hong Kong is now building a complete ecosystem for a large-scale or mass adoption of the blockchain technology, DLT. I don’t want to say crypto, it’s not crypto, it’s token.
Tokenization, that’s the keyword. If you notice I didn’t use, I always say DLT or blockchain but I think crypto is only one application of the blockchain. And for now Hong Kong’s focus is more on the institutional adoption of the blockchain technology which has the stablecoin as well as the RWA, as well as the OTC part.
And we are building, it’s part of the ecosystem in that we provide this kind of compliance tools to let the system, to keep out of the system of this negative or poisonous or polluted coins of getting into the system. That’s why I think we have a lot to do in the future. And Hong Kong is heading towards a very compliant and safe tokenization institutional W3 environment.
That’s what I’m thinking. Yeah I think it’s going to be a very exciting year for you guys being one of the market leader in doing a key infrastructure safety part of all this institutional adoption. Like you mentioned just now, if you are an institution, KYT is mandatory if you want to get licensed.
This is the space that Hong Kong is going towards. Yes, it’s all written in the regulations now. It’s mandatory to have this kind of KYT system in place.
However, what I noticed that even though we all keep on saying this, a lot of the Web2 enterprises or this traditional finance, they still haven’t know how to do this properly and they are really scared. So I really want to make use of your channel to make a big shout out to those people who are still hesitating. Please just know that there are tools to help you.
Don’t be that afraid. And the time has come. You have to act now.
Because you mentioned that there are a lot of institutions in Web2 want to enter the Web3 space. I believe that during your career working with the regulation of the crypto, you have a lot of experience in the crypto regulatory. Do you have any lessons or experience that is very valuable to share with our listeners who want to enter this field? Enter the regulators field or just Web3? Like if they want to be successful in the Web3.
They need to abide by some rules. Maybe previously they are a Web2 financial institution. Because this is what I’m saying.
There are Web2 financial institutions that they may pick up a certain portion of trying to enter the tokenization. I think in Singapore, Philips Security is one example. Philips Security, they are known as trading brokers of equities previously.
And now they are doing a custody action and then they are doing a RWA action. This is something that we are seeing a trend towards. Even traditional Web2 payments companies are thinking of, can I add a blockchain arm into my field? What is one tip that you would give to a project head or the CEO who is looking to enter this from a finance or compliance perspective? I think there are several things.
First of all, you have to be confident. You have to keep the faith. A lot of this kind of traditional finance, they haven’t made up their mind because they don’t see the future.
They are afraid, oh, if I invest a lot, what if I cannot get back what I invested? This is always the worry. What I’m trying to say is that this is the future. You have to be very confident that the future will come.
This is the first thing. The second thing is that they have to take some lessons to study more, to participate in our training courses, to understand how it works, to alleviate their worries. That’s the second thing.
And the third thing is that there are not much, I don’t think they need to invest too much because there are a lot of these kinds of service providers out there. And I think now the service providers are getting more and more, they are charging less now because there are more users. At the beginning, I think they were very expensive, but now I think the costs are much lower than before and more affordable.
There are several things I can say to them for the institutions that the time has come for several things, just to be confident and to study more, do your research and try some different service provider to help you to get this done. You don’t have to do it yourself. A lot of times when we approach those brokers or those institutions, when they tell them what to do, they are really afraid, oh, how can we do this? What if we don’t have the tech team to do this? And they have to know that a lot of things actually are borrowed from Web2 to Web3, TradFi to this kind of blockchain finance, let’s say.
A lot of things are just borrowed. What they are different is the on-chain part, which is the wallet or the custody part. This is the key.
And the second part is the compliance part. And the third thing is the cybersecurity, where they have to be very, very sure that they are able to stand those hackers attack. These are the key things they have to understand.
Other things like trading, like the settlement, they are very similar to Web2. Thank you. So I think one thing is very interesting that you have mentioned that I realized the cost of software or good software is going down, but the cost of licensing or compliance costs is going up.
And there are other service providers earning, but definitely I think the cost of good software is going down compared to previously. Yes, yes. I can tell you that as more and more service providers getting in this field, the costs are bringing down significantly already.
And we are one of them. We are trying to bring this kind of service to an affordable level so more mass adoption can happen. Okay.
Thank you very much. What are you looking forward to in the compliance or the security aspects? Securities. Maybe in the compliance aspects, what are you looking forward to? Well, in compliance aspects, I think every compliance officer should take some courses to understand how KYT works and how to… Are there some courses that you can give a shout out to? Yes.
The one you just mentioned, maybe it’s about time that you can give everybody a little information about this, the course. Oh, so the course that I’m teaching is I’m teaching a crypto accounting course in December at ISCA itself. Yeah.
I will be covering KYT as well. Thank you, Joe. Yeah.
Yes. We need more people like you guys to have more training courses and we can always be there and provide a lot of support. I think right now the compliance part is the most important thing.
The education part is the most important thing. Education of compliance officers. Yes.
Yep. So Joe, the other thing that I want to speak to you because on my channel, I actually have outreach into people from Africa, people from Kenya. There is one huge part of my channel and the support very thankfully that I have people from them.
Being based in Hong Kong and today this show, I’m based in Singapore, would you be able to support customers from Africa as well? Yes, of course. We love to, and we don’t have the right channel. If you can use your channel, that will be great.
We’d love to do that. Okay. Yeah.
Thank you Joe today for joining us on the podcast. Any last words from you, Diana and Joe? Diana first. Okay.
Thank you very much and very thank you, Joe, to share your insight and your idea about Web3 today and to our listeners, thank you for tuning into the Web3 Accountant Radio. If you enjoyed this radio, please subscribe and leave a review. Thank you very much.
Yep. Just thanking Web3 Accountant for having me. What you’re doing are really meaningful and I hope I can take part in your courses, in your trainings and your podcasts more, and we hope to interact with your audiences more.
If the audience are interested, please just Google us, Beosin. It’s very easy. There’s one name up there.
You will have a lot of information on website and if you want to contact me, you can find me on LinkedIn as well. Thank you so much for your time. Thank you very much.