OKX Founder and CEO Star Xu Says Exchanges Should Profit from Technology Services
OKX Founder and CEO Star Xu stated in an interview on the New Era Finance Podcast that exchanges should make money through technology and services, rather than using customer funds for profit.
He recalled that the team had contacted Three Arrows Capital, which proposed a plan to use customer funds for profit, but he expressed no interest. He also chose to reject requests from other prime brokers for credit limits and delayed settlements.
Xu emphasized that even with rapid growth in platform-managed assets, ensuring the safety of customer funds remains the most important principle to navigate industry cycles. He pointed out that many have repeatedly suggested ways to earn profits using customer funds held by the exchange, and his answer has always been negative.
Since November 2022, OKX has released monthly Proof of Reserves reports, with the latest 48th edition showing major assets of approximately $29.4 billion, a BTC reserve ratio of 110%, ETH around 100%, and USDT about 105%. He described trust as a verifiable release schedule rather than a mere promise, citing the principle of "Don't trust, verify."
The interview also touched on the October 10 incident, linking the related liquidations to leveraged yield products rather than the stablecoins themselves. Xu believes that customer assets should not become operational capital for exchanges.
Market Mechanism: Refusing to use customer funds for profit or credit reduces the risk of exchanges facing defaults due to re-hypothecation, enhancing the safety of user funds and potentially attracting more stable capital inflows; the model relying on customer funds for additional profits is under pressure, while platforms adhering to 1:1 reserves and verifiable transparency benefit from a trust premium.
Source: Public Information
ABAB AI Insight
OKX, formerly known as OKCoin, was founded by Star Xu in 2013 and later rebranded to OKX. It has continued to operate through multiple industry crises and began releasing monthly zk-STARK-based Proof of Reserves reports after the FTX incident in 2022 to demonstrate full reserves of customer assets. The company has faced compliance penalties in places like the U.S. but has advanced compliance through licenses such as the European MiCA, creating a path difference from some early platforms that relied on re-hypothecation of customer funds.
In terms of capital strategy, Xu chose to reject the profit proposal from Three Arrows Capital and requests for credit and delayed settlements from other brokers, locking revenue sources in transaction fees, products, and technology services, rather than using customer assets as operational funds. This choice avoids converting custodial assets into profit tools, thereby reducing the risk of runs due to counterparty defaults or liquidity mismatches during market downturns.
This stands in direct contrast to FTX's use of customer funds for related party investments or profits and is closer to the constraints imposed on traditional custodial banks and securities brokers under regulation that prohibit arbitrary use of customer assets. The current cryptocurrency exchange industry is transitioning from a "high-leverage profit-driven" model to one focused on "verifiable custody and compliance services," with OKX positioning itself more as an infrastructure provider rather than a profit provider through continuous PoR and refusal to re-hypothecate.
Essentially, this reflects regulatory changes and a reconstruction of trust mechanisms: after multiple industry collapses due to the misappropriation of customer assets, verifiable 1:1 reserves and the principle of "Don't trust, verify" have become core variables distinguishing the survival capability of platforms. The mechanism is that the transferability and anonymity of crypto assets lower the cost of misappropriation and delay detection; therefore, only by making reserves public and allowing users to independently verify can trust be transformed from a promise into a verifiable structure; otherwise, customer funds always face the risk of being converted into platform leverage.
ABAB News · Law of Cognition
- Custodians earn service fees, misappropriators earn the last penny.
- Trust is not a promise; it is a verifiable release schedule.
- Once customer funds are treated as operational capital, the cycle becomes liquidation.