This note is intended for VALR’s investors, as well as our current and future customers, to share where we are, what our feature roll-out plans are, the rationale for our chosen path, and some reflections on our short history to date.
Where we are
On 6 December 2018, VALR went live. We launched our website and opened registrations for customers to be placed on a waitlist for our limited-access launch.
In the first 10 hours after going live, we averaged one sign-up per minute and we welcomed our 1,000th customer shortly thereafter.
With registrations now open, the VALR team is focused on getting to the next important milestone of activating customer accounts for trading. We will start activating accounts within the next month and will continue activating accounts in rolling batches, giving priority to those who have actively participated in our referral programme and those who are on the top of the waitlist. (As a side note, we’ve been delighted with the positive feedback we’ve received on our referral programme, which gives our customers the potential to earn thousands of rands in rewards and rebates.)
Before activating any customer accounts and accepting any customer funds, we are ensuring the security and integrity of the VALR platform. In addition to the work of our own dedicated cyber-security team, we’ve hired two cyber-security firms to ensure no effort is spared for VALR’s security.
Once activated, customers will have access to the following features, in order of release:
1. Simple Buy/Sell | Crypto-to-crypto
- Customers can fund their accounts with bitcoin (BTC) or ether (ETH) and buy or sell over 50 cryptocurrencies instantly.
2. Exchange Buy/Sell | Rand-to-crypto
- Customers can fund their accounts in rand (ZAR) and place orders on two order books: bitcoin-rand (BTCZAR) and ether-rand (ETHZAR).
3. Simple Buy/Sell | Rand-to-crypto
- Customers can trade their ZAR for BTC, ETH and over 50 other cryptocurrencies instantly.
Once the above features have been released, we will introduce more trading pairs as part of our Exchange Buy/Sell order books and will introduce more cryptocurrencies onto the platform.
Why this path?
One of the most difficult challenges for any exchange to solve is liquidity. It’s not enough to build a beautiful, technologically-advanced, and secure platform. A healthy community of buyers and sellers is needed to ensure that buyers can find sellers and vice versa. A cryptocurrency exchange is the quintessential example of a network effect: the more users the platform has, the more valuable it is to every user.
As a new startup, we needed to find a solution to make sure our very first customer would have access to a wide selection of cryptocurrencies at competitive prices. It was clear that we had to source liquidity for that very first customer, and by partnering with Bittrex, one of the largest cryptocurrency exchanges in the world, we’ve been able to do just that for crypto-to-crypto trading.
We are starting with our Simple Buy/Sell feature as most cryptocurrency exchanges require more than a basic understanding about how financial markets work. Terms such as “bid”, “ask”, “limit order”, “order book”, etc. can be daunting to novices who want to explore the crypto world. With VALR’s Simple Buy feature, all one needs to do is:
- Select a cryptocurrency to buy;
- Enter the amount of bitcoin or ether to spend on the purchase; and
- Confirm your trade.
VALR’s Simple Buy feature:
While it was our goal to support rand purchases for our Simple Buys right from launch (and indeed it is technically possible for us to do so), South African regulation currently does not permit any company to use rands to purchase cryptocurrency from outside South Africa’s borders, which is a prerequisite for our solution. Rand transfers to buy cryptocurrency offshore are barred by South African banks given the current guidance from the South African Reserve Bank. Other solutions to source bitcoin locally also presented difficulties for various reasons: Some exchanges decided not to give us access to their platforms citing support for their competition, other exchanges didn’t support corporate accounts, and the OTC market in South Africa is almost non-existent.
Given this context, it became clear that we would need to organically grow — or bootstrap — rand-to-crypto liquidity on our platform. This would be easier once we had a customer base and a functioning product, especially Simple Buy/Sells, which would attract cryptocurrency deposits onto VALR and in turn help seed our rand-to-crypto order books when launched. It is for this reason that we have sequenced the launch of our rand-to-crypto Exchange Buy/Sell feature after our crypto-to-crypto Simple Buy/Sell feature.
How we launch our Exchange Buy/Sell order books is just as critical as when we launch them. It’s important not to disperse the limited liquidity that exists in the local South African market (predominantly due to exchange control) across too many order books which could lead to shallow order books. Deep liquidity is required to ensure a vibrant marketplace and a good user experience where customer orders can be executed without moving the market too much due to insufficient depth. This line of thinking has prompted us to start with only two order books for our rand-to-crypto Exchange Buy/Sell feature: bitcoin-rand and ether-rand.
Creating a concentration of liquidity on these two order books will then allow VALR to launch it’s 3rd feature: Rand-to-crypto Simple Buy/Sells. Using the combination of the liquidity on our local rand-to-crypto order books and the liquidity on Bittrex’s crypto-to-crypto order books, we’ll be able to support customers buying our entire selection of cryptocurrencies directly with rands, using our Simple Buy/Sell feature.
Ultimately we will also support crypto-to-crypto Exchange Buy/Sells to complement our bitcoin-rand and ether-rand order books and, depending on market conditions, we’ll introduce other rand-to-crypto trading pairs. We will also continually consider other cryptocurrencies to add to our platform. VALR is cryptocurrency-agnostic and will select further currencies to add to the platform based on our developing digital asset selection framework, a core component of which is customer demand.
Reflecting on our short history to date
VALR’s co-founding team was fully in place by mid-May 2018. We were fortunate to find some extraordinary investors such as Bittrex (the premier U.S.-based blockchain platform) and Montegray Capital (run by former First National Bank CEO Michael Jordaan). We secured the bulk of our funding at the end of July 2018, which enabled us to expand our team and expedite the building of our platform.
Given the decline in prices and trading volumes in cryptocurrency markets over the last year, we’ve had to be prudent in our deployment of capital as it remains unclear how long this bear market will last (although we believe a resurgence is inevitable). It’s been important for us to deploy as much capital as required to build VALR as quickly as possible without permanently adding to our fixed cost base (especially in light of the significant layoffs that have taken place in the industry in recent weeks). As such we’ve had to find an appropriate balance between permanent and contract staff to enable us to ramp up quickly for particular segments of our platform development and then ramp down once that segment has come to an end.
We’ve been building VALR through the contribution of 20 talented individuals from all over the world (some permanent, some contract, some full-time, some part-time) across various competencies such as software development, security, product design, business development, compliance, legal, accounting, and tax.
Looking to the future
VALR has aspirations of serving customers around the world and helping to build a financial system that recognises the oneness of humanity. We believe that cryptocurrencies have an important role in making this vision a reality. Right now, the best way we can work towards this goal is to remain intently focused on the task directly ahead of us: activating customer accounts on a secure platform and rolling out the features described above.
We look forward to receiving feedback from our customers to help us build a phenomenal product. We couldn’t be more excited about the weeks and months ahead.
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