Meet the Exchange CEO Who Thinks There Are Too Many Tokens

Phemex CEO Federico Variola explains why crypto needs to find a new normal.

How shocked would you be to hear Elon Musk advise you to buy a Chevy?

In an interview with Genesis Hernandez, Phemex CEO Federico Variola said out loud what everyone in the crypto space knows to be true but doesn’t want to say:

“We need less tokens.”

He also conceded that all meme coins are history, centralized exchanges are basically the same and centralization is a good thing – but more on those later.

The price of going mainstream

Variola’s thesis is that institutions and the retail finance community have both gotten over their misgivings about digital assets. They are buying in, and the crypto exchanges have been able to accommodate their volume. What concerns Variola, though, is how reliant the crypto space could become on that Wall Street lucre. He reminds us that the big banks’ interest in token trading is opportunistic, not ideological.

“I’m not that concerned about institutions adopting cryptocurrencies. … The technology can handle that,” he said. “But I think if a bear market comes, we will see a lot of these institutions’ promises and projects being shelved.”

At that point, Hernandez asked Variola what the crypto community needs more of to scale up to handle the increase in mainstream attention. He flipped the question over.

“[Rather than] what we need more of, I think [about] what we need less of: We need less tokens,” he said. “We have been inflating the amount of tokens a little bit too much. We should select some winners and stop trying to bet on the next horse.”

After a beat, he continued.

“This is from someone who’s platform has a token so, in a way, I am contributing to the problem,” he said with a smile, then turned more serious. “What concerns me is that thousands of tokens are being launched without any public market fit or revenue or any sort of tokenomics that make sense.”

He expressed skepticism that Dogecoin or Shiba Inu will ever recapture their stratospheric valuations, or that future meme coins will ever see similar market cap breakouts.

Although these tokens have served their purpose as gateways for retail investors to find their way into crypto, “The meme coin narrative has died out due to excessive dilution,” he said.

Before concluding the interview, Variola also noted that, in the pool of centralized crypto exchanges, “We’re all basically the same” in terms of services and products offered. What differentiates Phemex, he says, are such intangibles as customer service, platform uptime and speed to complete transactions.

Hybrid model

Phemex is not, strictly speaking, a centralized exchange. It started out that way in 2019 when Variola, a newly minted Ph.D., joined a team of blockchain veterans to found the platform. They had the good fortune to establish an exchange after the collapse of the 2017 bubble and just before the new wave of crypto enthusiasm that resulted from the 2020 COVID-19 lockdown.

“Centralized exchanges are kind of underrated,” according to Variola. “They have become among the most complex financial products you can use [compared] against [those in] any market.”

They evolved at the same time as the non-bank trading apps, which Millennials and Gen Z also flocked to. But while eToro or Robinhood users can buy crypto as well as legacy stocks, their evolution paced the stock market rather than digital assets. For that reason, Variola said, the crypto exchanges – even the centralized ones – innovated more intentionally.

“The crypto ecosystem is also evolving very quickly,” he said. “There are new blockchains, new tokens launching every day, new products. Perpetual futures are a native crypto instrument. People forget about that because we’re so used to it. But this product doesn’t exist in other markets.”

Centralization, he continued, means security. Centralized exchanges tend to have more users with deeper pockets than their decentralized counterparts and, as a result, greater liquidity.

Even so, DEXes present a major challenge to the centralized exchanges, which must now find the flexibility for dealing with their completely on-chain economy.

The DEX economy “is just as big as a centralized economy so … centralized exchanges need to adapt,” said Variola.

The DEXes are, after all, where a lot of the innovation happens. While there are any number of zombie coins on them, tokens are most likely to be launched into the decentralized world.

“You don’t want to buy a token when it’s listed on Binance,” Variola observed. “That’s a little too late.”

Centralized future

Even so, he said he thinks centralized exchanges and blockchains like Bitcoin and Ethereum will play an important part in the future.

“Some projects need to carry the ideological burden of keeping centralization as a key tenet,” he said.

In part that’s because he sees Bitcoin adoption as “one of the most important aspects of our exchange’s mission. We want people to understand the instrument, understand the technology, read the white paper and allocate some of their hedging funds to bitcoin. I think this is important – the best thing that’s come out of crypto.”

He is also sanguine about the impact of that most centralized of offerings: the stablecoin.

“Stablecoins have been unintentionally one of the biggest drivers of adoption,” he said. “It’s such a simple technology, but it helps people around the world.”

The full conversation can be found here on BeInCrypto’s YouTube channel.