Interview With Pavel Shkitin, CEO Of Crypto Exchange Nominex

Interview With Pavel Shkitin, CEO Of Crypto Exchange Nominex

In 2020, decentralized exchange Uniswap airdropped every user that ever interacted with its smart contract with 400 UNI, their newly launch governance token. This was at the peak of a period in the crypto space commonly known as the “DeFi Summer”, the expansion in adoption of a sector that offers users a real use case to become financially independent.

A few months after that, the price of Bitcoin and other tokens in the crypto market entered uncharted territory. Many attributed the rally to the fresh affluence of users jumping into DeFi. We sat down with Pavel Shkitin, CEO of crypto exchange Nominex to discuss the rise of decentralized finances, their integration with exchanges, and their potential futures. This is what he told us.

Q: Can you tell us a little bit about your background, and about Nominex? Why did you decide to build it and particularly, why offer DeFi products to your users?

A: I am a backend developer by profession. For several years, in large companies, I have been developing various corporate systems in Java. In parallel with this, while studying at the university, with a group of like-minded people, we were trying to create our own IT projects in various fields, which were unsuccessful for many reasons. The first development stage of a crypto exchange began at a time when MtGox still existed but we have not even released it yet.

As a result, we returned to this idea only in 2017, when the penultimate wave of hype around crypto began. After spending two years on development, in the fall of 2019, the Nominex exchange started off working. Since then, we have been systematically improving our product and looking for new growth points. One of such points is the growing popularity of DeFi direction. It is always easier to get results in an area that is growing and gaining popularity.

Q: The DeFi sector opened an opportunity for the entire crypto industry as it has brought more adoption, fresh capital, and new potential. At the same time, regulators and politicians have questioned the decentralized nature of these protocols and the risks for consumers. What do you think are the biggest obstacles for the sector? And for exchanges such as Nominex that offer yield farming, and other DeFi products to its clients?

A: The cryptocurrency market and cryptocurrency projects are remaining as uncertain as possible in terms of regulation. You are literally groping and just counting on the right direction. But optimism grows daily. It is already clear that regulators will not be able to resist cryptocurrency because plenty of people worldwide are just not ready to give up on what cryptocurrency offers.

One could even say that mass adoption has already taken place to some extent. Due to the inability to ban cryptocurrency, regulators in different countries have been trying to control what is happening around it recently. We saw these attempts. One of the most notable tendencies is the introduction of the mandatory KYC procedure at large exchanges, which were previously in great demand due to the lack of KYC.

Sure, regulators are introducing these restrictions so that, if necessary, it is possible to quickly identify a person at any stage of the exchange of one currency for another. Even decentralized exchanges make it easier to track the money flow during an exchange as blockchain records all transactions. When exchanging on centralized exchanges, coins are shuffled and, without contacting the exchange administrators, it is impossible to track the money flow after the exchange. From this point of view, DeFi projects are probably not even that interesting to regulators, and I admit that DeFi projects will remain without close attention from regulators.

Q: Data published by research firm Messari estimates that the DeFi sector recently reached a total value locked of $148 billion. A year ago, this metric stood at less than $10 billion, what do you think are key factors driving this growth? Are users only interested in profits or is the promise of “decentralization” as relevant as we are led to believe?

A: I believe that the DeFi sector has experienced such explosive growth precisely due to the introduction of farming mechanisms through the supplementation of funds to liquidity pools (Uniswap, Pancakeswap, etc.). It is unlikely that you will find at least one person who would be ready to send their funds to a smart contract if he or she did not receive any benefit from it.

A person puts funds in a liquidity pool to receive a reward in the farming of coins that are interesting for him. At the same time, the funds that he or she put in the liquidity pool are used as liquidity for trading with other people. And the more competently the mechanics of coin farming are worked out, the more profitable it is for people to put funds in the liquidity pool, and the higher the amount of money sent to DeFi projects.

Everyone should understand that the DeFi market is constantly evolving – projects with weak tokenomics die, projects with keen tokenomics collect hundreds of millions in their smart contracts. DeFi projects are getting more and more efficient, thereby automatically making the DeFi area even more resilient.

Q: Many people jump into crypto to benefit from its potential but find that they lack technical knowledge, accessible fiat to crypto onramps, and better user interfaces. What is Nominex doing to address these issues? Do you believe the industry would benefit from “simpler” products?

A: Indeed, this problem exists. But such a technological complexity of projects is due precisely to the fact that the user completely controls what is happening to his or her funds by using cold wallets. It is the genuine value of cryptocurrency – when no one except you is in charge of your funds, but at the same time, you retain the rights not only to store these funds but also fully manage them in different ways.

But, in point of fact, I would even say that this complete control is even harmful to a certain percentage of people because it is enough to make just one careless step and your funds are already in the hands of a cunning fraudster.

I believe that soon there will be an increase in the demand for CeDeFi projects that provide the functionality of DeFi projects, but through a more convenient interface and with foolproof protection. In this case, all the technological complexity falls on the implementation within the platform. However, for this, the user must send his or her funds to the wallet of this platform, just like when working with a centralized exchange.

As for Nominex, about a month ago, we introduced a mechanism of simplified farming when users literally need to press one button to send funds to the liquidity pool and start farming – all this happens in Nominex under the hood.

Q: In recent weeks, the industry has seen an apparent surge in hack platforms. Bad actors have taken millions from users left without alternatives to recover their money. Can developers, the crypto community, and exchanges work together on this problem? Do you believe projects should be more cautious about their source code even if that means taking an approach that goes against the principles of open-source software?

A: The more open and at the same time more complex the platform is, the more potential vulnerabilities it carries. We saw it one of these days when $600 million were stolen from the Poly Network cross-chain platform. It precisely happened because the cross-chain mechanism is complex enough to eliminate all possible vulnerabilities at the development stage.

However, the truth is, with each new hack, there will be fewer potential vulnerabilities like these. Here you can draw an analogy with the construction of missiles. There have been many unsuccessful launches, but they were barely necessary to make future rockets stable.

Talking about more predictable ways out of such situations, in my opinion, of course, projects with a transparent corporate structure bear more responsibility for everything that is happening to their platforms.

And yet, the utmost responsibility for preventing hacks falls on smart contract auditors since they are the ones who give or do not give the green light to projects in the early stages. Few developers are interested in digging into thousands of contracts for small projects for free, and it may be too late to dig into them when the project has already become large.

Q: Ethereum, Binance Smart Chain, Solana, Terra, so many layer one networks are emerging amidst the DeFi promises of more financial inclusion, the opportunity to maximize profits, and more services. How do you envision the future for this sector? Do you believe one blockchain will rule them all, or do you believe users will leverage exchanges such as Nominex to really capture the value of DeFi protocols?

A: Of course, Ethereum cannot remain the sole leader in the application of DeFi protocols, which is why we are seeing the emergence of new successful blockchains on the market that improve one or more features of other existing protocols. Everything here is going naturally through the mechanism of healthy competition, and that is great.

At the moment, there is an immense market demand for cross-chain solutions that would be more convenient and cheaper, and more secure than what we have now. Therefore, soon, we will definitely see several outstanding projects in this area. But this does not in any way negate the fact that any decentralized protocols are complicated for a rather large category of users, and they need all of this to be available to them in one click of the mouse button, what Nominex is trying to do for its users.