NICHEL GABA Co-founder/CEO Philippine Digital Asset Exchange

The buzzwords nowadays are blockchain, cryptocurrency and bitcoin, all foreign sounding and overwhelming to an ordinary person.

NICHEL GABA, who finished management engineering from Ateneo de Manila and an MBA from Wharton only in 2017, also considers himself an average person when it comes to these new technologies.

Nichel, CEO and co-founder of fintech startup Philippine Digital Asset Exchange (PDAX), will soon launch the first marketplace for cryptocurrencies solely on the Philippine market taking advantage of the momentum for investing in digital assets.

“I really just stumbled upon this. I considered myself an average person and it is really overwhelming,” says the well-grounded Nichel, son of the famous whistle-blower “Rosebud,” What is more important is this new technology can pave the way towards a more inclusive society.

PDAX

PDAX started with two other cofounders: Krystian Kucharzyk who used to head the business development of Goldman Sachs in New York and Yang Yang Zhang, a resident technology expert who was already coding at the age of 5 and went to MIT at age of 15. Both of them have moved here in January full time.

Since he is not the tech guy and the only Filipino of the three founders, Nichel’s role is to bring PDAX into the market.

PDAX offers a simple and secure order book for trading cryptocurrencies, utility tokens, and other upcoming digital assets. Seasoned leaders in finance, trade, and blockchain technology developed a platform that combines all market processes; an exchange that matches traders directly and enables both buying and selling of digital wealth with Philippine peso.

“We believe that everyone, regardless of privilege or trading experience, deserves a fair shot at growing their wealth with the help of technology,” says Nichel.

For us, creating a digital asset exchange is the first step towards helping people see the value of investments. Filipinos, with their limited access to financial markets, make the perfect beneficiaries of a highly usable platform for trading.

To ensure the highest standards of security, the company partnered with international security software companies to integrate innovative “Know Your Customer” (KYC) and Anti-Money Laundering (AML) solutions - the same systems engaged by international law enforcement agencies to identify criminal activity like funding for terrorism acts.

New Money

In general, blockchain technology is an answer to the inefficiencies in the transfer of funds across borders. This technology is indisputable, immutable, at almost zero cost, most convenient and the fastest way.

In the digital age, he said, it is so easy to copy things but not with digital money because blockchain was developed to have unique digital assets.

Blockchain is a public distributed ledger technology than can be inspected by everyone. It is a true chain of custody, of ownership.

The transaction uses digital money. Bitcoin is the first cryptocurrency, a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. To transfer bitcoin, the owner has a public and private wallet.

When one sends 5 bitcoins the transaction gets authenticated by high powered computers. Once computed these are added on to the ledger so the computers, operated by data miners, store a copy of master ledger call the blockchain, a series of blocks to make the chain. To compensate for the huge investment for the use of computing power and electricity, these date miners receive bitcoins as compensation. The miners in turn sell the bitcoins to get pesos and dollars at the digital asset exchange, just like the stock market.

Another form of cryptocurrency is ether. Bitcoin is just a record keeping tool, a ledger, for ownership, but ether is a platform to build decentralized applications like music or ride sharing app where there is no need of intermediaries such as Uber or Grab.

Riders and drivers can just match through the protocol so there is no company in between them.

Exchange To address fears of scams, which are actually real, PDAX is establishing the first digital asset exchange in the country just like the securities at the stock market where the Philippine Stock Exchange is regulated by the Securities and Exchange Commission.

PDAX is working with the Bangko Sentral ng Pilipinas and SEC in coming up with regulations and parameters for brokers, traders, dealers, sellers and buyers and a marketplace for them to trade.

This is important, he stressed, because there have been some groups now operating as digital asset exchange with social media posts calling people to invest when they are just actually dealers or traders. This alarmed Nichel, calling these transactions very risky.

“We want this to be regulated because people are not able to harness the potential of blockchain technology if they are afraid of scams,” says Nichel.

“If there is regulation there is a lot more credibility and people want that, too,” says Nichel, stressing that what some have been pushing away from centralized institutions and prefer peer to peer instead.

“We hope to be the first exchange in the stock exchange,” says Nichel, saying they are not just applying as digital exchange but also covering dealers’ activity.

PDAX seeks to become a marketplace for digital asset because the challenge with dealer market is there is always a spread because they buy low and sell high like the banks, but with the exchange everyone gets his part to trade with everyone else. So, the digital asset exchange is really the first step in creating other digital assets.

What is worrisome is that there have been ICO (initial coin offering) with people issuing their own tokens to fund their projects.

“We believe that if people buy securities in certificates or token form and selling on the premise on the premise that you can make profit out of this, then investors should be protected in the form of regulations,” he adds.

“I think once the rules are in place whatever they decide to put will be a big boost to digital assets.”

The BSP and SEC are expected to come out with the rules by the third quarter this year. For now, PDAX is preparing the platform with its 25 staff.

“We advocate for regulations while some are pushing against regulation, but we don’t think that is right. A regulated exchange cleans up the space, now everyone is on internet because it is cleaner space now,” adds Nichel.

The vision is to push blockchain in the day to day transactions and with easily tradable tokens.

PDAX’s platform leverages the same order-matching technology used by stock exchanges like the NYSE and PSE to match buyers and sellers of digital assets like Bitcoin. Overall, this exchange mechanism will bring efficiency to the market and cheaper, clearer ways of trading digital assets, including but not limited to cryptocurrencies like bitcoin.

Cost One thing that makes cryptocurrency interesting is the cost of transferring money.

At present, remitting money from the Middle East to the Philippines means losing an average of 8 percent because of bank and forex fees as funds go through clearing banks and this process is kind of inefficient.

“With cryptocurrency, the 8 percent transaction cost can go down to zero,” says Nichel.

This goes well for a country like the Philippines, which has a strong forex remittance sector from a huge pool of overseas Filipino workers. So, plenty of the traditional remittance companies are now using cryptocurrency.

Transactions are faster as there is no bank clearing as there is no such thing as trying to reconcile records because the blockchain is authentic.

Although this is not backed by empirical data, awareness on cryptocurrency is growing.

“Two years ago, it was easy to dismiss, but now bitcoin has reached a state where they cannot just be ignored anymore so it is already in the contract of how do we apply or should I invest in cryptocurrency. Literacy is growing, too, because Filipinos are very savvy with new technology,” he adds.

For instance, he said, that if the national ID system is based on the blockchain technology then it cannot be tampered and fake drivers’ licenses and election fraud can become a thing of the past.

The largest expense is probably in the migration of the existing system unto the blockchain platform.

Security is one of key priority that must be ensured in cryptocurrency because a lot of exchanges are operating on the floor that were designed to be used effectively but are not designed against hackers, he said.

Growth But it is very volatile also and of different origins. The historical high of bitcoin was in December 2017 but it has gone down although it has gained so much value since 2009.

“Growth is driven by a lot of things,” he says. The fact that people see it as a good store value, can transfer from one country to another at zero cost, and remittance companies now using cryptocurrency to have faster and cheaper transfer of funds. It has a good store value because it is scarce and immutable. In addition, it has a speculative component because people think adoption for it will grow and that reflects that expectation.

Singapore and Canada are actually creating their own digitized fiat in token form. Singapore is called ubin, the digitized Singapore dollars.

“Maybe in the future there will be no paper bills but everybody’s using digitized fiat currency,” says Nichel.

The Philippines is not behind among its peers and in fact slightly ahead because government regulators are very supportive and the market is also very active with lively discussions on social media.

Yes, it is possible that tomorrow, Filipinos will no longer be using Philippine pesos anymore.

Adaptors Nichel considers the last mile remittance companies as the early adaptors of blockchain because of the nature of the country’s economy, which has a good reliance on OFW remittances.

Another early adaptor would be the people in real estate sector because of the need to record ownership of properties wherein the blockchain can easily code, eliminate fake titles and questions of ownership because blockchain will prevent that.

Nichel, who started his career at the HSBC as investment management trust trainee understood pretty well why the common person is not able to access investment products because the banking infrastructure was not designed for efficiency but is made up of circuitous layers and processes.

The cost of infra gets passed on to the trader and are billed into the fees that borrowers pay. This makes a lot of Filipinos getting left out.

This has made Nichel got interested in blockchain technology to solve people’s problem of access to investments.

The group also got their financial muscle from venture capital investors from Korea, Singapore and local investors.

“If you look at how much capital is flowing in Silicon Valley, there is really a huge shift and super focus on supporting blockchain projects,” he adds.

Those who bought cryptocurrency or bitcoin in 2010 should be very wealthy today because in 2010 the price of bitcoin was in the cents only. The early adapters of bitcoins are billionaires by now.

In June last year, one bitcoin was worth $3,000 but surged to $20,000 in December. It has gone up now to $7,000 to $8,000.

There have been a thousand ICOs already but are mostly from Switzerland and Singapore and the US but are incorporated in Switzerland. ICOs are meant to raise funds.

This 30-year-old bachelor says that for now PDAX can be his girlfriend, wife and children. This is his life.

Challenge According to Nichel, the idea is not so much on understanding the technical aspect of blockchain and cryptocurrency, but more of creating awareness on how Filipinos can benefit by embracing this new technology.

The biggest challenge is education to ensure that Filipinos understand the blockchain technology and how the cryptocurrencies are being traded to remove market skepticism.

“It is not just broadcasting but, providing the right information because there is so much information now that are not real and a lot of scams that only hurt our ability to engender trust for this new technology and because there is that concern it is also harder to build blockchain projects,” he stresses.

In the ‘90s, he recalled how his mother forbade him from using the internet and chatrooms because of so many scams. But he realized that as people embraced technology, it is now very easy to access information. He also noted that as information becomes readily available, internet scams and chain letters are being eliminated.

“Because of the fear for scammers, bad actors take advantage of the lack of awareness, but now it is very different,” he adds.

The Son

Definitely, there is so much promise in Rosebud’s son. But unlike his mom’s very colorful life and the life their family had gotten into, Nichel remains unaffected and well-grounded.

Nichel admitted that being the son of Rosebud, his was a very difficult time growing up. He was only in Grade 7 or 14 years old when they were placed under the state witness protection program in 2000. Together with his brother, they would miss school as they had to be transferred from one place to another. They just gotten out of the program in 2016.

“At the start it was tough, there was no cable, no internet, but more of military barracks type. We live in a small room with mom, my brother and my grandparents and an uncle. It was very hard but eventually, we were provided with more suitable quarters,” he recalls.

But that long episode in their lives made him the better person that he is. Nichel was very specific about three things he learned at that tender age.

First, the experience of mostly living in Camp Aguinaldo made him a very focused person.

“I had to because there was not a lot to do living in the camp. It was like being in prison except there was no sentence. So, I focused on studying and learning and developing myself,” says Nichel.

“Second, because of how my mom decided to sacrifice her life and freedom to do something she thought was right for the country it gave me that kind of duty to serve the best value to society and third it gave me a good perspective of life,” he adds. Nichel is intelligent, but humble and gentle, far from an individual who could have been hardened after living in a cell for years.

It was hard when his classmates get sports cars and other luxuries in life while he was staying in the barracks.

“But it gives me a perspective that even without these things I can survive and be a complete person. Even our business model in PDAX, we chose to build an exchange not because it is profitable but because it is the best value,” says Nichel. His MBA at Wharton also gave him the opportunity to just focus on creating value. He went to Wharton after six years of working at HSBC.

“After barracks life, we thought life would be very difficult, no more body guards,” says Nichel. Instead, it made him value democracy and his freedom more.

“I am a fan of democracy,” declares Nichel adding, “I believe in the rule of law, the rights we agree to and the Constitution. I also realize that in order for real change to happen maybe it is not as simple as following the rules,” he adds.

Despite everything, Nichel believes that the economy is growing because it is always influenced by macro-economic trends

“We have a very young population of over 100 million, a third of the US, well reasonably educated workforce with average age of 23 who will become more productive when they reach 30 and create more value that will fuel a boom in the economy,” he adds.

But he cautioned that relying on the growth of services and OFW remittances will not ensure sustainable growth because remittances only create consumption, which cannot translate so much to future growth.

Unless these remittances are converted into savings and investments, these cannot create new economies to build new services to drive future growth. But spending or consuming these remittances is just like transferring money to companies and empowering them some more to grow their businesses further. Thus, the tricycle driver remains a tricycle driver instead of putting up his own trike station.

“If we rely on services and OFW remittances, we cannot grow as fast,” he adds.

He said that services and remittance flows are in very precarious position. When Trump declares tomorrow that all US firms can no longer outsource what will happen to the call center operators?

What is needed then is to create more entrepreneurs which can be paved by the new blockchain technology because this can empower people to get financing where banks cannot easily provide.

He noted that if stocks in the stock market can easily be traded as bitcoins these should have been good source of funds for entrepreneurs.

“We believe the future of investing is digital,” says Nichel stressing that this marketplace for digital assets would ensure that “no one should be left behind” because it will create more entrepreneurs among Filipinos, who can now have access to capital.

The idea of new money can be mindboggling, but that is not the issue. At the core is a tool to get everyone onboard.