Interview with Armani Ferrante, CEO of Backpack: Being a bridge between traditional financial systems and the crypto world

Interview: Mensh, ChainCatcher

Guest: Armani Ferrante, Backpack CEO

Armani gives people a very friendly feeling. Whenever he meets someone who greets him warmly on the way to the interview site, he will talk to them very politely. But then he thought or replied to the message, without a moment of ease.

The Backpack team stayed in the same complex at the Consensus venue, and Armani explained that this was his way of reducing commuting time. In Japan, his residence is also very close to the office - when there is no need for social engagements, he is a two-point workaholic.

During the conversation, perhaps because of the rigorous nature of the engineer, he would first ponder for a brief moment, define and disassemble each question before answering it. Where he did not provide specific evidence, he would add, "You can verify it yourself."

Armani was an Apple engineer. In 2017, he was exposed to Ethereum and was fascinated by the concept of "world computers". He quit his job at Apple almost immediately and has since been engaged in the blockchain technology development process.

Backpack Wallet was founded in April 2022, and lost 88% of the company's treasury funds after the FTX crashed the same year. But in the crisis, Armani also saw opportunities for compliant exchanges. Backpack Exchange was established in March 2023.

In April 2023, Backpack released the first xNFT series Mad Lads on Solana, which was a great success. The total transaction volume once ranked first in the network, even surpassing veteran Ethereum blue chip NFTs such as BAYC. During the bear market, Backpack could only rely on $1.4 million raised through Mad Lads NFT sales to maintain operations.

In February 2024, Backpack completed a US$17 million financing, led by Placeholder, and participated by Wintermute, Robot Ventures, Selini Capital, Amber Group and others.

There are currently 57 spot trading pairs, 15 perpetual contracts and 5 mortgage lending liquidity pools on Backpack. According to Coinmarketcap data, the total assets of Backpack are currently US$34.12 million, of which about 54% are USDC and 26.22% are SOL. As of press time, the transaction volume was $6194,018.

It was also warned by FTX that Backpack attached great importance to compliance in various regions and actively obtained licenses. Backpack obtained a Virtual Asset Service Provider (VASP) license issued by the Dubai Virtual Assets Regulatory Authority (VARA) in October 2023. On December 10, 2024, Backpack officially registered as a Class II member of the Japan Virtual Currency and Crypto Asset Exchange Association (JVCEA). On January 7 this year, Backpack acquired FTX EU, a bankrupt European branch of FTX for $32.7 million. FTX EU previously held a MiFID II license issued by the Cyprus Securities and Exchange Commission (CySEC). Armani said the company plans to become the only perpetual contract provider in Europe to pass regulation and has submitted a MiCA notice and is expected to go live in the first quarter of 2025.

In this interview, we talked to Amarni about how Backpack is positioned in the market as a young exchange, future product planning and his personal entrepreneurial life.

From Apple Engineer to Founding an Exchange: A bumpy road to faith

ChainCatcher: You were an engineer at Apple, why did you decide to enter the crypto world?

Armani: After you graduate from college, you go to work in a big company. Like other ordinary engineers, you are a gear in this huge machine. In 2017, the market for Bitcoin and Ethereum continued to rise, and that moment was very magical. I remember very clearly that I was sitting in a coffee shop on Market Street in San Francisco and reading Ethereum’s white paper with my laptop, and it felt like it was the coolest thing. I was totally fascinated, I didn’t know what to do, how to make money, who to work for, but I knew I wanted to be involved. So I quit my job at Apple, and although I didn't know what I was doing, I decided to try it out because everything was very motivated by me at that time.

ChainCatcher: Can you share your entrepreneurial journey from xNFT to Mad Labs and then to Backpack Wallet?

Armani: I entered Solana in September 2020, and there was almost no ecology at that time. I joined this ecosystem and did a lot of things, including DeFi-related work, early wallet infrastructure, developer tools, and more. These efforts were later very successful, and the network began to grow rapidly in its early stages. It was precisely because of the growth of the network that I decided to start a business. Solana made me feel that the infrastructure problem was basically solved for the first time, so I began to think about what problems to solve next to promote the development of the network and the industry. At the time, I thought many people knew the importance of mobile and knew that building mobile apps in the field of encryption was challenging because the two app stores, iOS and Android, had almost formed a monopoly. So, our team and I are thinking together about how to build a decentralized app store. This is the origin of xNFT. We hope to tokenize applications like image tokenization, and build a new distribution channel to establish decentralized applications. This was the initial idea, although we did make a change later.

ChainCatcher: Why did you choose NFT as your starting point?

Armani: NFT is actually a common form that represents a certain collection. We usually associate it with some 10K avatars, hilarious JPEG, or crypto-punk or something, but it's actually a universal way to have anything. At the same time, these NFT series, especially the 10K-style avatar series, created a great community, and examples like CryptoPunks were very successful. These communities have attracted widespread attention in the industry and have become one of the most exciting social events in the crypto space. So it paves the way for the Mad Labs story.

We finally decided to build our own NFT series. There are two main reasons: First, if we want to build our own NFT platform and NFT protocol, then we should build our own NFT series and become our own users. Secondly, the popularity of the community was very strong at that time, which made people feel very excited.

The Beginning of Backpack: Regional Compliance Opportunities

ChainCatcher: You mentioned that when FTX fell, you saw a gap in the exchange market. What is this gap?

Armani: As the industry matures, especially when the situation regarding rules and regulation becomes clearer, exchanges should not be classified by decentralization and centralization. A more appropriate classification is, a category where you have systems that review resistance, which are widely distributed around the world and do not have application rules for specific regions. For example, the Internet is an example, including decentralized exchanges, such as Uniswap. The other category is compliance entities, which are centralized, and they are able to enforce rules and tools in any area where they serve users.

As the industry matures, people are forced to enter one of these two categories. But the challenge is that there are many people who are very good at products and they can build good exchanges but are not good at building all the operating infrastructure needed to build a compliant financial institution. At the same time, there are also some people who are very good at compliance and operations, probably from traditional financial backgrounds, but they are not very good at building products and do not understand the characteristics of the crypto industry. You will see a lot of people struggling in these two categories, and the real big opportunity is to take the middle route and build a financial institution that is very suitable for this industry. It can not only build things on the chain, but also have wallets, but also solve the problem of bridging between the traditional financial system and the crypto world.

You can see this happening in many places, just like in Japan a week or two ago, many unregulated exchange apps were kicked out of the app market because they did not comply with Japanese rules. And in Europe, all the largest derivatives exchanges have also been forced to exit because they do not comply with European rules. For example, 5 derivatives exchanges, financial derivatives exchanges, OKX derivatives, etc., there are currently almost no exchanges that provide derivatives in Europe because no one is compliant. So, the opportunity is here - to be a compliant, trustworthy player, solve the problems between the traditional finance and the crypto world, and bring all the value of traditional finance into the blockchain.

ChainCatcher: What products does Backpack focus on currently connecting

traditional finance and the crypto industry?

Armani: There are many different levels of products. You can't say right away, I'm going to build a Robinhood or a Uniswap competitor. We have two parts, two businesses. One is a wallet and the other is an exchange.

On the exchange side, the primary goal is to build liquidity. Because as a product, the most important thing is liquidity. So the first product we are focusing on now is to build a very attractive trading product. About two and a half weeks ago, we launched our public beta version to test new products. We call this product " interest-generating futures" or " interest-generating professional futures" , which is different from ordinary perpetual futures. Our futures products, users can earn profits on collateral. We have a native cross-chain currency market where you can lend your assets and trade them using these lended assets. Over the past two and a half weeks, we have achieved more than $2.4 billion in trading volume during the testing period alone. So we plan to officially go online in early March, and will leave the public beta and be fully opened, ready for global users to use. This is the first product we have built to provide a very attractive trading experience, including spot, margin, lending, and perpetual futures to earn interest. We have invested a lot of energy to build a truly excellent and differentiated product, solving problems that decentralized exchanges cannot solve. This is our first step to get started.

The second is the wallet. You can think of Backpack wallet as a self-hosted key management system. Now we support Solana, Ethereum, Base, Eclipse, Arbitrum, Optimism, Polygon and other chains. We hope to support every chain, wallets like MetaMask. But there is indeed a very important problem in the wallet field now. If you go open Solflare today, one of Solana's wallets, they'll tell you a shocking statistic: $2.4 billion in funds are lost every year because people lose access to crypto wallets, at least last year. While I forgot the exact statistics, this is a huge failure for the industry as a whole. This figure even exceeds the losses of all centralized exchanges every year.

Self-management is a solution. If we don’t have self-hosting, then you can question a lot of things we are doing. This is also another important part of our product, focusing on the construction of the wallet, thinking about how to solve these self-hosting problems so I can be assured to tell my parents or relatives and friends that you can use cryptocurrency and there is no risk. You don't need to worry about self-hosting, you don't need to worry about losing your keys, or how to use your password. This is one of the most important issues that need to be solved today. So this is where we started.

ChainCatcher: Pump.fun, Moonshot, etc. are very popular, and everyone likes GMGN. How do you view the competitive trends between centralized exchanges (CEX) and decentralized exchanges (DEX) in the current market?

Armani: The very important point I said before also applies here: This is not a competition between decentralized exchanges and centralized exchanges, but a competition between censorship resistance and compliance. Depending on which path you choose to take, you will get very different products and features.

One lesson we learned in this cycle is that nothing has an advantage over issuing long-tail assets . Pump.fun may be ridiculous, but it is an example that cannot be built in the same way on a centralized exchange. And this is where decentralized exchanges are truly superior to centralized exchanges. As for the other parts of the product, margin trading, futures, spot margin, stocks, US Treasury bonds, and Fiat's inlet and exit channels are the strengths of centralized exchanges. There are some subtle reasons behind each aspect, after all, it all concerns compliance and direct connection with banks. If you want to enter and exit the channel, only a regulated exchange can do the best. So, this is the advantage of centralized exchanges, which will continue to play a role in deeply regulated products. For example, the US stock market may be the best example, which is exactly the appeal of centralized exchanges. But you look at examples like Robinhood, if they tokenize stocks, they have the ability to do better than anyone else. This is the advantage of centralized exchanges.

When it comes to margin trading, it’s not just about custody. When you trade margin, you don't have the concept of self-custody. Whether it is futures, spot margin trading, or options, you do not own your assets. The system owns your assets, and the liquidator owns your assets. So it all depends on the rules of the system, especially risk management. So when it comes to margin trading, the boundaries are very blurry. Examples of margin trading do have their advantages and disadvantages. For example, if you have decentralized risk management, transparent risk management, projects like Aave do a very good job. But if you are talking about assets with high leverage and volatile nature, it is usually an area where a few people participate, and that's where the limitations of decentralization lie. This issue is almost irrelevant in both CEX and DEX. The question is, who is making these decisions? Who is providing financial support to the brand? Who is doing risk modeling? This is a very important issue.

ChainCatcher: What are the biggest challenges you face when building on-chain systems and building self-hosted wallets?

Armani: These two worlds will continue to merge. So we are very intentional in combining centralized exchanges and decentralized exchanges in one application. If you have an exchange, you can build the best wallet; if you have a wallet, you can build the best exchange. There are many synergies between the two.

To give a simple example, you can completely solve the problem of recovering assets. You remember the shocking statistic I just mentioned - money lost every year due to self-custody. If you apply modern technology, such as account abstraction, you may solve all the user experience issues that exist in self-hosting. So, I think the two will continue to blend. The key, I think, is to take advantage of their respective strengths, they are not zero-sum games.

Focus and persistence: a workaholic at two points and one line

ChainCatcher: How do you allocate your time. How do you spend your day?

Armani: My time is mostly spent on two major categories, and there may be a third one. One is recruitment and company construction, the other is product-you have to have a great product and innovate in this field, which I am proud to say we have done. The third category is coordination between compliance, products and engineering so that we can truly solve all problems and build a market with high trust and integrity. So so far, we have basically climbed these "mountains".

Next, the "mountain" we want to climb is how to push it to the market. Now it all comes down to liquidity. No matter how great the product you have, no matter how many healthy areas you can serve, nothing makes sense without deep liquidity. So this is the next "mountain" we are currently climbing.

We have done a great job so far, both in terms of products, in building a great spot and derivative product, and even in terms of compliance, one of the biggest advantages is our market trust. We can confidently say that we will be one of the most regulated exchanges on the market, and you can go to all the big institutions and they can trust what they trade. That's why the U.S. capital markets are so special, they are the deepest, most liquid, and most regulated capital markets in the world, and trillions of dollars are traded here because people trust it. Everyone knows that it is true, not fake, and it is not manipulated. Bringing this maturity into the cryptocurrency market is also the "mountain" we will climb next and will be our focus in the next few months.

ChainCatcher: I heard you are very busy and don’t even have time to take a shower all week, right?

Armani: Unfortunately, that is indeed the case.

ChainCatcher: As the CEO of an exchange, do you think it is better to be a good trader, or is it better to be less familiar with trading?

Armani: You have to know your users. If you don't know your users, you can't build a good product. Your job is to build products and solve users' problems. If you were not a user at the beginning, then you would be better off becoming a user. Not just traders. When you talk about futures, you’re talking about traders; when you talk about mass market consumer finance, a “all-round” application covering all funds, you’re talking about different market segments. Whether you are using on-chain applications, DeFi, wallets, DApps, etc., you need to know your user needs.

ChainCatcher: Do you make your own transaction?

Armani: Yes, or not. I do trade, but I see investment as a way like Buffett, holding your punch card, 20 investment opportunities, punching a hole every time you invest, you only have 20 opportunities, and then you buy these assets and never sell them. This is your investment strategy for life. This is my way of investing. I think everyone has a different approach, but that's not financial advice. But that's what I think about the market.

Advantages and strategies: gnaw the hardest bones first

ChainCatcher: What is the competitive advantage of Backpack compared to other exchanges?

Armani: The opportunity we see is that few exchanges can truly penetrate and bring cryptocurrencies into the mainstream mass consumer finance market. The reason is that only a few exchanges are doing hard work to integrate it into the framework of society. This comes down to compliance. Go back to our previous discussion and look at some of the world's largest markets, and look at Japan, the United States, and Europe, who can operate in these markets and who can't. And there is a huge vacancy and opportunity here to eventually bring these products to these areas, which are the largest markets in the world.

That's why we chose to go this difficult path, and although we could have built and published an exchange a year ago, we didn't. We take the time to solve problems and obtain licenses worldwide to build. Our company has only 16 engineers in one product, and everything is done by these 16 engineers, but our company has about 90 people in total, and the rest are compliance, legal, operational, customer support personnel, and more than one language, but all languages, meeting the requirements of establishing a trusted financial market, where you can have the deepest liquidity because you have market integrity and regulatory supervision, all participants, players in the traditional regulatory market, can enter the crypto market. This is a huge opportunity. What we need to do is to build this thing correctly, help the industry mature, and bring the value that exists in the traditional market into the crypto market, so that cryptocurrencies are no longer some unregulated marginal thing, but rather bring cryptocurrencies into the framework of society. This is a huge opportunity that few people see.

ChainCatcher: Why is Backpack's headquarters located in Japan?

Armani: Japan is one of the largest markets in the world and one of the most difficult markets to enter because it has very strict compliance requirements. You can't just serve Japanese users. Many companies have tried it, but those companies have been kicked out of the app store recently. So we think we have the ability and technology to solve these problems and do the right thing in a very small number of crypto-local exchanges can do. Japan is also a very suitable place to live.

ChainCatcher: But the Japanese don't seem to be too keen on trading, and the Japanese market may be more conservative.

Armani: Every place in the world has a different culture, but I think a lot of people overlooked that Japan used to be a focus on cryptocurrency. For example, Binance originated in Tokyo. Because of the many hacking incidents on exchanges, supervision has become very strict, resulting in many people being forced to withdraw. But now, Japan is full of radical policies, attitudes and spirits towards cryptocurrencies, which are all exciting. Recently we have seen that Japan's cryptocurrency tax rate will drop from 55% to 20% or 25%. This is a huge change that will bring a large amount of capital inflows to Japan's crypto market. So, I think the trend in Japan is changing, and the opportunities in the future are here.

ChainCatcher: Do you have any upgraded data that you want to share with us? For example, transaction volume, number of users, or financial data.

Armani: We made 60 billion trading volume when we started the exchange. We call it pre-season because the exchange has not been fully built yet, and at that time we only provided spot trading on Solana, bitcoin and Ethereum spot. At that time, especially in the Chinese-speaking market, everyone was excited to see a new exchange. After the FTX incident, we have done a lot of work from that time to now, and finally prepared to start from several major markets and be able to access the world's largest capital market liquidity. The real opportunity is that cryptocurrencies are the capital market native to the global Internet, not only in China, but also in Japan, the United States, Europe and Africa, and are everywhere. That is the essence of cryptocurrency, it is borderless.

March is the real beginning of us. Now we have a complete beta testing plan, we have launched new interest-bearing futures products, the margin system has also been launched, and all compliance infrastructure has been in place. Over the past two and a half weeks, we have completed about 2.4 billion in the beta testing phase alone, and we expect activity to grow significantly as the trading season arrives.

ChainCatcher: What is the decision-making process for Backpack to decide on meme coin?

Armani: There are a few questions to ask yourself. The most basic question is: Do users want this? Users can never be wrong. So there are many key performance indicators (KPIs) that can be referenced, but from a qualitative perspective, do users really have demands?

Next, there is a more important question, that is, market integrity. This problem is much more difficult to solve, that is, is this market safe? It is not just exciting, it is decentralized, so it won't be a market controlled by some insiders. I think this is a huge criticism that meme coin is currently facing.

This is true on centralized exchanges and on decentralized exchanges. So this is one of the most important things. Will this market become an information asymmetry market, some of which will cause harm to others. A huge benefit of centralized exchanges is that we are a filter, which can be both good and bad. I think a lot of people are dissatisfied with centralized exchanges now because they feel there is a lot of value deprivation in it, whether everyone is fighting for the next listing opportunity, everyone wants to go online on the first day and get it listed as quickly as possible, they don't really know or care about what the project is, they only see their competitors doing the same thing. So they also want to go online as soon as possible. Usually, the market chart will usually look like this: rise first and then fall. This is a very fair criticism and a point we want to refute.

Everyone is in this prisoner dilemma, they are looking at their competitors and asking themselves, will they go public? If they will go public, do I have room for myself to choose not to go public? I take pride in our judgment and always do the right thing, but these are also the thoughts that every exchange is doing on its own. This is the dilemma behind it.

ChainCatcher: Backpack just completed its A round of financing last year. What is the main use of the previous round of financing?

Armani: The last round of financing was mainly used to build teams, recruit people, and ensure we can get the required licenses globally and eventually enter the market. Whether it is engineers, compliance personnel, customer support, operations, laws, etc. Building an exchange is a huge project, unlike traditional technology companies, which only need to recruit a bunch of very smart engineers and product staff to get started. The members of our team have very diverse skills backgrounds, come from different countries, and we are an international team.