Himalaya Exchange

I recently discovered a new cryptocurrency exchange/ecosystem that goes by the name Himalaya. Doing some research caused me to fall down a rabbit hole and I ultimately decided to publish what I found which ended up being rather concerning. Skip to the end if you just want a summary.

The basics - what is Himalaya Exchange?

Himalaya Exchange (https://himalaya.exchange/) is a cryptocurrency exchange. They offer two tokens - the Himalaya dollar (HDO) and the Himalaya coin (HCN). The Himalaya dollar is a stablecoin, pegged to USD, while the Himalaya coin is a token with a floating price. Both are ERC-1404 tokens and are only available on the Himalaya exchange.

The actual exchange seems to be limited to exchanging Himalayan Dollars for Himalayan coins, but it's hard to tell because the exchange is geo-locked to certain countries and the UK is not one of them. They boast of military-grade security systems and 2-Factor authentication (3-Factor in some documentation).

Finally, the company offers an app - Himalaya Pay. This is for using Himalaya tokens (HCN I believe) to purchase goods from participating vendors. They claim Himalaya Pay V1.0 (available now) is a digital gift card system, while Himalaya Pay V2.0 (coming soon) will allow instant crypto transfers around the globe, automated payment schedules and access to exclusive retailers.

These four things make up the Himalaya ecosystem. The company claim this offers Instant Processing, a secure network and “almost zero fees”. Oh, and they also have a 24/7 helpdesk.

How does it work?

I started my research with the white papers. Himalaya exchange has two - one for the Himalaya Dollar (source) and another for the Himalaya Coin (source)

My first thought reading these was that these aren’t white papers. They don’t contain any technical information. My guess is they were written by someone in marketing before being sanitised by someone in legal. My second thought was that the two “whitepapers” are practically identical. They change the name of the coin and a few other paragraphs, but it’s 90% the same.

The documents don’t describe how the tokens work. I’d recommend comparing them to other documents such as this one from Chainlink (available here) or this one from Polygon (available here). Both of these make a good effort to explain how the token is expected to work. Himalaya just claims lots of features without any details of how those features are implemented.

Let's dive in anyway and see if we can’t figure it out. Starting with the Himalaya Dollar. As mentioned, this is supposed to be a stablecoin, pegged to USD. This is somewhat amusing because Himalaya makes very clear that they cannot be owned by any US citizen or anyone living in the US, presumably because they would then fall afoul of some US regulations. This is despite the CEO appearing to be an American (does he not own the coin?).

The whitepaper claims we get these HDOs by first being a member of the Himalaya exchange (both tokens are exclusive to this exchange) and purchasing HDO credits, presumably with fiat currency. But what are credits? How are they different from the token itself? It appears that they are, because a small footnote, beginning with IMPORTANT (if it was really important why didn’t you make it bigger?) claims that holders of HDO or HDO credits do not have any recourse to funds in the reserve (i.e. that Himalaya is under no obligation to buy your HDO tokens if you want to sell them, which begs the question - how do you convert HDO tokens back into fiat currency? But let's revisit that later, for now, it's enough to note that HDO and HDO credits are separate things).

Further down the paper it finally describes credits, in what I presume is the lawyer’s best prose.

The operation of the Himalaya Exchange, the Himalaya Ecosystem and associated applications and infrastructure will be facilitated through the use of “Credits”. Credits within the Himalaya Ecosystem will correspond to a particular type of crypto asset

Members will initially be able to purchase Himalaya Dollar Credits from the Himalaya Exchange with U. S. Dollars and may purchase Credits corresponding to a particular type of crypto asset supported by the Himalaya Exchange by transferring corresponding crypto assets to the Himalaya Exchange wallet

Ok, so I guess I transfer them my crypto and I use it in the Himalaya ecosystem in the form of credits (or I just buy the HDO credits directly with fiat). I assume this is a convenient way to minimise gas fees by just holding all the crypto in a few wallets. Let's keep reading.

Credits can only be used on the Himalaya Exchange or within the Himalaya Ecosystem, representing a right to participate in trading on the Himalaya Exchange and do not carry any right to require their exchange for fiat currency or crypto-assets

Oh. So I guess I transfer them my crypto and I use it in the Himalaya ecosystem in the form of credits and then my crypto is theirs forever because they’re under no obligation to give you back your assets and you’re stuck with these credits for the rest of time? They do clarify later on that you can request they exchange the credits for the original assets but make it very clear they’re under no obligation to do so. They make this point several times, often multiple times on the same page. They then further clarify the clarification and state that all assets (fiat and crypto) within the Himalaya Ecosystem are owned by Himalaya because they don’t hold any licenses or authorization for them to hold assets for other people. Which is a strange statement for something claiming to be an exchange.

I can’t help but wonder at this point - why did Himalaya bother with creating a token at all? You can replace this with a system where if you pay Himalaya X dollars they’ll give you Y credits that you spend at participating vendors with no tokens involved at all and it's the same result. But I guess that’s just a gift card. To be fair to Himalaya, they do say they will allow payments between users in future - which is slightly better than a gift card. If they also added the ability to own your assets, they’ll have almost invented the bank account.

I don’t want to go through the whole whitepaper in exhaustive detail, because a lot of it is generic buzzwords and nice-sounding phrases, but another fun “feature” of the coin that helps Himalaya control the coin supply is that if you transfer any HDO or HCN tokens to an external address (which remember you first need Himalaya’s permission to exchange your credits with real tokens - and they make very clear that they are entitled to refuse) the tokens can’t be transferred again after that for 366 days unless the address is whitelisted by Himalaya or one of their third parties (again, they can refuse this permission and the cherry on top is that to request this whitelisting you will be charged a fee). And that is followed up by another notice that they may impose further restrictions in future.

Zooming out from the tokens themselves, they do talk a little about the technology. They claim to use a hybrid blockchain that combines Ethereum and Quorum but there’s no information on how they are combined. The whitepaper also gives the impression that all of the blockchain nodes will be run by Himalaya themselves. They don’t say this directly, but they do talk about how blockchain access is limited to pre-approved participants and there is no mention of any of the staking or mining rewards that would incentivise third parties to run a blockchain node so I assume that the whole thing is indeed run by Himalaya, with them being responsible for creating and distributing the entire token supply in a centralized manner. Regarding consensus mechanisms, the white paper simply points out that they have many different options, and provide no information on which one is used. Of course, if you’re running all your blockchain nodes in-house the consensus mechanism doesn’t matter so it may be a moot point.

The rest of the white paper is generic stuff. There are plenty of details around security - they store large amounts of their crypto in cold storage, plans to support 3-factor authentication and lots of other basic security steps that every semi-competent IT department has implemented (they make sure to explicitly tell us they host their application components in private IP subnets for example)

Onto the next white paper. The Himalaya Coin (HCN). As I mentioned, almost all of the content here is the same, so let us just focus on what’s new. Unsurprisingly it has the same credits system and you purchase credits with either USD or HDO (I don’t think you can purchase HDO with HCN though) and if using USD there is, of course, an additional fee. You can then purchase goods from merchants with HCN. The only other new thing is a slight detail which I perhaps missed in the previous white paper - the hybrid Ethereum and Quorum blockchain is actually a future development. What they are using right now isn’t specified. Everything else is just the same generic buzzwords and vague statements.

I’m still not clear on many things about these coins, but I believe the expectation is that a user will buy HDO and use that to buy HCN. I suppose the reason they have both is so that if HCN is volatile you can retreat to HDO without converting to fiat and leaving the ecosystem altogether which they appear to have purposefully made extremely hard to do. The HCN is then used to purchase real-world goods but also seems to be a speculative investment? They are obviously counting on rises in the value of HCN and I can see the price has gone from ~30HDO in December to 44HDO in March, with an ATH of ~53HDO. But that’s far too much volatility for any merchant to accept the coin. That's enough volatility that any merchant would either need to constantly adjust their prices or be exposed to wild fluctuations in their revenue, which makes the token useless for buying things.

The last technical item I want to discuss is the issuance. Each whitepapers has a small table that covers this (and it’s different between papers, thankfully!). HDO has an unlimited supply (an has a promise of a reserve in USD and other assets - there are no further details about this other than the claim that the reserve will be audited annually, but I can’t find this audit anywhere) while HCN is limited to 1 billion tokens per year. I don’t know if that’s a hard-coded limitation on the smart contract or if Himalaya is just promising they won’t exceed that limit.

My concern here is that there’s nothing stopping Himalaya from issuing a huge number of HDO tokens. Normally that would cause the price of the token to crash and the issuer would be forced to buy the tokens using assets from the reserve. However, that’s not necessary when the issuer is also in control of the only exchange you can use the tokens on, because the price can just be fixed at whatever you need it to be there.

Himalaya seems to have looked at Coinbase and thought their mistake was not trying to be more like the Bank of England. They appear to be trying to create a fully self-contained cryptocurrency ecosystem where all the power is centralized in their own hands requiring users to place complete trust in Himalaya. For me, that completely defeats the point of a cryptocurrency, where the goal is to create a system that doesn’t require trust because everything can be self-verified on an open blockchain.

The white papers also show a very clear desire to avoid any kind of regulation - both papers contain multiple disclaimers and other caveats regarding this. This is understandable on one level, as regulations designed for non-crypto assets often do hobble cryptocurrencies in ways that don’t make sense but I can’t help but wonder if the intent of avoiding any regulation is that they don’t need to offer any protection to any of the users of the ecosystem. A quick comparison with Coinbase (source) shows that customers are at least partially insured against theft there and any fiat deposits are covered by the FDIC. Himalaya doesn’t provide any insurance that I can find or offer any guarantees they will attempt to recompense users in the event they lose their money or crypto.

Who owns Himalaya Exchange?

Given the design of Himalaya requires users to put absolute trust in them, I think it's worth asking who owns the company.

The first thing to note is that Himalaya Exchange is technically three companies. Himalaya International Payments Ltd, Himalaya International Clearing Ltd and Himalaya International Reserves Ltd.

Beyond that, there isn’t much publically available information but these companies seem to be linked to a company called Hamilton Investments. The relationship between Himalaya Exchange and Hamilton Investments is unclear - are they investors, or owners? The CEO of Hamilton Investments, William Je, is also described as the founder of Himalaya Exchange (source).

Does that solve the mystery? I don’t think so. William Je appears several times in relation to a Guo Wengui aka Miles Kwok aka Miles Guo. Guo Wengui is a Chinese billionaire, who fled China after being accused of corruption - which he denies. Je seems to have paid $100,000 to a journalist in what seems to be a convoluted story involving Guo (source). Je and Guo appear together again in a Wall Street Journal article that claims Guo used a third party, ACA Capital to pay a contractor. ACA Capital was at the time owned by William Je (source)

Of course, there’s no evidence that these William Je’s are the same person - but I’ve highlighted this connection to Guo Wengui because Guo is also a major proponent of the Himalaya Exchange - he even released a music video about it onto Youtube under the name Miles Guo (source). It’d be quite a coincidence if there were multiple William Je’s with close financial ties to Guo.

Another link to Guo popped up when researching the CEO of Himalaya Exchange, Jesse Owens. I found a video (source) interview and this article (source). The article is with an organization called GNews, while the video is with GTV. These were the only media appearances I found of Owens - though I admit I didn’t do an exhaustive search. These companies are owned by GTV Media Group, which is itself tied back to Guo. This company as well as two others linked to Guo paid $539 million to settle claims they violated investor protection laws when fundraising (source). This post (advert?) also claims you can spend your Himalaya Coins with companies such as GFashion and GClubs (source) - GFashion is again owned by Guo (source). I can’t find any evidence of who owns GClubs, but I’d be willing to take a guess.

Admittedly, there is no evidence of anything here, just lots of tenuous links. All this really leads to is an opaque corporate structure, which may or may not lead somehow back to a controversial billionaire with close links to Steve Bannon, a former advisor to Donald Trump (Bannon was arrested while on Guo’s yacht). In my opinion, this obfuscated ownership structure doesn’t fit in any way with the transparency that the cryptocurrency ecosystem is so proud of. This is even more concerning when you consider that Himalaya is asking for total trust from users of the ecosystem.

Other concerns

Both the British Colombia Securities Commission and the New Zealand Financial Markets Authority have released warnings about Himalaya Exchange (BCSC notice, FMA notice)

Tl;dr and Summary

I think the best way to summarize Himalaya Exchange is to look at the interview their CEO gave to GNews (source). In it, he’s asked to explain the benefits of cryptocurrency (see the How does Digital Currency benefit people? section). I mostly agree with his answer so let’s look at these benefits and see if Himalaya Exchange provides these benefits.

  1. Direct transfer (he calls this immediate settlement) i.e. you don’t need to go through 3rd parties. For a cryptocurrency like Ethereum, you can simply transfer Eth from one wallet address to another. No one else needs to get involved. With Himalaya however, almost all transactions are required to go through the Himalaya exchange, because you can’t use their tokens on other exchanges, and can only swap Himalaya tokens for other assets, whether fiat or crypto, on the Himalaya exchange. The only situation where you might be able to do a direct transfer is if you transfer between two external wallets, but even in that situation, you require Himalaya’s permission - first to transfer your tokens to an external wallet, and then again to “whitelist” the wallets or you are stuck with tokens you can’t use for the next year.
  2. Lower Fees - I haven’t come across any information on fees, but this seems like a benefit they probably have achieved. Given their design, I would be very surprised if they were charging high fees because they seem to want to encourage transactions within the Himalaya ecosystem while discouraging transactions across the boundaries of the ecosystem.
  3. Confidentiality - Your transactions are confidential in the sense that I can’t see what transactions my friend has made on the network. But they are also completely public to anyone at Himalaya or any of their partners who will have full access to the ledger as well as all of the know-your-customer details you’ll have provided when you signed up. In that sense, there is no confidentiality. At least with other currencies, I can create a wallet without having to prove my identity and transfer cryptocurrencies around.
  4. Accessibility - Himalaya isn’t particularly accessible. I assume the plan is to change this in the future, but right now access is limited to a small number of users in a small number of countries.
  5. Decentralization - For me, this is the main point of a cryptocurrency. And Himalaya fails here in every respect. There is no decentralization. Everything happens on the Himalaya exchange, with Himalaya able to impose whatever restrictions they want and with complete control over the ledger. The whole design of Himalaya sets itself up as a central authority that owns everything in the ecosystem and requires absolute trust which is antithetical to the basic principles of cryptocurrency.
  6. Recognition at a universal level - I don’t know what he means by this, so I’m going to skip it. But obviously crypto does have exchange rates (an exchange exists only to provide exchange rates) and interest rates (see all of Defi) and transaction charges (Himalaya themselves charge them...)
  7. Transparency - Again, Himalaya fails here on all counts. There is no transparency. You can’t analyse the ledger. You are required to completely trust Himalaya. There is no way to verify transactions yourself.

While I’m sure that the system will end up processing payments perfectly adequately, they’ve done it in a way that sacrifices all of the benefits of using cryptocurrencies and provides Himalaya with absolute control and ownership over everything that happens in their ecosystem. The biggest red flag for me is that any asset you store on the Himalaya Exchange is owned by Himalaya themselves. In return, they provide you with a “credit” but if you ever wanted to remove money or another asset from the exchange you need the exchange to agree to reverse the swap - the credit you have for the asset. And they make it abundantly clear that they are under no obligation to do that. I will certainly not be risking any money or crypto on the Himalaya Exchange/Ecosystem.