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The theme of the last roundtable forum was "Mainstreaming of Encrypted Finance". It was hosted by Zhang Shuhao, editor-in-chief of Block Rhythm, and six guests were invited to participate in the discussion, namely: He Wei, co-founder of Lbank, FANFAN, founder of Jubi VP & Jubi Labs, Biying CMO Luo Yi, PayPal Finance Managing Director Tong Lei, CyberX COO Harry and Wootrade COO Ran Yi.
Regarding the changes in the encryption industry in the past few years, the participants had different opinions.
He Wei believes that there are two main differences: first, the participants. In 2017, the market was dominated by grassroots, and the professional level was not high, but now more and more top talents are joining it; the second is the professional requirements of the arbitrage strategy It is getting higher and higher. In the past, simple futures and spot arbitrage strategies can achieve 10% to 20% annualized returns. Now that DeFi is on the rise, users need to master more and more information to obtain large arbitrage, and strategies are becoming more and more diverse.
FANFAN pointed out that there are two obvious changes in encrypted finance: one is the deepening of polarization, and more and more centralized exchanges will move closer to the direction of compliance. The representative case is the listing of Coinbase, and decentralization is relatively more unconstrained; The transmission mechanism is clearer. Some applications will first be generated on a certain chain, and then transmitted to more users through KOLs and giant whales, and finally move towards cross-chain development.
Tong Lei thinks from the perspective of encrypted financial service providers that market participants are becoming institutionalized, and more and more market transaction weights are completed by institutional traders, requiring encrypted financial service providers to become more and more specialized. "The business scale and complexity of PayPal Finance have increased significantly. We have opened many business lines, and the level of risk control has also reached a new level, because customers have put forward higher risk control requirements for us; Upgrades have been carried out, and many of our partners have become more and more professional, which has brought great improvements to the industry."
Regarding the changes in the encryption industry in the past few years, Luo Yi believes that the bull-to-bear transition is almost always a wave of bull market brought about by technological innovation, such as the birth of Ethereum in 2017, which set off ICO. The skyrocketing coin launch detonated DeFi, and then Polkadot, NFT, Filecoin, ETH2.0, etc., so it can be seen that now there are multiple tracks developing, providing different products and services to meet different user needs. As a part of the transaction in the encryption industry, Biying serves as a link between project parties and users. In addition to the infrastructure, it is necessary to continuously enrich the business line. For example, we recently launched the Biying shared mining pool to make mining easier. Simple.
Ran Yi said that in the next three years, sovereign funds and traditional stock institutions may enter the encryption market, and the boundary between the virtual world and the traditional world will become more and more blurred, and even the asset boundary will become more and more blurred. Synthetic assets on encrypted exchanges may be listed on other traditional trading platforms in the future. In this regard, the United States is already at the forefront, but there is a high probability that they will not touch DeFi, so this is a great opportunity.
In a compliant market environment, how do encrypted financial service providers respond to challenges? Harry introduced that the industry philosophy that CyberX has always adhered to is to expand the overall cake of the encryption industry through cooperation between various institutions. Only by making the cake bigger, players in the industry will have a greater space to play their strengths.
At present, CyberX focuses on two aspects: one is compliance, and only compliance can allow traditional institutional players to enter the encryption industry; Facilities are shaky and weak. To this end, CyberX is also making efforts to build an institutional brokerage system to provide more convenient custody and risk control management services.
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Q1
Zhang Shuhao: First of all, I would like to trouble everyone to introduce themselves.
He Wei:Hello everyone, I am He Wei from Lbank. Lbank is a digital currency exchange established in 2016. It has some experience in finance. Today's guests also include many of our in-depth partners. Since 2017, Lbank has always had a layout in terms of user education and products.
Luo Yi:I joined Biying in September 2020. I have also made relevant layouts in the encryption industry before, met many small partners, and witnessed the industry's bull-bear conversion. Biying has been well-known since the September 4th in 2017. It is also an old-fashioned exchange. Its current business covers mining pools, capital, wallets, transactions and banks. Among them, legal currency OTC and currency transactions in the trading field are also relatively early. . In the early days, we also incubated and invested in some project funds, and established the Biying Research Institute. In terms of the most popular DeFi in the market, we have also made Layer2 and DEX layouts. Polkadot and NFT are also the tracks we pay attention to.
FANFAN：I joined Jubi in 2016, and now I am mainly in charge of Jubi Labs. Last year, I took a budget of 20 million US dollars for the incubation and investment of the project. At present, my heavy position is related to the expansion of Ethereum, including public chain, Layer2, infrastructure, cross- chain. We are still focusing on DeFi and NFT bills. Last year, we supported more than 20 projects on BSC and HECO. This year, we are focusing on peripheral products of Uni V3. In addition, there are two public chains (Solona and NEAR) that we are more optimistic about. This year, a large number of them will switch from DeFi to bill NFT.
Tong Lei:Hello everyone, I am Tong Lei from PayPal Finance. PayPal Finance was established in 2018 and currently has three businesses: encrypted currency lending, encrypted asset management, and transaction-related brokerage business. At present, our customers are located in various segments of the encrypted financial world.
Harry：I'm Harry from CyberX. CyberX is a digital currency prime brokerage located in Asia, mainly serving institutional clients, providing clients with optimal trading, liquidity, loan allocation, risk control, asset portfolio management infrastructure and optimal solutions. Our team comes from Goldman Sachs, Morgan Stanley, BlackRock and Citadel, as well as leading high-tech companies like Google. Our goal is to provide institutions with a full range of solutions and lower the barriers for institutions to enter the digital currency field.
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Q2
Zhang Shuhao: The industry chain and roles you are in are not the same. I would like to ask everyone since this round of bull market, as an institutional financial service provider, what obvious changes have we observed in the encrypted financial service industry?
He Wei:We observe that the current market is completely different from the market in 2017.
One is the participants. In 2017, the entire market is still dominated by grassroots, and the professional level of most entrepreneurs does not need to be so high. For example, "moving bricks", the price of Bitcoin in South Korea is 30-40% higher than that in the global market. The easiest way is to take Bitcoin from South Korea to China to sell, and rely on exchanges for arbitrage. This only needs to find someone who knows how to write Python. It's ok, you don't need much professionalism. But now the top people are needed to join, and more and more professionals are joining it.
The second is exchange arbitrage. After the rise of DeFi, we found that more and more information needs to be mastered in order to obtain large arbitrage. In the past, the annualized income may be 10% to 20%, but now if the strategy is too simple, the income is only a few points. Strategies are becoming more and more diverse, and the requirements for professionalism are getting higher and higher. This is the biggest change in the industry that we feel.
Luo Yi:The overall market is a battleground for games, depending on the expected strategies and psychology of both parties. It is undeniable that DeFi can quickly capture traffic, funds and users. With the popularity of DeFi, both DeFi products and tokens have brought traffic and hot topics to the industry for a long time. In 2020, everyone has witnessed the birth and explosion of a batch of DeFi products from YFI and YFII.
The biggest advantage of DeFi lies in its composability, but it also comes with risks. DeFi does not require permission and can be seamlessly integrated with each other. However, because of these composable reasons, hackers have found opportunities, so large-scale DeFi projects have been attacked by flash loans or oracles.
Composable applications have high requirements for collaboration, but if DeFi adopts the Layer 2 solution, does its synergy still exist? The answer is yes. But this needs to be considered when interacting with the native underlying Ethereum network, Layer 2 should consider the design of smart contract support, transactions, confirmation efficiency, etc. We also have the aspect of layout. Our Layer2 solution has fully considered these issues and made sufficient preparations.
However, the encryption market must not only have DeFi, but also other development forces, such as NFT, public chain, Ethereum 2.0, smart chain, etc. Only by contending among a hundred schools of thought can promote the healthier development of cryptocurrency.
Fan Fan：I have been working on a centralized exchange before, and turned to incubating from the DeFi wave last year. There are two things that I feel deeply:
The first polarized. Centralization and decentralization seem to be going left and right, and the respective paths of polarization are becoming clearer. More and more centralized exchanges will approach the direction of compliance. The listing of Coinbase is an example, which is a top-down management; decentralization is relatively more unconstrained, and its governance originated from the community A single spark can start a prairie fire. These are two completely different modes of collaboration, which are the two forms of collaboration currently present in the industry.
The second is that the transmission mechanism is clearer. Some applications may be first created on a certain chain, and then transmitted to more users through some giant whales and KOLs, and finally move towards multi-chain or cross-chain. In the transmission mechanism, both upstream and downstream are equally important to the industry.
Tong Lei:PayPal Finance is a centralized encrypted financial service organization. Most of our customers are institutional and professional investors. From the perspective of our track, this year has the following trends: The first is compliance, which is It is determined by the general environment; the second is that participants in the encrypted financial market are currently becoming institutionalized, and more and more market transaction weights are completed by institutional traders. In this context, encrypted financial service providers are becoming more and more professional, which is what the entire market requires of us.
PayPal Finance's customer base covers a very wide range. For example, in the mining ecology, customers include participants in the entire mining process, such as mining machine manufacturers, mining farms, dealer platforms, and miners. During this period of time, we have seen that the participants in these mining ecosystems have become more and more professional. Many miners used to be mainly individuals, but now many institutions appear in the form of funds.
In the DeFi field, some DeFi participants are also our customers, and their capital scale is getting bigger and bigger. Even traditional funds can participate in liquidity mining and participate in the DeFi ecosystem.
Among our customers are many institutions in the encrypted financial world, such as wallets and exchanges. On the one hand, they are moving toward compliance, and on the other hand, they are moving toward decentralization, which also poses many new challenges to our services: how to better connect with these decentralized wallets and exchanges, and embed our services into in their business.
In addition, we also serve some traditional investors, such as ultra-high-net-worth users, whose requirements for us are completely different from the original ones.
The specialization of customers has promoted the specialization of service providers, and the business scale and complexity of PayPal Finance have increased a lot. We have opened many business lines, and the level of risk control has also reached a new level, because customers have put forward higher risk control requirements for us, and many of our partners have become more and more professional, which has brought great impact to the industry. improvement.
Harry：There are many similarities between my point of view and what Tong Lei said, because we both specialize in serving some investment institutions. We have found that more and more institutions are entering the market, and the amount of funds is larger than the amount of funds we have been exposed to in the past. It is also because of such a large amount of funds that they have more professional and diversified needs for services, including industry infrastructure and overall risk control will pay more attention to details, and the requirements for service organizations in the entire industry Also taller. Financial derivatives (such as options), which were not widely used in the past few years, have also been gradually used by institutions and miners in the past period of time to hedge risks based on their different judgments on the market. This is also a change in the market.
Plus, the participants are more diverse. There are traditional financial companies and high-tech companies like Tesla, all participating in this market from different angles. These institutions hold different views and opinions on digital currency, some regard it as a technology investment, some regard it as a currency, and some regard it as a long-term holding asset. A more diversified view makes the entire market more resilient, reduces the probability of black swan events like 3.12, and the market can grow healthier.
Ran Yi：I think digital assets are a big asset class. Within three years, sovereign funds and institutions that traditionally invest in traditional stocks will come in, maybe sooner. At that time, the boundary between the virtual world and the traditional world will become more and more blurred, and even the concept of assets will become more and more blurred. For example, encrypted exchanges now also have some traditional financial synthetic assets, and you can trade them on any platform in the future.
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Q3
Zhang Shuhao: Thank you very much, all the guests. Although everyone is in different roles, they all agree that the industry is currently institutionalized, compliant, and innovative, and there are also many opportunities. The next thing I want to know is, in terms of the current industry track field you are in, how big do you think the current centralized encrypted financial market is? In addition to the benefit of currency price growth, what other factors have you observed driving the growth of the industry?
He Wei:The DeFi market has become active again recently, and the growth is terrific, and several large projects are very large.
So, will CeFi be replaced by DeFi? In my opinion, these are two different development directions. Decentralization will involve blockchain believers and enthusiasts, but compliant institutions will only participate in the centralized market. Centralized matching will be more suitable for high-frequency users and institutional users. Some well-known DeFi locked positions have reached more than 1 billion US dollars, but compared with traditional centralized exchanges, it is not huge. Therefore, I think that centralization must have its future, and this scale must not be inferior to decentralization.
In addition to currency prices, what other factors are driving the growth of the entire industry? I think a very important point is to get out of the circle.
When we talked about cryptocurrency and blockchain, it has always been a niche market, but this year we found that the situation is different. More and more people have learned about this industry through various means, and there will be a large influx of external funds. Now the number of new daily users is almost three times that of the previous bull market; many institutions have participated, and the number of institutional users has also increased. Much more than in 2017. Therefore, it is very important to go out of the circle to let more people know about our industry.
Luo Yi:The scale of the current centralized encrypted financial market still accounts for a large proportion of the encrypted industry. It is undeniable that DeFi represents the needs of a part of the market and users, but it does not mean that the living space of small and medium-sized exchanges will become less and less. Both DEX and CEX have their own advantages and disadvantages.
DEX can replace some CEXs because of its liquidity. Of course, DEX also has three major problems: high transaction fees, poor trading experience, and difficulty in trading individual assets across the ETH chain. From last year until now, the gas fees for interactions on the Ethereum chain have been very high. A single transaction requires a gas fee of several hundred dollars, which is unbearable for retail investors. Due to the current ETH performance problems, some users’ trading experience is not very friendly, and it may take a long time to wait for a transaction. In addition, there is currently no way to trade assets on other chains. But these are exactly the problems that CEX can solve.
The maturity of users, more and more friendly developer tools, the optimism and support of large external funds and institutions, as well as the policy support of some countries around the world, as well as the new crown virus pneumonia and the loose monetary policies of some countries, etc. Drive the growth of the industry.
FANFAN：I have seen a set of data on the amount of locked positions on the chain before. At that time, Ethereum was 40 billion U.S. dollars, BSC was no more than 10 billion U.S. dollars, and HECO was 7.5 billion U.S. dollars. The growth of this capital volume is very fast, but compared with traditional finance, this volume is not very large. The reasons for the rapid growth I personally summed up three points:
The first point is value capture. Many people didn't know what the blockchain was for before, but after the emergence of DeFi, everyone found that smart contracts can be used instead of centralized platforms to complete transactions, loans, and financial management. Its value capture has been seen and experienced by more people arrive.
The second point is mainstream entry. The entry of Wall Street and Musk has made more people dare to put funds into the blockchain and encryption world.
The third point is that a big reason for the growth of encrypted finance is that the market transmission mechanism is gradually becoming clearer, and the market transmission mechanism will become bigger and bigger like a snowball, and the speed will become faster and faster.
Tong Lei:At present, it is impossible to verify the scale of the centralized market, because it does not have very clear lock-up data like DeFi, and the centralized market has too many subdivisions, and the compliance process has not yet been completed, so many things cannot be checked. In addition, many definitions are relatively vague. I personally feel that there should be no problem with the lock-up volume being 8-10 times larger than that of DeFi at present.
What are the factors driving the growth aspects of the industry? Premium growth is definitely the root cause, but there are several other reasons:
First, the infrastructure is getting better and better. Whether it is Ethereum or other on-chain tools and infrastructure, they are constantly improving, including the depth of the derivatives market is getting better and better, which is of great help to the entry of large funds; at the same time, there are many professional financial Service providers will also help large institutions enter the market in a more comfortable way.
The second is the demographic dividend. Many people have discussed before whether the demographic dividend is still as big as before, with so many people entering the market? I think this wave of demographic dividends is stronger. The first wave of people who entered the market were all aggressive speculators. In this wave, we saw that people with higher average wealth in society began to enter the market, which is different from the previous waves.
The third is the compliance process. This provides traditional institutions with arbitrage opportunities, such as Grayscale Bitcoin arbitrage, which attracts institutional arbitrageurs, which is also a key point.
Harry：Regarding the scale of the centralized trading financial market, I have two data here: one is that the CMC data shows that the overall market size is only 2 trillion US dollars, and the other is that the locked positions of DeFi have exceeded 100 billion US dollars. These data can give you a general indicator to understand the current market size. After all, the market was only about 200 billion at its lowest level a year ago.
What other factors affect the market? First of all, I think it is mainly because the DeFi ecology has brought about changes in the industry, bringing innovations in the financial direction that we did not have in the past in terms of technology and new ideas.
Secondly, the monetary policies of various countries also have a great influence on the growth of the entire market. For example, the U.S. dollar has been depreciating. Data show that in the 100 years since 1920, the U.S. dollar denominated in gold has depreciated 100 times, with an average depreciation of 1 time per year. The scale of assets and liabilities in February 2021 is more than 10 times that of 2002. Since the outbreak of the new crown, the Federal Reserve has been continuously carrying out quantitative easing stimulus, and the currency in the entire market has been over-issued, which will also bring certain bubbles to other assets. A deflationary currency like Bitcoin is very attractive under such circumstances, and it is also a hedging method when the currency is overissued, so it has attracted institutions to support it.
The last is compliance, which can make it easier to connect with the traditional market. Thanks to the development of compliance, the growth of the North American market in the past year is much higher than that of Asia in the past many years.
Ran Yi：I used to help organizations manage money in the United States. For example, Philips is one of their clients. They have billions of dollars in one client, and they do large-scale asset allocation. They care about a few points:
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Q4
Zhang Shuhao: The last question, in addition to undertaking the existing needs and customers of the encryption market, guests, as a powerful financial service provider, I don’t know if they have made efforts to “attract funds/players from outside the circle and make the cake bigger” ? Can you share with us some feasible directions you have observed or even already in the layout? In this market environment where compliance is increasingly valued, what are the opportunities/directions for encrypted financial institutions to continue to grow?
He Wei:The characteristic of decentralization is that code is law. Anything that happens on the chain, as long as it is in line with the logic of the code, no matter whether the result is good or bad, it must be accepted. For users outside the circle, this is difficult to accept, but users in the circle are basically more recognized at present.
Currently the most active DeFi supporters of Ethereum, many of them have been supporting since 2016 and 2017, and they use one percent or one thousandth of their assets for asset allocation; but for new users, their It's hard to say how much capital allocation can be.
I personally think that there are only two directions for cryptocurrencies and blockchains: the first aspect is the DeFi market with unlimited permissions, and the second is the compliance market with limited permissions. These two paths are completely opposite.
Take Lbank as an example, we established a DeFi mining fund in 2020 to keep mining DeFi projects. Since DeFi does not have any permission, it is necessary to identify whether the mine is scientific, whether it is a long-term solution or whether it has loopholes through code identification and research on the project.
The compliance market is more for high-net-worth individuals. As compliance is getting more and more attention, if encrypted financial institutions want to continue to grow, compliance must be a major prerequisite. Compliance is not only in one region, but actually covers different places and countries around the world, and the situation in each region is different. Lbank has done a lot of work in terms of compliance, one is digital currency transaction qualification, and the other is legal currency payment.
FANFAN：The first is to attract funds from outside the circle. I have been emphasizing the transmission mechanism. Consensus diffusion is a process in its own way, and each has its own division of labor. We are doing investment incubation, and our focus is not and should not be on attracting funds from outside the circle at this stage.
The role we assume is not a motivator, but a person who pushes the boat forward. We will push more interesting products to Asia-Pacific users and other users who are not on the most professional side of the pyramid. This is our responsibility now.
In this process, in addition to doing operations and marketing, we can also incubate, help entrepreneurial projects and teams, and help them realize product simplification. The simplification of the product means that if you can play DeFi in one step, don't let him learn it in three steps. To some extent, this is also to create conditions for attracting external funds.
In terms of layout, we have supported more than 20 DeFi projects. With the launch of Uniswap V3 this year, we think there will be a wave of bill NFT projects. For these projects in the future, we will also bring them to each chain ecology, and will focus on cross-chain technology, which is our layout in Jubi Labs.
Speaking of opportunities and directions, centralized exchanges have been emphasizing the direction of compliance today. For its own growth and the growth of the platform, it is more often driven by data; to analyze its own user behavior and the user behavior of the entire market; to use data to drive the steady growth of the platform to undertake the opportunities brought by the wave of decentralization. The role itself is the carrier role.
Decentralization has a higher ceiling, and there is even no ceiling. The imagination is endless. In this world, the code is the law. CeFi is the mainstream market, but DeFi is a more gold-absorbing market.
Tong Lei:Our team was born in traditional finance, connecting traditional customers and the encrypted financial world is one of our visions.
We have also contacted many traditional capital forces and institutional investors before, helping them understand and recognize encrypted assets, and providing them with a more comfortable path to enter the world, which is what we are good at.
We hope that we can become a one-stop comprehensive solution platform, providing asset management, liquidity, trading and investment services according to the needs of these customers.
In terms of compliance layout, we are promoting license applications in Hong Kong, Singapore and other places, and they are all in a relatively advanced position. We still hope to provide traditional investors with the experience of entering virtual assets from traditional funds in a way that is not only under the regulatory framework, but also convenient and compliant.
This process involves custody, auditing, express delivery, taxation, etc., and faces many problems. We hope to provide customers with the best solutions, so we make more efforts in this regard.
Harry：CyberX also came from traditional finance, entered this market, and expanded the overall cake through cooperation between various institutions. This is the direction we have always adhered to. Because only by making this cake bigger, players in the industry will be able to give full play to their strengths.
Because we have been in contact with institutions, including those that have already entered the market and those that are considering entering the circle outside the circle, we can see that they have different needs in this market. CyberX is currently the largest crypto broker in Asia, providing a full range of solutions to lower their entry barriers to this market, including trading, liquidity, capital, and risk control.
For us, the most important part of the current layout is two parts: one is compliance, and only compliance can allow traditional players outside the circle to enter this industry; the other is the improvement of infrastructure, the current infrastructure construction of the entire industry It is still relatively weak, and large funds need better infrastructure to carry it. This is a very important and necessary condition. For CyberX, we are also working hard to build an institutional brokerage system to provide more convenient services such as transactions, loans, custody, and risk control management.
Ran Yi：We have two advantages here: one is liquidity, and the other is the ability to create higher returns.
In terms of liquidity, Wootrade itself is a platform that focuses on liquidity. Recently, we have also communicated with many potential users outside the circle and institutions with liquidity needs, and have some landing products. In addition, in terms of DeFi liquidity, we are also deploying on BSC, Ethereum and other chains, and the investment is relatively large.
In terms of income, we are also working on overseas fund structures, hoping to produce innovative wealth management products, including auditing, custody, and light settlement. These will be structures familiar to traditional institutions, thereby attracting them to enter the market.
Luo Yi:As an exchange, compliance is very important. To embrace regulation, we need to apply for more regional and national compliance licenses. From a business perspective, both the DeFi model and new business mechanisms require us to learn and innovate. We have a research team in Australia, and we have been working with overseas investment banks to research new fields and business expansion, including DeFi, NFT, etc., which are our focus. In addition, there are financial management, international user segmentation, user education, etc. These are our current efforts to make the cake of this circle bigger.
Recently, Dogecoin and Bitcoin have been relatively out of the circle, attracting a lot of traffic from outside the circle. Therefore, to create an incremental market, the entire industry needs to innovate in order to attract more users and funds.
As a trading terminal, Biying is also constantly enriching the ecology. For example, it has recently built a shared mining pool to make mining easier, bringing miners, individual investors, mining pools and mines together to share mining dividends. In addition, NFT has become very popular recently, and many celebrities have entered the arena. I think the NFT track will be a very potential and landing direction in the future. Moreover, I believe that more institutions will carry out chain reform in the future. We have also set up a special incubation department and investment department to help these companies carry out chain reform.
Zhang Shuhao:Thank you all for sharing your views, thank you all.
