In the 2023 Hong Kong Web3 Carnival "CeFi Future, Start Now" roundtable discussion, HashKey Capital CEO Deng Chao and Binance founder CZ had an online dialogue to exchange views on CeFi.
Binance founder CZ said that the bridge between CeFi and DeFi is not a complete competitive relationship, and Binance hopes to become a bridge between the two. He said that in terms of security, it is impossible to say which one is safer, CeFi or DeFi, and they correspond to different security boundaries and parameters.
The following is the transcript of the conversation:
Deng Chao (host): Good afternoon, everyone! I know today is very long, but very exciting day, I am Deng Chao, CEO of HashKey Capital, we are the largest and earliest investor in the blockchain space, we are institutional investors, since 2015 we have invested more than $1 billion, over 500 global projects.
I'm very honored to have a fireside chat, and usually I take a few minutes to introduce a guest, but today this guest needs no introduction. Ladies and gentlemen, let's welcome CZ, thank you for taking the time to join us, would you like to start by saying hello to the audience?
CZ：Hello everyone, I am the CEO of Binance. Due to time conflicts, I have no way to go to the scene. I have been to Hong Kong many times and I like it very much. I also look forward to participating in this conference next time.
Deng Chao (host): Today’s topic is about CeFi. I want to ask some questions on behalf of the audience. Regarding the CeFi ecosystem, I want to hear your thoughts and insights.
First of all, from the security issue that users care about most, we have seen some security incidents recently. In the past few years, some people said that due to CeFi's dependence on centralized infrastructure, it is not so safe. How can we prevent infrastructure failures to ensure that users' funds are safe?
CZ：CeFi and DeFi have different risks, and both need to take security into consideration. CeFi has its own risk characteristics. It does not mean that one is safer than the other. You must take security measures into consideration. For CeFi, CeFi's exchange can also be very transparent, with a good proof of reserves, which can be verified on the blockchain.
For example, Binance’s wallet address is actually very transparent. In contrast, FTX’s wallet address has never been made public, so if CeFi’s platform is transparent, it can actually be more transparent than traditional financial service providers.
When it comes to DeFi, if you can properly protect your keys, it is a good way to keep your private keys yourself, and you will have more control. But I think that today most people have no way to fully protect their security or their keys. Even if they use a computer or hardware wallet, they still need to make backups and protect the backup data, so there are many factors and different risk characteristics. . Users must take these into consideration and not just unilaterally say that one is better than the other. Moreover, wallets may also be attacked when using DeFi. I encountered such an example yesterday. A user’s wallet IP address was leaked, which caused him to lose funds.
Deng Chao (host): The second question is about trust related to security. After the internal collapse of some notorious CeFi platforms, the key factor "trust/lack of trust" of CeFi has been surrounding the news and headlines. How do users respond? What about trusting CeFi companies? What can CeFi and Web3 companies do to re-establish trust within the user community, including other relevant stakeholders to gain trust.
CZ：When we talk about trust, I usually think about three levels:
The first level is the dependence on technology. In our trustless industry, technology can be used to verify, and technology can produce utility to some extent. If you use Bitcoin, or use the blockchain, you can verify for yourself that your money is there, your keys, etc.
On the second level, for the platform, if you do any service and business, even if you use blockchain or Bitcoin, you still have to trust the community. This trust takes time to prove, especially for centralized platforms. There have been thousands of failed exchanges in the past ten years, so trust takes time to gain and must be proven through our actions. I believe that Binance has very strong user trust.
The third level is self-education and risk management. Everything you do has risks, centralized platforms have risks, DeFi also has risks, traditional financial service providers, banks have risks, and even every country has risks, you just need to learn risk management up. It is very important not to look at things in a naive black and white way, but to have a balanced perspective.
Deng Chao (host): After talking about the security and trust platform, the next question is about the exchange as a gateway for people to enter cryptocurrency or Web3. Many people enter the cryptocurrency and Web3 field through Binance, but looking at the user experience, there is still a gap between Web2 and Web3 applications. What prevents users from entering Web3 to some extent? Woolen cloth? Can you share what Binance has done to improve user experience, and how do you think CeFi can further improve user experience and bring more users into the Web3 world?
CZ：Indeed, the experience of CeFi in Web3 today is not so good. From the user’s point of view, they need to register, do 2 FA authentication, need to do hardware key, and do KYC and address proof. Lots of risk control.
In Web2, most Web2 do not need to do KYC, and most social media such as Google and WeChat do not need to do KYC, so the user experience of Web3 is not as simple as using the Internet.
When it comes to DeFi, most of DeFi does not have KYC and AML processes, but it is actually easier to use. But today most people tend to use CeFi because they prefer to use email, customer service support, and if they lose their passwords, they can be easily retrieved after verification.
In the Web3 world, security comes first because we are dealing with user assets. We have not yet achieved an optimal solution to make everything very safe and easy to use. Security and convenience are inversely proportional. We have to use a lot of security measures, and we hope that as the corresponding technology improves, we can reduce these layers of measures.
Speaking of this, Binance has done a lot to improve user experience. For example, in terms of KYC, we will have local KYC procedures by country and region, and use local government databases and local suppliers to propose professional and customized solutions plan. For example, use a local driver's license for KYC and use a localized solution.
But in general, I am not very satisfied with the experience of using Web3. There is a lot of room for improvement, but this also means that there are many opportunities.
Deng Chao (host): Thank you CZ, you talked about the comparison between CeFi and DeFi at the beginning, and this topic was also discussed on the forum this afternoon. The conclusion is not a case of CeFi versus DeFi. There may be a period of time when CeFi and DeFi coexist. Do you agree with this conclusion? Do you think DeFi and CeFi will coexist in the next year or a few years?
CZ：Indeed, CeFi is not against DeFi, and DeFi should not be against anyone. In a decentralized world and a decentralized industry, there should be no barriers, anyone can participate. Any two people working together is centralization. There is no cooperation in pure decentralization. When you form a company or a project team, this is centralization. There will always be some centralized elements in decentralization. World.
From the perspective of DeFi, we want to help more people enter the encrypted assets and DeFi industries from traditional industries, and build a "bridge" between these two places. We are also actively promoting this conversion. So what we have to do now is to work together to fill the gap in technology, product services. Because there are too many gaps to fill, it is not about competition, whether to use DeFi or CeFi is a matter of user choice. If more people use DeFi, more people will use CeFi. There are different user groups on both sides. We just need to work together to make the industry bigger.
Deng Chao (host): Regarding the comparison between CeFi and DeFi, what do you think of mass adoption? We’ve had several rounds of discussions about this, what do you think will trigger the mass adoption of encryption and blockchain, what will be the trigger point? Is it a killer app? Is it regulation? Is it still a competition? Where is the progress now? What will be the next trigger point?
CZ：The question of what will trigger the next mass adoption is always going to vary over time, and I honestly can't predict it, and I can't guarantee that Bitcoin will take off like this in early 2013; 2017 is the year of the ICO One year, everyone was doing ICOs; DeFi took off in mid-2020, followed by NFT in 2021.
What is important now is that we provide an ecological environment so that people can try different things, and the time required for different things is different. If you ask me this way today, I would say that many governments are trying to control cryptocurrencies, but doing so may trigger the growth of cryptocurrencies. More restrictions on traditional financial markets will prompt more people to come to cryptocurrencies market. If you want everyone to stay in traditional finance, the best way is to lower the traditional market rate, make transactions easier, and better improve user experience. But the current lack of improvement within the traditional financial industry is what we see driving the industry now or in the future.
Deng Chao (host): Since you mentioned the government and the industry, I have to ask about your views on regulation before I finish. I am very grateful to the Hong Kong government for its strong support for the Web3 industry, which is why we were able to gather in Hong Kong this week for the Web3 Carnival.
We all agree that regulators should participate in the interaction, exchange good rules, good regulatory framework, and also need to be able to balance, encourage innovation and prevent illegal and criminal behavior. What advice would you give regulators? How can a thoughtful yet practical and pragmatic regulatory framework be designed. At the same time, what advice would you give to practitioners in the industry? Many practitioners here are talking with regulators, and this is indeed a very important topic.
CZ：This is a very important issue. I totally agree with what you said, the industry is worst without regulatory clarity, even if there is a strict and restrictive regulatory system, practitioners at least know what to do. For example, in 2017 Chinese regulations required exchanges to cease operations, so we left. In the case of clear regulatory rules, there will still be some good and bad decisions. Every decision on regulatory direction must be considered, and an ideal balance needs to be found, and the balance may also change over time.
When the industry is very early, it's about letting the industry grow because you can't predict what's going to be hot. For example, when NFT has not been promoted, there is no reason to set up regulations for it, or set up a regulatory scope for a field that we don’t know in the future. Now we need to let the industry develop and grow first. After the industry grows, it may be There are all kinds of lawbreakers or people who damage other interests. At this time, we need to isolate these people from supervision to prevent them from harming others.
There is also a natural tendency for regulators to try to apply the regulatory templates of the traditional financial industry to the cryptocurrency field, but the two are different. Moreover, the types of encrypted assets are also different. Some look more like securities, some look like commodities, some look like functional tokens, and some combine the above characteristics.
Therefore, it is very necessary for regulators to have an in-depth understanding of the industry. I must say frankly that most regulators currently have no experience in the encryption industry, and most regulators in the financial industry only have banking experience. Inter-communication is very important; for practitioners, it is necessary to actively deal with regulatory agencies. For example, we actively communicate with regulatory agencies in various countries. Some countries have very high acceptance of government regulations, while others are skeptical. It doesn't matter, all we have to do is continue to communicate patiently.
Usually the first version of regulations will be excessively restrictive. From the current limited regulatory framework to the sudden excessive regulation, there must be adjustments, and it will take some time to find the best balance. This is my point of view. Binance is also very active in following up with countries around the world. Regulatory agencies communicate and deal with each other, and we are also willing to explore more possibilities in Hong Kong.
Deng Chao (host): Which Web3 field will make you very excited in the next two or three years?
CZ：Good in many ways. My focus is mainly on basic applications, which I call so-called experimental or early innovation, which is determined by my personality. Once the technology is proven to work, I hope it will benefit hundreds of millions of people.
Now some experiments are very interesting. NFT, Bitcoin and other blockchains, cryptocurrency payments, after all, have to solve the problem of wallets. Today’s wallets are not easy to use. I think this is the biggest obstacle hindering the adoption of cryptocurrencies. point. For Binance, as a platform service provider, what we have to do is to enable people to get in touch with cryptocurrencies and enable projects to build an ecosystem of cryptocurrencies. This is our perspective, but I personally find a lot of things very interesting.
host:
host:Thank you both for a great conversation.
