This is part 5 of 5 on the history and background of Huobi, one of the top crypto exchanges in the world. The section touches on an interview with Li on his thoughts on Libra, Bitcoin and his views on the impact of cryptocurrency on the world.
Question: How do you view the current stage of development of the industry? The stable currency that was thought to be insufficiently decentralized has become used the most. Those anticipated decentralized applications seems like now we have to wait for a long time.
Li: “Decentralization represents the spirit of the Blockchain.” This is actually a divergence. Some people think that the Blockchain does not have to be decentralized but its primarily to improve efficiency.
Personally, I divide the technology into three levels:
The first level is creating trust between parties. In order to achieve trust, the two parties who find it difficult to trust each other will no longer have to introduce third-party institutions. Instead, they can deposit certificates on the Blockchain and the data cannot be tampered with.
The second is value interoperability. The specific application is peer-to-peer payment, such as bitcoin and stable currency, which will bring huge changes to cross-border payments. Of course, bitcoin is also decentralized.
I think these two levels have been implemented and I can see applications and improvement.
The third is equity sharing, changing market dynamics, and existing economic operating models. We haven’t gotten to there yet. First, we have to tackle compliance, as non-compliance also leads to problems. The second is implementation. At the moment, many implementations of blockchain reforms or currency reform have only made people feel a demonization of the blockchain. These companies have limited users and limited influence. This is why Libra received global attention. Finally, the problem of user adoption, which explains why the current economic model of blockchain has successfully transformed only the exchange because of the high penetration rate of users in the industry.
When a company can choose to use tokens or traditional stocks to motivate users, then we can really see the changes that come with it. At the moment, its application in small industries has been quite successful.
Question: Once the token is included in the regulation, will it become the same as traditional securities, and what will be the difference between tokens and stocks?
- A token is more flexible, and it can be either a utility or security.
- 2. The Token distribution method is more flexible and more precise. For example, the current early investment only rewards investors and employees, and users can participate. For example, early protocol fans can be rewarded.
Question: Many blockchain projects in the early days did use the token to successfully finance, but later the token became a way of making money.
Li: Yes. So token issuance should also be under supervision, and companies that issue tokens must also release their financials. After the token evolved, another issue became the problem of the market bubble and price inflation. The early Wall Street, the Internet bubble, and the early A-shares all experienced similar types of bubble . In essence, these are caused by a lack of supervision, leading to a bubble phenomenon and too high expectations.
Dialectically, rapid capitalization has also brought about rapid development, and the industry has tried to go in all directions. Now, no one talks about the maturity of current public chain technology, in reality, they are focusing on user penetration, which in some ways is the effect of capitalization. This is very similar to the early US stock market. Back then folks said that they can raise money by just repairing a railway. There is no deceits and lies, but it also paved the path for America’s financial infrastructure.
Question: Between the 3 value-adds of cryptocurrencies, creating trust between parties, creating value interconnection, and equity sharing. Which is the focus of Huobi business?
Li: The three levels are inherently related and can only represent the first tier when placed under the legal framework of many countries. The first tier is actually to have the countries do some experimentation and testing, and once the supervision allows, it can be linked with the second and third tiers.
For Huobi, 80% of the current trading volume comes from the top six mainstream digital assets. Stablecoins is a bridge between fiat currency and digital assets, and is very close to the trading platform. Bitcoin and stablecoins are two proven applications, and the future will be the focus of our strategy.
The second tier is about transferring value across borders. At this level, “Bitcoin is just an experiment, and Libra is a practice.” Libra has the potential to change the financial infrastructure.
Question: How do you think that the market value of Bitcoin now accounts for more than 70% and other top mainstream cryptocurrencies have repeatedly declined in market cap.
Li: on a fundamental level, its a matter of the price of the tokens returning to their true value. These projects issued a token before during a period when there were a lot of expectations in the previous bubble period. Now the market just gives them a valuation that is more in line with their current stage of value.
As mentioned earlier, the third tier of application has yet to arrive, which requires changes in compliance and user penetration. Of course, not all industries are suitable for the “+ blockchain”. 99% of projects may die and 1% may survive.
Question: Do you get disappointed with this “Blockchain revolution” when you see the strong volatility in bitcoin prices and the market? and how will the attitude toward the industry change?
Li: At first, I just thought that Bitcoin was very special and very imaginative. At that time, the price of the coin was 10 times less, and it was considered a global currency. I also said at the time that it would not become a global currency, but more like gold.
Later, in the bear market in 2015, it fell to 900 RMB. Everyone worried that this experiment might have failed. This was the most difficult period.
It has been a bull market for a long time, and it has risen to tens of thousands. Although the Chinese government introduced stricter policies in 2017, we later saw that a few countries have a more positive and neutral regulatory attitude toward bitcoin and have started issuing licenses. We have also applied for some. This also gives me confidence.
By the end of 2017, the market entered into madness, and in 2018, it became a bear market, which can be described as ‘from the peak to the valley of despair’.
Among these ups and downs, I become more reflective: what direction is right, what is wrong.
I have to talk about Libra again; it opens up new windows and revelations to us. We’ll see that Blockchain has more impact on transferring value across borders.
Question: Libra plays a role in enlightening the market, but it is still resisted by many countries. Would it be difficult for it to be released?
Li: Libra has driven this market, and woken up various governments. For Facebook, it is certainly better to do it than to let a competitor do it. The introduction of Libra should not be a problem, but in which country will it be released? That is still a question mark. Perhaps initially countries no capital controls.
Why do I say that it is likely to change the future financial landscape of the world? This is because, if it succeeds, it will strengthen the financial position of the dollar and further marginalize countries with currencies that were already marginal. This is very similar to the Internet age.
Question: How do you view the competition in the current exchange industry?
The exchange industry has entered a strange cycle. Once the market shrinks, the exchange will enter into the competition and even discredit each other, which is not good for the industry.