Editor | Wu Blockchain about Blockchain
Contents:
This dialogue was a discussion between Ethereum co-founder Vitalik, OKX founder and CEO Star Xu, CMO Haider Rafique, and Circle co-founder and CEO Jeremy Allaire on the development trend of the crypto industry in the next three years at the Token2049 conference in Singapore. Vitalik reviewed the birth and evolution of Ethereum, emphasizing the huge influence of decentralized technology on a global scale; Star Xu shared his history of cooperation with Vitalik, and talked about the reasons for OKX's transformation from an exchange business to a Web3 technology company and the importance of self-custody; Jeremy discussed the transition process from trading business to the stablecoin field, and looked forward to the future development potential of USDC. Participants agreed that Layer 2 solutions, programmable currencies, and the promotion of decentralized applications (dApps) will bring more practical and inclusive blockchain applications to ordinary users in the next few years.
Harider: I think this time we want to talk about the trends in the crypto industry over the next three years. Vitalik, I want to start with you. Eleven years ago, you were a 19-year-old computer programmer. You wrote a white paper on Ethereum, which ultimately led to the birth of a new world and asset class that today in 2024 has a market cap of $290 billion. Some of the largest asset managers like Blackrock hold Ethereum. Is this what you envisioned when you walked into Star Xu's office eleven years ago?
Vitalik: Well, I must admit that eleven years ago I was not at all sure where this was going. Yes, it was. I did see a lot of potential in Bitcoin, and even as early as 2013 when I went to the API Conference in San Jose, I realized that this was not just five random people on the Internet playing around, there was a whole enterprise here, and a lot of very serious people had invested their entire lives in this. And, with Ethereum, actually, at the beginning, when I first published the idea, I was thinking, if no one has thought of this before, then there must be some fundamental reason why this idea is not feasible, right? I thought that five very smart cryptographers would quickly come out and tell me why I was completely wrong, but that didn't happen. In fact, by the time I first visited China and went to visit Star at OKX, the Ethereum project had been launched for a few months and had been around for more than half a year. At that time, I felt that this project was going to be big and I had some clarity on the direction. If you go back and look at the Ethereum white paper, it mentioned stable value cryptocurrencies, and today we have stablecoins; it mentioned financial derivatives, and today we have DeFi; it mentioned decentralized domain name systems, and today we have ENS; it mentioned agricultural insurance, and today there are parts of DeFi doing these things. The only thing that was not predicted was NFTs, sorry, those things about spending $3 million on monkey pictures, that's your choice. But I think a lot of the big categories are indeed starting to be realized, but the scale and speed of their expansion is what has shocked me for many years.
Harider: Great, Star, now let me ask you. This is your first time on the main stage of Token2049. I know you and Vitalik have known each other for a long time, and you have told us many interesting stories. I would like to hear how you met Vitalik and your memory of the first time you met him.
Star Xu: Yes, we met many times in 2013 and 2014. The story that impressed me the most was in 2017, when Vitalik came to me and said, "Star, can we list this project?" At that time, I said no, it was an Altcoin, and our exchange didn't want to list Altcoin. So I felt ashamed for that.
I think that to this day, the launch of Ethereum is one of the most important infrastructures in the blockchain ecosystem. Vitalik has proven his vision and built a community, and we at OKX are also committed to contributing to the Ethereum ecosystem. We work hard to contribute to the infrastructure.
Harider: Thank you. Jeremy, it's your turn next. You are no stranger to the exchange business. I remember in the very early days, you were running the exchange.
Jeremy: We were the first to support Ethereum, long before these guys.
Harider: So tell us about the shift from trading to stablecoins. What drove this shift and why did you make this change?
Jeremy: There are a couple of reasons. The first is that when we started in 2013, we were motivated by a lot of ideas that hadn't been implemented yet. Like the concept of smart contracts, the concept of putting virtual machines on blockchain networks, and the concept of issuing other assets on those networks. The company was founded on the idea that we could build a protocol for the dollar on the internet and build programmable money. That was what we set out to do initially. Back in 2013, when we started designing this project, there was really only Bitcoin in 2014. We were very frustrated with the progress of the technology to execute on these early ideas. I actually met Vitalik in his office in Boston after the white paper was released, and it was clear that he was executing on what we thought was necessary.
By 2017, we were really able to start executing on the idea. We did all the work to get licenses to be able to move money between the existing fiat system and the blockchain, and we worked with regulators to allow us to operate with USD, EUR, and GBP on the Bitcoin network. While the product was good, it was really a workaround. However, once we found that we could really execute on the idea, we dropped the other projects we were working on, sold a few different products, and focused all our energy on USDC. By 2019, I think we had found a good product-market fit. We worked closely with a lot of Ethereum DeFi protocols and projects, which was critical to finding product-market fit, and developers wanted to build with it. And it became clear to us that the entire future of the company would be built on this foundation.
Harider: Very interesting. Vitalik, back to you. We can agree that there is a lot of turmoil in the world right now, economic and political instability that affects every one of us. How do you see Ethereum contributing to the crypto industry in the next three years and making the world a better place?
VB: I think what's really special about the crypto space is how international it is. I think that was especially true even in the days of ICOs. Back then, it was common for a new project to launch and have an American community, a Chinese community, a Japanese community, and a European community. It would intentionally bring together people from all over the world who were interested in the project. In that way, you saw these projects engage a lot of people who wouldn't otherwise interact with each other. I think it's a bit of a step backwards now that the ecosystem is more VC-dominated, but the projects themselves still retain that value. In an age of increasing physical borders, economic barriers, and internet firewalls, the crypto ecosystem remains resolutely global, which in itself is a very important value that it provides. Ethereum is doing its part in both meeting the basic needs of people who have been isolated from the financial system due to various challenges, and maintaining connectivity for humanity as a whole.
Harider: Star, you are probably one of the most resilient entrepreneurs in our industry. Recently, you made the decision to transform your exchange business into a Web3 technology company. I know you are very passionate about self-custody, and I thought we would like to hear your thoughts on the importance of self-custody in the future, especially in the face of global economic and political turmoil.
Star Xu：In the traditional financial system, the corporate structure or business structure usually separates trading, custody and brokerage. I don't think the crypto industry will simply copy this traditional structure. The crypto industry is still a technology-driven industry, and there are many new technologies that will make these typical market structures no longer necessary. Self-custody is a great technology in the thousands of years of human history. In the past, we kept our money (such as gold or silver) at home, and in the digital age, there are third-party agents who help us manage these funds. I think self-custody technology provides human society with an option to hold your own funds yourself, "not your keys, not your money". I believe this is a very bright future. Self-custody does not mean no regulation or compliance. We believe that the nature of the chain is transparent, and the industry can do better than traditional finance, such as activity monitoring. So we at OKX believe that self-custody is the future and regard it as one of our most important strategies.
Harider: Circle, USDC is now in my opinion at least the most trusted settlement layer in the crypto industry. When you think about the next three years, obviously we have a use case for stablecoins today, which is settlement and value transfer. So what other applications do you envision after the stablecoin network is widely adopted? What do you hope to see in the next three years?
Jeremy: Yeah, I feel like three years has gone by really fast. But as I always say, we've only just reached what we consider to be version 1.0 of this space, which means a world where the marginal cost of storing and transferring value is close to zero, and the user experience of transacting through these mediums is as easy and seamless as the user experience of using major software tools on the internet. We're not quite there yet, but we're close. So I think over the next year or so, we can get to that point in terms of practicality.
And then I think things get really interesting. When the tools of the Internet make it zero marginal cost to store and move information, or zero marginal cost to connect to other people for communications, or close to zero marginal cost to distribute software efficiently, that change makes the world output of the whole thing grow exponentially. I think the same is true for money and transactions. As we get close to that point, the liquidity of money around the world will increase dramatically — just like the growth of information, communications, and software, the liquidity of money will become very high. And once the liquidity of money becomes high, the economic opportunities for people to benefit from it will increase dramatically.
What I’m most interested in is that we’re also in the early days of programmable money and programmable money use cases. While there has been tremendous progress in the DeFi space, we’re still only scratching the surface. I’m particularly interested in what people will invent in terms of intermediating value that has never been invented before. I liken it to when the iPhone first came out — while there were a lot of ideas about mobile, a lot of things didn’t get done until there was a vehicle to implement those ideas. I think we’re approaching a point where there’s mature infrastructure where it’s possible to write code that intermediates value, and for the user it’s almost frictionless and seamless.
I’m very excited to see what happens. One area I’m particularly interested in is on-chain credit and credit intermediation. To me, real economic output is the transformation of the time value of money, which is the core driver of economic growth. We haven’t done a lot of this on-chain yet. And I think this is where we can make the most profound transformation in people’s economic prosperity. If we can move unsecured credit and other forms of credit onto these networks, it will be very meaningful.
Harider: So, Jeremy, in terms of enterprise use cases, let's say Silicon Valley. I know their developers work within our industry, but for developers outside of the industry, how do they think about stablecoins or USDC, especially given that you guys are regulated? What are the possibilities for enterprise use cases in the next three to five years?
Jeremy: Yeah, I think there are a lot of leading payment companies like Stripe, or some of the emerging banks and other companies that are starting to use stablecoins, which is great. But the scale of this use in the enterprise is still very small, especially in large companies, it's still very small. There is still one key thing that we need to do, and the good news is that it is happening, which is that stablecoins need to be treated as legal electronic money, they need to be treated as cash equivalents on the balance sheet so that the accountants or finance people in the company can say, "Okay, this is digital cash, I can record it and report it." Once it is legally a valid form of money and there is a consistent recognition around the world, I think every type of institution will adopt it in large quantities. You need the practicality of the technology to be in place, and I think we are solving this problem; you need legal certainty to get people to adopt it. There are actually a lot of large companies that, when they talk about this, they say, "I don't know what this is, and it's hard for me to account for it, so I won't do anything." Even if the technology is already strong.
Harider: What do you think we need to do to get to that point?
Jeremy：Basically, stablecoin laws are being passed in major financial market centers around the world or will come into effect in the next 12 months. So I think it's happening, which is good news. I think technological advances, improvements in infrastructure and user experience, and legal certainty have created the conditions for this kind of widespread adoption beyond today's uses.
Harider: Very good, thank you Jeremy. Vitalik, what do you think about the recent rapid rise of Layer 2? At the most basic level, is it a good thing or a bad thing for Ethereum?
VB: I think that Ethereum wouldn't be where it is today without them. I feel like the Ethereum L2 ecosystem has brought tremendous talent to the ecosystem, not just in terms of building the underlying technology, including proof systems, zero-knowledge proofs, and even client implementations, but also in terms of attracting all different types of people into the Ethereum ecosystem who might not have come otherwise. Basically, Ethereum can have dozens of these sub-ecosystems, each of which independently attracts users at the scale of a Tier 1 blockchain, and all of that activity is still part of the larger Ethereum ecosystem. So it's been very positive for Ethereum so far. And I think that the fact that the L2 ecosystem has done so much work in terms of scaling has also freed up the core developers to do other things, like finish the merge, which was done about this time two years ago, so happy second birthday to proof of stake! Also, there's been a lot of progress in account abstraction, EVM upgrades.
I do think there are challenges, like the fragmentation issues that people have mentioned, that are real. There are actually a lot of initiatives going on to address those issues. For example, yesterday at the Ethereum event, I talked about cross-chain asset movement, cross-chain client transfers between Layer 2s using liquidity providers, and other things that can be better standardized between Layer 2s. In fact, I will continue to talk about the alignment between local Layer 2s and the Ethereum mainchain at the API Ethereum event today. This is an ongoing topic of discussion, and I think that the project and the Ethereum Foundation take these challenges very seriously, both in terms of standardization and economic alignment, and have worked very hard this year to continue to address these issues.
Harider: Star, we talked before about your desire to see more applications built on Web3 infrastructure, but with a Web2 front end. Can you talk about this idea?
Star Xu：Yes, I think the crypto industry has created a lot of successful assets in the past decade, such as Bitcoin is one of the top ten market capitalization assets in the world. Bitcoin ETF makes it easier to invest in Bitcoin. But in fact, the entire industry has been discussing crypto applications in the past decade. There are indeed some successful applications, such as Aave, Compound, which are DeFi protocols. But why is the development of crypto applications so slow? In my opinion, there are two main obstacles. The first is on-chain currency, which Jeremy's company has done very well in the past few years. Now you can imagine that we can use on-chain currency in applications, and stablecoins solve this problem.
The second one I think is the wallet. Most crypto wallets, such as OKX's Web3 wallet and MetaMask, are still local wallets for on-chain users. You need to back up your private keys and you can't forget or lose your private keys for the rest of your life. I think the second reason is compliance. If any financial company builds an application through the current infrastructure, their regulators will ask them two main questions: Who are your customers? How do you manage activities on the platform? So I think in the next three years, the crypto industry needs to create some easy-to-use wallets that also meet the compliance requirements of traditional finance. We at OKX have our strategy, and other companies like Coinbase are doing similar things. I think there are a lot of new technologies, such as multi-signature, abstract wallets, key passes, etc., based on which you can build a very easy-to-use wallet with a Web2 experience, but it's actually a Web3 wallet. In addition, new technologies such as zero-knowledge proofs can also allow wallets to verify users using ZK-KYC, so that applications can choose, for example, "I only serve Singapore users" or "I don't serve Singapore users." These new technologies will make these needs possible.
So I believe that in the next three years, crypto finance will usher in a big revolution. Every company, bank, and insurance company can develop applications based on the current infrastructure. In addition, I think stablecoin payments will also become a very successful application in the future. We at OKX also have a strategic project in this regard. So I think three years later, when we look back at today, the crypto industry will not only be asset trading, but crypto will truly become the infrastructure of our lives. Large-scale retail users can easily use KYC-certified wallets for activity monitoring, easily complete payments, and interact with different applications developed by banks. So the next three years will be very exciting.
Harider: Thank you, Jeremy. The need for banks and crypto is different in every region. For example, I grew up in Pakistan, where the economic situation is very different than other places. How do you see the adoption of stablecoin networks, whether it is in the United States, where people have different views and the banking system works well, but in a country where there is hyperinflation or a large unbanked population, how will the trend be? How do you expect the adoption to differ in these different regions and markets in the next three to five years?
Jeremy: Yes, a few points. First of all, no one anywhere in the world has ever used an electronic currency that has zero marginal cost to store and move, and it's fully programmable with verifiable, provable code. This is a new innovation, whether you're in the United States, Europe, or Pakistan, this is a brand new human innovation, and the applications that can be built on it will bring a lot of utility.
But specifically to the question of different needs, obviously, people around the world want a stable unit of value that is an efficient medium of exchange. I think the dollar stablecoin provides exactly that. So we've seen an acceleration of demand for stablecoins in many parts of the world over the last few years, people just want to transact in this new, more efficient medium, and they want to keep their value in dollars, including businesses, individuals, and families. I think once we solve the user experience problem, as we discussed earlier, liquidity becomes more seamless, and this is something we're solving together with others in the industry.
I call stablecoins "over the top money". The concept of "over the top" is similar to the coverage of software delivery, communications, and television. Once there is a protocol that allows anyone to use software applications to complete these tasks, the user scale will become very large. Billions of people can use it, changing the economic model, and in many cases the government has to respond and adjust to it. Now we have "over the top money" and it is accelerating. My long-term view is that in the Internet-scale economic activities, this form of currency will force governments to change fiscal and monetary policies. I don't think the world needs so many currencies. There will be competition between different currencies, but the final result may be a smaller number of widely adopted stablecoins and their networks.
Harider: Great, thanks Jeremy. I know we're running out of time, so I wanted to give you a quick question. Our industry has been through a lot of volatility over the past few years, and while the crypto ecosystem has seen healthy growth, there has also been some growth that we may not need. Vitalik, let me start with you, how can we achieve healthy growth over the next few years?
Vitalik: I think my answer is pretty much the same as the one I gave half an hour ago. We're still early in the blockchain, and it's not really affordable for the average person. If you think about the $3 million monkey picture, or other applications that people often criticize, these things work with 5 cents in fees, and they work with $500 in fees. But on the other hand, for people in politically unstable countries to have their own independent savings, to have economic activity and transactions with the rest of the world, 5 cents in fees is feasible, but if the fees are $200, they will give up. Also, the cost of security issues is also very high. If you add up the amount of money people lose in fees and the amount of money they lose in stolen cryptocurrency, it's probably about the same, or even more security losses. The technology to reduce both of these losses has improved a lot. So I think the technology is now at a point where it can improve the lives of the average person - even the average person who is just doing a $10 or $20 transaction with their family - now that we have this scale, we need to continue to build the entire ecosystem and take advantage of it.
Harider: Star, from an engineering perspective, how can we achieve better growth in the crypto industry over the next few years?
Star Xu: I believe that in the next three years, from a personal perspective, billions of users may get a Web3 wallet, which will be an easy-to-use wallet with a Web2-like experience, but fundamentally a self-managed wallet. This wallet can also meet regulatory requirements. From a business perspective, more and more companies will choose to develop decentralized applications (dApps) or change their business model from a centralized server model to a decentralized model. These business applications are transparent, and all crypto wallet users can interact with dApps from different companies, which will form a great crypto financial ecosystem.
Harider: Thank you Star. Jeremy, I think stablecoins, at least in my opinion, are more likely to lead to healthy growth than more speculative assets. What is your view? How can we ensure that we attract and achieve healthy crypto industry growth three years from now?
Jeremy: Yeah, it's interesting. I'm very optimistic that we can make substantial progress for most people. This is the result of the hard work of countless developers in our industry solving problems of privacy, security, identity, naming, efficiency, and scale. So as a technologist, I'm very optimistic. I think we just need to keep doing these things. If we have legal clarity and we keep solving these problems.
I think in three years we're going to be in a very unusual period, like 2004, when the Internet finally did what people wanted it to do, and it hasn't stopped growing and changing since then. I think crypto is getting close to that.
Harider: Thank you, Jeremy. I could have another 30 minutes, but there's a big screen telling us to wrap up. I want to thank Vitalik, thank you very much. Star, thank you for joining us. Jeremy, thank you for the discussion. Thank you all for listening.
