Author: MetaEra, Wu Shuo Blockchain
On August 27th, at the 'Hong Kong Crypto Finance Forum', Changpeng Zhao (CZ), the founder of Binance, the world's largest digital asset trading platform, systematically elaborated on his forward-looking thinking on the future development of the industry.
Changpeng Zhao (CZ) focused on discussing five themes: the evolution of stablecoins and the strategic position of the US dollar, the regulatory and liquidity bottlenecks of RWA, the potential of decentralized exchanges, the new investment direction provided by the crypto asset treasury (DAT) model for traditional investors, and the transaction model changes that the integration of AI and Web 3.0 will bring.
Changpeng Zhao's (CZ) views not only reflect his deep insights into the current industry development, but also demonstrate his strategic thinking on the future landscape of digital finance. These insights are of great reference value for understanding the development trends and investment opportunities in the crypto-finance industry.
The following is compiled from the on-site views of Changpeng Zhao (CZ), and the author has tried to maintain CZ's original wording as much as possible.
Changpeng Zhao (CZ) discusses stablecoins: From a 'safe haven' of volatility to a tool for the globalization of the US dollar
Actually, I am not an expert in the stablecoin field, but the Binance platform handles about 70% of the global stablecoin transaction volume, which makes us the most important stablecoin distribution channel in the industry.
I will give you a brief introduction to the development history of stablecoins. The earliest technical prototype of stablecoins was 'Colored Coins', which was the earliest 'asset on-chain' solution explored by the Bitcoin community. In 2014, USDT was initiated by Brock Pierce. The project developed uneventfully in the early stages. Later, Pierce gradually withdrew, giving way to the current USDT team Craig Sellars and others. Until 2017, it still did not improve much.
When Binance was founded in 2017, we focused on cryptocurrency-to-cryptocurrency trading, supporting trading pairs like Bitcoin to Ethereum, BNB, etc., but lacked fiat currency trading functionality. This created a user experience issue: whenever the price of Bitcoin fell, users could only withdraw Bitcoin to other fiat currency exchanges to convert it into fiat currency, and there was significant uncertainty about whether these funds would return to our platform.
At the same time, this is also very unfriendly to the user experience. In order to improve the user experience, we decided to support USDT as a 'safe haven' when the market declines. At that time, we understood stablecoins as a short-term store of value tool, so the decision to support USDT was relatively simple - without signing complex cooperation agreements or strategic partnerships, we simply integrated this product.
At this time, USDT ushered in its rapid development period:
First, after 2017, cryptocurrency-to-cryptocurrency exchanges entered a period of rapid development, and many platforms, including Binance, began to support USDT, promoting the rapid growth of USDT.
Subsequently, USDT ushered in a second wave of growth momentum: many Asian users have a demand for US dollars, but it is difficult to directly open US dollar accounts, and USDT provides them with an alternative solution. Tether's profitability has always been very prominent. Due to facing US regulatory pressure and difficulties in bank cooperation, they have always maintained a relatively low profile.
In 2019, the US compliance agency Paxos actively contacted us and proposed a cooperation to issue stablecoins, which led to the later BUSD. From 2019 to 2023, the market value of BUSD increased to $23 billion. During this period, we did not invest much resources, mainly doing some brand support and promotional activities, such as the 'free withdrawal' activity.
In 2023, the US government cleared the BUSD project. If BUSD had been allowed to continue, it would have had a good development scale, because the growth rate of BUSD at that time exceeded that of USDT and USDC. It is worth emphasizing that when the BUSD project was closed, all user funds were fully cleared, which fully proves the characteristics of BUSD as a compliant, transparent, and safe project.
Stablecoins and exchanges have become one of the most core profit sectors in the crypto-finance field. Its business model is highly simplified: after obtaining a compliance license, users deposit funds, and the platform can issue tokens; when users redeem tokens, the platform provides cash exchange. This model has low barriers to entry, high liquidity, and huge market potential, with significant long-term profitability.
From a national strategic perspective, the US government's attitude towards stablecoins has changed significantly in recent years. The current US administration is very clever, and with its business background, deeply understands the strategic value of Tether for the global status of the US dollar. Currently, approximately 100 billion USDT funds have been used to purchase US Treasury bonds, and Tether is widely used globally. The key is that Americans themselves do not need stablecoins - they can directly use the bank ACH system for US dollar transactions. Almost all USDT users are outside the US, which actually expands the global influence of the US dollar.
This is very much in line with China's idea of expanding the international influence of the RMB. Stablecoins are essentially a tool to help underlying currencies achieve globalization, which should be hugely attractive to countries. Of course, as freely circulating blockchain assets, stablecoins do pose challenges to foreign exchange controls, but these problems can also be solved. Currently, more than a dozen countries I have contacted have expressed strong interest in developing local stablecoins, and everyone hopes that their legal currency can be put on the chain.
When the US passed the (GENIUS Act) in July, it proposed a policy direction to restrict the development of central bank digital currencies (CBDC). This move reflects a far-reaching strategic layout for the global dominance of the US dollar. The reason why stablecoins are so popular is precisely because of their high degree of free circulation and good user experience, while some government-led digital currencies may be more strictly regulated and monitored, which may affect market acceptance. In fact, since 2014, more than 20 countries have tried to issue CBDCs, but none have truly achieved market success.
Blockchain technology is essentially a ledger technology, and its first application scenario is finance, so stablecoins are a natural application of blockchain technology. Currently, we only see that US dollar stablecoins are developing relatively maturely, and stablecoins of other countries' currencies have not yet risen, which means that there is extremely huge room for growth in this track in the future. Now, every country wants to develop a stablecoin business. I think every country should have at least a few stablecoin products.
Changpeng Zhao (CZ) discusses RWA: The triple challenges of liquidity, regulation, and mechanisms
Although the RWA (Real World Asset Tokenization) sector has broad market prospects, its implementation is much more difficult than the market expects. The specific challenges can be summarized into the following three aspects:
1. Liquidity Dilemma
From a practical point of view, products with strong financial attributes are relatively easier to tokenize. This is mainly because traditional financial products themselves have high trading attributes and relatively mature digital expression. The tokenization of non-financial assets faces fundamental obstacles. Although in theory it is possible to 'Tokenize Everything'—all cities, buildings, and individuals can issue coins—there are many problems in actual operation.
Taking real estate as an example, even the volatile Hong Kong real estate market still has relatively small fluctuations compared to Bitcoin. After this type of asset with small fluctuations is issued, because the fluctuations are small, the transaction is not strong, and the order book depth is not enough. At this time, liquidity will become low, and investors will not place many orders, forming a vicious circle: the order book is too shallow, and the transaction volume will become low. If investors try to enter or exit hundreds of millions of dollars, it is almost impossible to trade; even if the asset is on-chain, the liquidity is still insufficient, which is more likely to cause accidental fluctuations or even be manipulated in the short term.
2. Regulatory Complexity
Products with financial attributes often involve a core question—is it actually a security? Is it a security or a commodity, or something else?
In large or financially developed countries, there will be clear definitions and different regulatory departments; in some small countries, it may be that one regulatory department manages everything. If different regulatory departments are involved, the compliance terms will be more complex. Companies need to apply for different licenses: futures licenses, spot licenses, digital currency licenses, bank custody licenses, etc. When a company obtains many licenses, its business model will also be more restricted, and often one business cannot be launched.
3. Product Mechanism Defects
In my opinion, the tokenization of US securities is currently not viable at the product level. The stock tokenization products we see now, such as xStocks, do not have their token prices pegged to the actual stock prices, which is unreasonable. Theoretically, if there is a price difference between the two, investors can make money through arbitrage. However, the reality is that this price difference always exists - which indicates that the mechanism of the product itself does not work. In other words, in the current stock tokenization sector, there is no real connection between the tokens and the stocks, so the entire model is not viable at the product level. Although the US is trying various tokenization methods, it has not yet found a truly feasible solution.
Despite these challenges, there is still a RWA model that is truly working - stablecoins. The underlying assets of stablecoins are mainly traditional financial instruments such as US Treasury bonds, and the success of this model verifies the feasibility of tokenizing financial assets.
The US dollar has already been implemented on-chain through stablecoins. In the current blockchain ecosystem, almost all assets are priced in US dollars, while the Euro and Renminbi are basically absent in this field. As the world's largest stock market, attracting global investors to buy US stocks through blockchain technology is extremely beneficial to the US economy. If US stocks can also be successfully implemented on-chain, it will further consolidate the US's dominance in the global financial market.
From a rational perspective, the United States should actively support this development direction; and other countries that do not participate in this transformation may also face the risk of being marginalized. For example, the Hong Kong Stock Exchange, as an important exchange with global influence, may gradually weaken its influence if it is absent from this round of transformation. The Shanghai Stock Exchange and other Asian exchanges also face the same strategic choices.
Economically speaking, this is 100% something that should be done. If it is not done, it will be eliminated. Just as if China did not have Alibaba, the e-commerce market might be completely dominated by Amazon, the absence in the field of financial technology will also bring far-reaching economic impacts.
Although there are regulatory challenges, this trend has extremely far-reaching economic impacts, and all countries should seriously consider relevant layouts. With the wisdom and innovation of Asians, these problems will eventually be solved, and one of the keys is to seize the opportunity.
For commercial institutions and entrepreneurs, it is necessary to accurately grasp the rhythm during the market window period: entering the market too early may face survival pressure, and being too late may miss the first opportunity.
The current period is a rare golden window of opportunity. The US policy shows an unprecedented supportive attitude towards virtual currencies, which will inevitably promote other countries that want to develop their economies to take corresponding actions. Hong Kong, as a long-term Asian financial center, coupled with the Hong Kong government's supportive attitude, such a historical opportunity is rare. Therefore, everyone should fully grasp this strategic opportunity period.
Exchange Transformation: Decentralization will inevitably surpass centralization, how can Hong Kong seize the opportunity?
1. The essence and future vision of the exchange
I believe that exchanges should not set limits on tradable assets, and all assets should be able to circulate freely on the same platform.
All assets are just tokens after being on-chain, whether they are crypto-native assets or real-world assets (RWA). From a technical perspective of the exchange, there is no substantial difference. Adding a new asset class usually does not require complex development, as long as it is supported on the existing chain. Currently, most RWA projects do not require independent blockchains, but rather issue tokens based on public chains such as Ethereum, BNB, or Solana, so the support at the wallet and exchange levels is extremely easy. The real difference lies in the compliance level: which regulatory agency you need to apply for a license from, and whether you can obtain approval. Once the license issue is resolved, there are almost no technical obstacles.
In the long run, future exchanges should achieve unified trading of various assets around the world. Whether it is a building, the future IP revenue rights of a celebrity, or even personal worth, they can all be circulated in the same market. This will not only maximize liquidity, but also make the price discovery mechanism more efficient.
Of course, RWA also has some unique challenges. For example, when you tokenize a building, if you want to sell the building later, you may only be able to sell a part of it. Because once the tokens are issued, if an investor holds only one Unit of the asset and refuses to sell, you will not be able to completely repurchase the entire building or incur huge costs. It can be understood as the concept of 'on-chain nail households'.
Although the realization of 'global asset on-chain' will take time, it is not out of reach for 90% of countries around the world. Compared to some large countries with extremely complex regulatory systems, many countries are more likely to directly adopt unified international standards, thereby taking the lead in promoting global asset on-chain and free circulation.
2. Thinking about the path for Hong Kong to develop a world-class exchange
When talking about how Hong Kong can build a world-class exchange, I can analyze it from a logical level. In the early stages of crypto industry regulation, many countries or regions often choose strict control to reduce risks and ensure security. Regulatory authorities are worried about making mistakes, so they usually require all businesses to be conducted locally: local licenses, local offices, local employees, local compliance departments, local servers, local data storage, local matching engines, local user base, and a completely independent local wallet infrastructure from abroad, etc.
This idea is relatively easy to implement in the traditional physical world, such as through safes and physical isolation. However, in the digital currency industry, this distinction is not very meaningful. Whether the servers are located in Hong Kong, Singapore, or the United States, the chances of being hacked are the same, because everything operates online.
More importantly, if operations are to be separated, simply building a secure wallet infrastructure often requires an investment of $1 billion. And the problem is not just the funds, but also the shortage of talent - it is difficult to repeatedly recruit hundreds of top global security experts to build this basic system. The cost of replicating a complete system is actually equivalent to the cost of establishing a first-class international exchange.
From a liquidity perspective, if only local residents are allowed to trade, taking Hong Kong as an example, 8 million people, or other small countries with 200,000 to 300,000 active users, cannot generate enough transaction volume at all. Without liquidity, price fluctuations will be very dramatic, which is actually harmful to users.
True user protection comes from a deep enough order pool—when there are orders of hundreds of millions, the price will not be broken, and when the futures price fluctuates, there is no need for mandatory liquidation due to sufficient market liquidity. Buying 10 Bitcoins on an exchange with low liquidity will result in considerable price slippage, and users will have to bear higher costs. Therefore, large global exchanges can provide the most basic user protection—reducing users' transaction costs.
When countries try to build independent systems, it will inevitably bring complex management problems, which is not feasible from a business perspective. At the same time, many countries have restrictions on tradable assets. For example, Hong Kong currently has many restrictions on listed currencies and limited product coverage. As far as I know, most licensed exchanges in Hong Kong are currently in a loss-making state. Although they can be maintained in the short term, this loss-making model is difficult to sustain in the long term.
However, Hong Kong also has its advantages - Hong Kong is improving very quickly. We saw that Hong Kong launched a new stablecoin draft in May, even earlier than the United States. The government actively communicates with industry participants, including dialogue with us industry insiders. Hong Kong may have been relatively conservative in the past few years, which is completely understandable. With the changes in the global situation, Hong Kong is now showing very positive.
I think now is a very good starting point. The limitations of the past do not mean that they will continue to be limited in the future. On the contrary, now is an excellent time to explore opportunities. This is why many Web 3.0 practitioners, including myself, have chosen to explore opportunities in Hong Kong.
The future trend of decentralized exchanges
I believe that decentralized exchanges will definitely be larger than centralized exchanges in the future. Although Binance may be relatively large now, I don't think it will always maintain the largest position.
Decentralized exchanges currently do not have KYC requirements, which is very convenient and fast for users who know how to use wallets, and also has high transparency - although sometimes it is too transparent, everyone can see other people's orders.
· From a regulatory perspective, we have paid a great price for not doing a good enough job with KYC in centralized exchanges. However, the United States does not seem to have many regulatory measures for DeFi at present, which may bring regulatory dividends to DeFi. However, due to historical reasons, it is personally difficult for me to try this field again.
· From a user experience perspective, the user experience of decentralized exchanges is still good, but users need to know how to use wallets. In fact, people who have used past centralized exchanges know that the user experience is not ideal. The interface is full of addresses, contracts and other numbers and 'gibberish', and the operation process often requires frequent viewing of block explorers, and also guarding against MEV attacks and other details. I myself have encountered attacks many times while learning.
Therefore, for users who have just entered Web 3.0 from Web 2.0, most will still choose centralized exchanges, because the email plus password login method and the model with customer service support make them feel more accustomed. But as time goes by, when some users become familiar with wallets, they may turn to decentralized exchanges. At present, the fees of decentralized exchanges are actually more expensive than centralized exchanges, but in the long run, with technological progress, the fees of decentralized exchanges should become cheaper.
Now many decentralized exchanges have their own token incentive mechanisms, using the issuance of tokens for incentives. But this incentive will disappear sooner or later, because tokens cannot be issued indefinitely - issuing tokens indefinitely will lead to a drop in the existing token price.
Therefore, the current market is still in a relatively early stage, and these token incentives still exist. But in the long run, I think that in 5 to 10 years, decentralized exchanges will become very large. I think that in 10 to 20 years, the size of decentralized exchanges will definitely exceed that of centralized exchanges, which is the future trend.
Although I will not dominate related projects anymore, from an investment perspective, we have invested in many similar projects, but with small shares, and we are now providing support behind the scenes. I think there is still considerable room for future development in this field.
Changpeng Zhao (CZ) discusses crypto asset treasury strategy (DAT): A bridge for traditional investors to enter the crypto world
Many people often understand the concept of DAT (Crypto Asset Treasury Strategy) too simply, but in fact there are many subdivisions in this track. But in the final analysis, its core logic is to package digital currencies in a stock-like manner, so that traditional stock investors can easily participate in investment.
There are various levels and forms in the DAT field. Like traditional companies, various models can coexist. Crypto ETFs are mainly issued in the United States, but many investors lack US stock accounts or are unwilling to bear their high transaction and management costs. In comparison, listed companies like Strategy often achieve asset allocation at lower cost by directly holding digital currencies. At the same time, their financing methods are more diverse, and they can raise funds in different markets such as the United States, Hong Kong, and Japan. The differences in financing channels and investor structure of listed companies in different regions have also shaped their unique market patterns.
In the listed company model, DAT companies mainly have the following operating models:
1. Passive Single Asset Holding Mode
Taking Strategy as an example, it focuses on the passive holding of Bitcoin as a single asset. This model is relatively simple, with low management and decision-making costs. It can adhere to a set strategy regardless of whether the price of Bitcoin rises or falls.
2. Active single-asset trading mode
Although they also hold only one type of cryptocurrency, their management strategies are completely different. These companies try to predict price increases and decreases to conduct active trading, which requires an assessment of the manager's trading ability. Because subjective judgment is involved, the outcome of this model can be positive or negative.
3. Multi-Asset Portfolio Management Mode
More complex DAT companies hold a variety of different digital currencies. Managers need to make complex decisions: how much Bitcoin, how much BNB, how much Ethereum to hold, how often to adjust this portfolio, and when to adjust it, all require testing the manager's ability.
4. Ecosystem Investment Construction Model
This is the most complex model. In addition to holding currencies, it also allocates 10%, 20%, or more of its funds to invest in ecosystem development. For example, a company focused on Ethereum may want to help the development of the entire Ethereum ecosystem through investment. Projects like BNB that support other digital asset ecosystems also have similar practices, but this places higher demands on management capabilities.
Therefore, DAT is not just as simple as 'holding coins'. Different modes correspond to different management costs and management requirements.
The DAT companies we currently support tend to prefer the simplest first form. We prefer companies that only focus on a single asset, especially BNB, because it is easy to judge and does not require too much involvement in daily management. In a bull market, listed companies generally benefit, but in a bear market, especially in the US, companies are often prone to lawsuits. If the strategy is clear and simple enough, the risk of litigation will be relatively reduced, and the company's legal costs can also be reduced - after all, lawsuits are extremely expensive.
Our goal is to minimize operating costs while promoting the concept of long-term holding. We do not want companies to use funds for additional investments, but rather want them to participate more deeply in supporting the development of the ecosystem.
The significant meaning of the DAT model is that many companies' financial departments, listed companies, and even state-owned enterprises cannot directly buy digital currencies. However, through the DAT model, we can actually allow these traditional investors to gain exposure to digital currencies. This group is actually a very large market, much larger than the cryptocurrency community.
In the DAT projects we participate in, we usually only play a role as small supporters. Most of the funds for these projects come from traditional stock markets or other channels, which is very helpful for the development of our ecosystem, attracting many groups outside the cryptocurrency community to purchase digital currencies.
We generally do not dominate or manage these companies, but rather look for suitable managers through the ecosystem and personal connections. Managing listed companies is not our expertise, but there are many people in the industry with relevant experience, and we prefer to cooperate with them to leverage synergies.
AI and Web 3.0 Convergence: The Inevitable Path from Concept to Reality
Frankly speaking, the integration of AI and Web 3.0 is currently not ideal enough. But I believe that this trend is by no means a concept hype, but a trend that will inevitably see breakthrough development in the future. A few months ago, I asked a question: What currency will AI use? The answer is obviously not the US dollar or the traditional payment system, because AI cannot complete KYC. The AI currency system must be based on digital currency and blockchain, and payment can be completed through API calls or Broadcasting Transactions.
This means that the transaction volume of the blockchain will experience exponential growth. In the future, everyone may have hundreds or thousands of AI agents, completing tasks such as video production, multilingual translation, content distribution, booking, and message replying in the background. The frequent interaction between them will generate massive micro-payments, and the transaction volume of crypto-finance is conservatively estimated to increase by thousands of times. For example, a blogger can set the first 1/3 of an article to be free, and only charge 0.1 yuan for each subsequent 2/3 reading. If hundreds of thousands of people pay, he can earn tens of thousands of yuan - this model cannot be achieved under the traditional financial system, but can be easily supported through the combination of AI and Web 3.0.
Transactions will also be more global. I can hire engineers and designers from China, India, and even all over the world at the same time, and AI will automatically handle settlement and payment. However, most of the so-called 'AI agents' in the Web 3.0 field are still in the Memecoin-style pseudo-product stage: the front end displays some novel content, and the back end calls mature large model APIs similar to ChatGPT, lacking real use value. What we really need are AI tools that can complete actual work and create economic value, and top large model companies are also working hard to explore this direction.
However, the development of AI requires extremely large amounts of funds. The computing power competition of large models is extremely fierce, and the costs are staggering. It is reported that OpenAI currently has about 1–2 PB of computing power, with an annual cost of about $6.5 billion per PB, and its expansion plan is 10 to 100 times the scale—the investment will be astronomical, and this does not include chip expenses. No VC, company, or even country can independently bear such a huge financial pressure, which is why the AI industry has begun to explore new paths for financing through Web 3.0.
Fundamentally, AI should be regarded as a public product. Currently, many large models are too closed. Allowing token holders to share revenue, making the model more open source, decentralized, and universal may be a more reasonable development direction. I have also discussed this with several top large model founders. Although everything is still in the early stages, this trend will inevitably come.
Although the integration of AI and Web 3.0 is not yet perfect, its future development prospects are still highly anticipated.
