Opening Speech

Entrepreneurship in Web 3.0, discussing every Wednesday!

(Entrepreneurship in Web 3.0) is a China Web 3.0 entrepreneur interview program initiated by Mankun Law Firm. Every Wednesday evening, we invite industry leaders, frontline institutions, and well-known entrepreneurs to the live broadcast room for positive discussions, rational discussions, and sharing experiences to support the compliant and healthy development of the China Web 3.0 industry.

In this episode, we invite Dr. Andy Cheung, founder of Zeuspace Quantitative Fund and partner & chief economist of the UK exchange CBCX, to engage in a deep dialogue with lawyer Niu Xiaojing from Mankun Law Firm about his career transition from quantitative funds to on-chain asset management.

(The audio transcription text has been processed by AI and may contain omissions and errors.)

Welcome to this episode's guest, please introduce yourself to everyone!

Niu Xiaojing: Good evening, everyone! Today we are honored to invite Dr. Andy Cheung, a postdoctoral researcher in economics. He graduated from the University of Oxford and the University of Bristol, obtaining a postdoctoral degree from Oxford, previously a partner at the established UK exchange CBCX, and now a co-founder of Zeuspace. Tonight, we will discuss his career transition from quantitative funds to on-chain asset management, exploring how he transformed from an economist to a Web 3.0 investor. Now, let’s invite Andy for a brief self-introduction.

Andy: Hello everyone, I am Andy. I have been deeply engaged in quantitative econometrics from undergraduate to postdoctoral studies, with a PhD focusing on 'transaction cost theory', laying the groundwork for entrepreneurship. I obtained dual master's degrees at Oxford, where my focus on artificial intelligence sparked my strong interest in 'AI + finance'. After finishing my academic journey, I worked for nearly 8 years in investment banks and hedge funds in the City of London, and in 2018 I moved to Hong Kong, briefly worked in investment banking, and then pursued entrepreneurship full-time.

My connection with crypto began in 2016: At the UCL academic conference, a partner from Imperial College (my current collaborator) recommended Satoshi Nakamoto's Bitcoin paper, which completely overturned my understanding of traditional economics— as a scholar researching transaction costs and monetary theory, this impact made me determined to enter the Web 3.0 field. Currently, I operate two institutions: the exchange business in the UK and the quantitative trading platform in Hong Kong. That’s the general experience.

Q1: From the perspective of transaction costs, does Web 3.0 or blockchain have a profound impact on traditional economy and finance?

Niu Xiaojing: Andy just mentioned that he focused on 'transaction cost theory' during his studies. I am particularly curious; do you think Web 3.0 or blockchain has brought significant changes to the traditional economy and finance from a transaction cost perspective?

Andy: The core of transaction cost theory revolves around 'how to reduce transaction costs'—from a macro perspective, it can promote GDP growth; from a micro perspective, it can improve corporate cash flow and create more profit space. Transaction costs are crucial from both micro and macroeconomic perspectives.

The essence of Web 3.0 is to disrupt traditional economic models and significantly reduce transaction costs. The Internet previously lowered costs, but Web 3.0 goes further, especially in terms of 'institutional costs'—whether it’s legal, compliance, policy, or governance mechanism costs, all are expected to be significantly reduced. However, this process will be extremely long, as it involves conflicts between the traditional and the future, and institutional evolution requires time.

Looking back at history, the modern economic system, industrial civilization, and even global integration have evolved slowly over decades or even centuries. Web 3.0 will also need to go through several fluctuations to form a mature governance framework. Currently, we see that the institutional costs of decentralization are still quite high, and it requires a process to gradually reduce.

Q2: Will the process of blockchain changing finance and society be more complex and longer than the Internet revolution?

Niu Xiaojing: The past Internet (Web 2.0) was more about changes at the technological level, not involving deep changes in institutions, finance, law, etc. Do you think the changes brought by blockchain, compared to the Internet, are more complex, profound, and longer?

Andy: In fact, Web 3.0 is a continuation of the Internet. The changes in the Internet began with technological drives, erupted from the accumulation to the eighties and nineties, later forming the Internet economy, which has fundamentally altered the basis of global governance—such as accelerating the linkage between global trade and finance. Especially before the pandemic, the linkage between global trade and finance was inseparable from the Internet.

But the core of Web 3.0 is 'decentralization', which is not only a technological upgrade but will also lead to massive disruptions in institutional construction, economic, and monetary frameworks. Once popularized, it will form new organizational forms and division of labor, which can be described as 'metaverse-level changes'.

Will it run parallel to traditional economy in the future or replace it? This is an open topic. However, from history, such transitional periods are usually long, and no one can predict who will lead the way—just like no one thought that the UK would drive the industrial revolution, the future of Web 3.0 is full of imagination.

Q3: What prompted you to transition from traditional economics to Web 3.0?

Niu Xiaojing: You mentioned that you started engaging with crypto and blockchain in 2016 and came to Hong Kong in 2018. Did the idea of exploration emerge when you first learned about crypto? What were the driving factors for your transition from a traditional economist to Web 3.0?

Andy: At the UCL academic conference, I met my current partner (who was then a postdoc at Imperial College), and we hit it off. He asked me, 'Are you familiar with crypto?' and recommended Satoshi Nakamoto's paper, saying, 'Since you study monetary theory, you should look at this.' I had heard about crypto at the time, but I didn’t understand it deeply and still viewed it from a traditional economics perspective. Later, while working in investment banking, many top economists in the Chinese community said, 'This thing is just a tulip bubble.'

But I completely disagree. After reading Satoshi Nakamoto's paper, I discovered an essential problem: whether it is Keynesianism, Friedman’s free economy, or neoclassical economics, their starting point is 'money supply'—to put it simply, 'how much money to print'. Satoshi proposed a whole new perspective: 'Why must we discuss from the money supply side? We should think from the demand side—why give the central bank the power to issue currency? Managing one's own money is the most effective', because only oneself knows how to spend money to create the maximum value. This deeply convinced me and conforms to the development logic of artificial intelligence—distributed decision-making is often more efficient.

In 2017, I participated in some ICO projects; although the industry was chaotic at that time, I saw potential. In 2018, I entered the crypto field full-time, choosing the secondary market because I had experience in secondary trading from investment banking, and many partners were AI scholars, giving our team an advantage in secondary trading. This was the primary opportunity for transformation.

Q4: What capabilities can be reused when transitioning from traditional quantitative to Web 3.0 entrepreneurship?

Niu Xiaojing: You not only align your personal interests but also make choices based on industry judgments and future value pursuits. In transitioning from traditional quantitative to hedge funds and then to crypto, are there similarities in these experiences? Which capabilities were reused in your entrepreneurship?

Andy: Initially, I thought that 'academic research, investment banking practice, and entrepreneurship' could be achieved simultaneously, as the three are highly related: using academic models to support investment banking, feeding back crypto research with investment banking resources, and converting new crypto discoveries into academic achievements. For example, in investment banking, the essence of foreign exchange, gold, and crypto is all 'currency', and investment banking models (originating from academic mathematical models) can be used to analyze crypto, while new insights from crypto can also be applied to papers. However, after scaling up, I found that decision-makers must go all in—there simply isn’t enough energy to allocate.

As the scale of the enterprise grows, the social responsibilities and risks you have to undertake increase accordingly, and the time and energy consumed in decision-making are astonishing, making it challenging to balance other aspects. Therefore, I must make choices. Ultimately, I followed my heart and chose entrepreneurship—because I felt that I had an entrepreneurial spirit and was willing to take risks. As the head of the company, although I manage everything, I now focus more on key points. Our decision-making mainly falls into two categories: first, short-term hot topics, such as whether to engage in the current ICO and crypto combination that is very popular; what the valuation should be; whether to respond to the public market; second, long-term strategies, such as whether to combine traditional Web 2.0 with Web 3.0; whether to launch new strategies in quantitative trading.

Q5: In a market with frequent black swan events, how do you balance risk and return?

Niu Xiaojing: The investment field has many unpredictable factors. For example, some well-known quantitative funds had impressive returns in the first ten years but could close down due to a black swan event.

Andy: Abstractly, we mainly consider two points: first, 'survival issues'—controlling baseline risks; second, 'incremental issues'—how to survive better, create cash flow, make returns more balanced, and resist black swan or gray rhino risks. The current market environment is highly dynamic, nonlinear, and entirely unpredictable.

To be honest, if any investment bank or institution makes 'predictions' for you, don’t believe them—they are mostly just guessing. True judgment must rely on oneself. From a mathematical perspective, ultra-high-frequency trading (microsecond level) may improve short-term prediction accuracy through probability, but I think predicting medium- to long-term trends (like daily levels) is pure nonsense. Economics is essentially a social science, studying human behavior with methodologies from natural sciences is inherently difficult—there's too much noise and too many black boxes. This poses a significant challenge for quantitative research as well.

Q6: Can you introduce CBCX and Zeuspace? How do the two companies collaborate? What are the future strategic plans?

Niu Xiaojing: Your previous statement makes me feel that the transformation of Web 3.0 may be comparable to the historical industrial revolution, representing a massive change. Returning to your career, can you introduce your institutions—Zeuspace and CBCX? And what are your main directions and responsibilities in these two institutions?

Andy: These two institutions represent 'tradition' and 'the future', and we are gradually integrating both. CBCX in the UK is an established liquidity provider, similar to well-known companies like Futu and Interactive Brokers, mainly providing clients with services in gold futures, commodities, and foreign exchange trading. Currently, we hold licenses in the UK and have obtained licenses in South Africa and the Middle East, and are transitioning to provide cryptocurrency trading services.

Zeuspace in Hong Kong focuses on quantitative trading and has been managing assets for 8 years, mainly serving family offices and institutions, with proprietary trading accounting for over 50%. In simple terms, we are a model that operates 'asset management + exchange' in parallel.

From a strategic perspective, we are promoting the deep transformation and bundling of the two institutions. The quantitative trading on the Hong Kong side focuses on pure crypto; CBCX is gradually adopting crypto business by leveraging its licensing advantages. This is something we must do at this stage. CBCX has been operating for three or four years, with over 10,000 users, 80% of whom are institutions, and is now accelerating its transformation. In the future, the integration will mainly focus on two aspects:

First, we are launching wealth management products, leveraging Hong Kong's asset management advantages to provide more asset management products to clients. Previously, we avoided retail, but now we are shifting from high-net-worth individuals to retail, demonstrating trading strength.

Second, support for RWA issuance, for example, we welcome RD or tokenization projects to issue coins on our exchange. Energy in the Middle East and gold in South Africa are excellent RWA targets for which we can provide issuance services.

Currently, although exchanges have previously engaged in traditional business, they have already started transitioning to crypto after obtaining licenses, and they need to accelerate. Our advantage is 'helping Web 2.0 users transition to Web 3.0', not competing with traditional crypto exchanges for the market, but rather helping them convert clients, which theoretically leads to a win-win situation.

In the long run, referring to cases like SQL, Repo, Hidden Road, Robbing Pool, etc., in the future, holding crypto may allow trading US stocks, US bonds, or even gold and oil. We will also open this channel, but the premise is compliance—after compliance, everyone can buy and sell physical commodities or futures with crypto, creating more value; this is essentially 'bridge' work, very similar to Hidden Road and Repo.

Q7: What are the main aspects of CBCX's compliance costs? What are the special features of Zeuspace's risk control mechanism?

Andy: The compliance costs of CBCX have several components: first, the technical foundation, such as the stability of the trading platform and its ability to resist hacking, which requires stress testing, and this construction process takes 6-9 months; second, high-end talent, operation and maintenance of compliance and technical teams to ensure there are no risk vulnerabilities; third, user screening, conducting KYC and source of funds audits for institutions and individuals, all of which will increase compliance costs.

Zeuspace's risk control mechanism is mainly reflected in two aspects: first, from a technical level, matching strategies according to client risk preferences—aggressive, conservative, or neutral. Some clients are willing to take leverage, while others seek capital preservation, requiring targeted design; second, capital allocation, which is the key to market differentiation.

Currently, the scale of quantitative trading varies, with small funds possibly engaging in short-term arbitrage or high-leverage speculation, while we manage over a hundred million, with a consensus of 'never leverage, at most 1x futures', and we never allow clients to be liquidated. If clients want to 'multiply their money in a day', we suggest they go play DEX; we do not gamble with institutional or high-net-worth clients' money. Therefore, the difference in quantitative trading lies not in technology strategies but in capital management and position control.

Q8: How does Zeuspace present asset portfolios to users?

Andy: The full-process quantitative automated trading uses AI to automatically send reports and net values. Users wishing to view fund accounts can participate in closed meetings, open real account displays of trading mechanisms, along with performance tracking from third-party audits, following traditional fund models.

We regularly communicate with users: discussing strategies at the end of each month and having exchanges every Monday evening. Since our users are primarily family offices and we do not cater to retail investors, our private equity fund is relatively closed. However, in the future, the exchange will open retail wealth management products, with technology provided by Zeuspace to achieve integration between the two.

Niu Xiaojing: It sounds like 'left hand AI, right hand Crypto'.

Andy: Yes, the team has an AI background, and we rely on machines for tasks that can be automated. In Web 3.0 culture, efficiency is prioritized, and people should experience life more—AI, aside from providing emotional value, is stronger than humans in almost every other aspect; this has been proven in practice.

Q9: How to ensure the security of crypto wallets or funds?

Andy: Mainly using centralized exchanges (CEX), with large amounts of funds, we dare not take risks. The custodial risks of DEX and the vulnerabilities of wallets are too many, and users' safety awareness is also insufficient. Currently, we are only slowly converting clients (mostly traditional institutions and high-net-worth individuals who are not familiar with on-chain operations).

What we can do is 'remind, prevent, educate', but it is challenging to control the vulnerabilities of aggregators and wallets on the platform; problems can be troublesome. Retail investors can operate on the chain for excitement, and 99% of retail investors will lose money; making big profits from this is essentially gambling, with few winning being mainly due to luck.

Q10: (Audience question) How can ordinary people participate in Web 3.0? What stage is RWA currently at?

Andy: Ordinary people can start with mainstream media (like Mankun) Web 3.0 reports, widely understand and then find directions to delve deeper; this is how we started.

RWA is still in its early stages, just past the 'concept exploration phase', and is in the 'infrastructure construction phase'—confirmation agreements, compliance frameworks, etc., are still being built, especially in emerging markets where standards are lacking and still exploring.

Q11: Can you share insights and experiences from the licensing process and the progress and challenges in exploring payfiles?

Andy: Here in Hong Kong, we have obtained offshore licenses and MOS licenses, with more exchange licenses available, such as the UK's FCA license, which is being upgraded to bank-level (750 licenses).

The core lies in two points: first, compliance is necessary. In highly regulated areas (London, New York, Hong Kong), obtaining licenses is difficult for client acquisition; this is the foundation of long-termism; second, after compliance, developing incremental markets, such as South Africa and the Middle East—these regions were once British colonies, have many Chinese, are compliance-friendly, and are suitable for incremental development. In simple terms: establish a foundation and build a brand in strict areas; develop incrementally in friendly areas. The biggest fear is blindly being aggressive in saturated areas (like Hong Kong).

Payfi is a later plan. If compliance allows for trading gold and foreign exchange with stablecoins (like using crypto to buy US stocks now), the demand for deposits and withdrawals will greatly increase, expanding the demand for stablecoins, which will lay the foundation for the Payfi business. Currently, overseas users are gradually accepting 'using crypto to buy traditional assets'; this is a major trend, but compliance is still immature, and many countries are exploring it. Legal compliance is key, and after popularization, we will promote it.

Q12: What is the most challenging aspect of building a stable and robust asset system?

Andy: Every aspect is difficult because the market is dynamic and cannot be thought of linearly. For example, there may be a market without regulation and lacking technology; there may be regulation without a market. Each cycle has shortcomings.

In 2017-2018, the market was booming but lacked regulation, leading to chaos; in 2020-2021, user awareness increased, and technological advancements were made, but with the introduction of regulation, many institutions failed; now, regulation is widespread, user awareness is high, but market liquidity has worsened. There will always be shortcomings, the key is to find balance in dynamics, which is very difficult.

Q13: Will you conduct user education or recommendations for traditional Web 2.0 clients on Web 3.0?

Andy: We cannot do user education; it has to rely on users’ own understanding. Moreover, social division of labor must be clear—this work should be done by law firms or media like Mankun, and we are not suited for that. We are more focused on helping clients identify risks, collaborating with reliable institutions (like Mankun), so that clients know we are a trustworthy platform. Whether they believe it or not, passing Mankun's scrutiny is a certainty.

Q14: Entrepreneurship is difficult; have you ever regretted it? Discuss how entrepreneurship contributes to personal growth.

Andy: No regrets. The elimination rate in this industry is too high, and surviving relies on 'staying true to your original intention and adhering to long-termism'—doing things quietly, without love for publicity. Ten years ago, discussing crypto was considered a Ponzi scheme; eight years ago, no one believed it, but as long as the direction is correct, persistence is meaningful. Failure is also okay; if you don’t have this mindset, don’t start a business. Being able to do what you love makes life worthwhile.

Many people on our team are PhDs from Ivy League schools, but after starting a business, I found that the halo of academic qualifications is useless. The core of entrepreneurship is to help people recognize themselves: break down self-esteem, learn humility and integrity, 'take off the long gown of Kong Yiji'. Do not mistake platform advantages for personal abilities (like the halo of investment banking); entrepreneurship requires being practical and hardworking, and continuous learning is even more important—young people innovate on-chain faster than we do; if we don’t keep up, we will fall behind.

Q15: Finally, share a life insight!

Andy: Adhere to first principles, trust mathematics and physics, and do not blindly follow economics—95% of economic models are based on untenable assumptions, human behavior is difficult to predict, and models can easily fail. Finally, if you are interested in our exchange and fund, you are welcome to come to Hong Kong or London for communication and explore opportunities together.

Niu Xiaojing: Thank you, Andy, for your sharing. See you next Wednesday!


Entrepreneurship is not easy, but your story must be very cool!

Welcome to join Mankun's 'Entrepreneurship Web 3.0' column, injecting real and vibrant power into China’s Web 3.0.


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Original author: Mankun Brand Department