Zhongjin Leping: DeFi is a trend in the cryptocurrency industry. Libra has 4 opportunities

Huang Leping, chief analyst of CICC's hardware industry, believes that decentralized finance (DeFi) represents a technological trend in the cryptocurrency industry and explained the newest opportunities of blockchain + finance.

Original title: "Chief Interview: What new opportunities will blockchain + finance open? 》

Author: CICC Research

From Libra sparking worldwide heated debate, to my country's central bank upgrading its efforts to test out digital currencies, to the high-level focus on the importance of blockchain. What does blockchain mean for the financial sector? CICC Research launched an in-depth report "Blockchain and Digital Currency: How Technology Reshapes Financial Infrastructure" to conduct systematic research upon this. We have been here to communicate with Huang Leping, chief analyst of the hardware industry of CICC, to interpret the core content of the report.

Huang Leping, Managing Director of CICC Research Department, Research Field: Technology Hardware

Q: General Secretary Xi demonstrably stated that blockchain may be the next crucial breakthrough for my country's independent innovation. How gets the blockchain technology evolved in the financial field?

A: Blockchain technology is this non-tamperable distributed accounting technology. Based on developers, it can be divided in to public chains light emitting diode by open source communities, and alliance chains light emitting diode by large IT or financial organizations.

Chart: Main uses of blockchain, source: Wikipedia, Google news, CICC Research

Based on blockchain technology, crypto assets such as for example Bitcoin, Ethereum, and stable coins have emerged one after yet another, bringing a number of related transactions and work at home opportunities. Libra, which has received probably the most attention recently, is a stable currency predicated on blockchain technology. Its emergence poses a challenge to the currency sovereignty of various countries and further stimulates worldwide central banks to accelerate digital currency research and commercial implementation.

Chart: The development history of the blockchain industry, source: Libra, R3, Hyperledger, CICC Research

Recently, blockchain technology is not limited by the encrypted asset industry. It has begun to play an energetic role in the fields of clearing and settlement, payment, electronic invoices, supply chain finance, and trade finance.

Chart: Blockchain is likely to get to be the core technology of the next-generation infrastructure in the financial industry. Source: CICC Research

Q: Let us first look at the application of blockchain technology to encrypted assets. Do you know the differences between Libra and Bitcoin?

A: In a nutshell, Bitcoin, Ethereum, and Libra can match the three development stages of the blockchain. In 2008, "Satoshi Nakamoto" launched Bitcoin with the traits of simple settlement process and strong anonymity, and the era of blockchain 1 ) 0 began. In 2013, Ethereum was born and the blockchain entered the two. 0 era. Due to its ability to provide smart contracts, ICO as well as other currency issuance financing methods came into being at this time. Currently, stable currencies represented by USDT and USDC are gradually becoming the conventional value measure and payment tool of encrypted assets, and their characteristic is that they're associated with currency, ergo avoiding large price fluctuations.

Based on a white paper released by Facebook, Libra is a legal asset-backed stable currency associated with a basket of currencies. It gets the traits of "stability, low inflation, universal acceptance and interchangeability". Its mission would be to "establish a A simple, borderless currency and financial services that serve huge amounts of people. ”

Chart: Libra is a legal asset-backed stablecoin. Sources: Libra, IMF, LinkDed, CICC Research

Q: Why can Libra make a massive wave around the world?

A: Technology giants such as for example Google, Amazon, Facebook, Apple, Alibaba, and Tencent used their user scale and technical benefits to get involved with financial business for a long period. Nevertheless , before, the financial services of technology giants were still predicated on existing payment systems, such as for example Apple's Apple Pay.

The emergence of stablecoins provides a tool for technology giants to construct a fresh cross-border payment system. Even though from a technical viewpoint, we usually do not believe that Libra includes a significant breakthrough when compared with existing stablecoins, but the combination of stablecoin technology, Facebook's powerful data analysis capabilities, and a massive worldwide user base of more than 2. 7 billion makes it possible for Libra to challenge the currency sovereignty of various countries..

Q: In what areas may Libra have strong development opportunities?

A: We think Libra may gain opportunities in four areas. First, the cross-border remittance market currently monopolized by SWIFT; 2nd, the mobile payment market in various countries dominated by Visa and MasterCard; third, it has changed into a new means of storing value in a few countries with large exchange rate fluctuations, and it has become a new digital asset transaction. The way of measuring value.

Chart: SWOT analysis of Libra, source: BIS, Libra, CICC Research

Q: What difficulties and challenges will it face?

A: For a while, Libra still has many regulatory challenges to overcome. The governments of major countries and major international organizations such as for example G7 and G20 are all apprehensive about it. Currently, Libra is especially questioned in three aspects: First, its performance cannot meet the performance requirements of current payment systems in various countries; Second, Libra has strong anonymity and could not be able to meet the anti-money laundering requirements of various countries, which is an easy task to be properly used by criminals;, Libra plans to consider home financing model associated with a basket of legal currencies, that might have a particular affect the monetary policies and financial system stability of various countries.

Q: Besides Libra, what is the present market situation of crypto assets such as for example Bitcoin and stablecoins?

A: Because the beginning of 2019, the crypto asset market has begun to pick up, and the total market value of major crypto assets has increased by about 85% set alongside the beginning of the year. Based on data from CoinMarketCap, at the time of October 7, 2019, there have been 2, 963 cryptocurrencies on the market with a complete market value of more than 200 billion U. S. dollars.

Specifically, Bitcoin remains the largest crypto asset by market capitalization and trading volume: At the time of October 13, 2019, Bitcoin's market value in the complete cryptocurrency market is the reason approximately 67%. Ethereum ranks 2nd in crypto assets with an industry value of $19. 9 billion. It really is worth noting that stable currency trading is just about the most active part of the cryptocurrency market. Based on CoinMarketCap data, USDT has an average daily trading volume of US$18. 92 billion before three months, which has surpassed Bitcoin as the utmost crucial trading method in cryptocurrency transactions.

Chart: Main cryptocurrency prices, market capitalizations, and trading volume. Source: CoinMarketCap, CICC Research Department; at the time of 2019/10/13_

ICO financing, that was once hot in the blockchain 2. 0 era, has been shrinking rapidly due to issues including the inability to ensure the authenticity of assets on the chain, and it has very nearly lost its function.

Q: In addition to the transaction part, the other business models is there in the complete encrypted asset ecological chain?

A: The issuance and trading of Bitcoin in addition has given birth to mining machines, exchanges, and asset management. Currently, the provision of derivatives trading services by cryptocurrency exchanges is now a fresh trend, but the authenticity of trading volume in the cryptocurrency market has yet to be verified.

The scale of investment in encrypted assets can be gradually increasing. Based on CryptoFundResearch statistics, at the time of July 2019, the AUM of cryptocurrency funds has already reached 18. 32 billion U. S. dollars.

Chart: Amount of newly added cryptocurrency funds, data source: CryptoFundResearch, CICC Research Department

Chart: The scale of cryptocurrency fund management, source: CryptoFundResearch, CICC Research Department

In 2017, the Decentralized Finance project MakerDAO was launched, and the lending business predicated on encrypted assets began to rise. Even though in line with the statistics of DeFi Pulse, at the time of 2019/10/13, the total lock-up size of loan-type DeFi projects is just 442 million US dollars, but we believe that it represents a technological trend in the cryptocurrency industry.

Chart: Total lock-up scale of DeFi projects in loan category, data source: DeFi Pulse, CICC Research Department

Chart: Major loan DeFi projects (2019/10/16), source: DeFi Pulse, loanscan. io, CICC Research

Q: At the present legal and regulatory level, what is the worldwide attitude towards these kinds of encrypted assets?

A: In the past year, various countries have gradually clarified the legal status and regulatory orientation of encrypted assets. China will not legally recognize the currency attributes of encrypted assets, nor does it allow any ICO or virtual currency related transactions. In September 2019, the Hong Kong SFC issued regulatory regulations for crypto asset fund managers.

The U. S. SEC and CFTC respectively supervise the business enterprise of encrypted assets defined as securities and commodities. In October 2018, the U. S. SEC issued the initial batch of STO licenses. In September 2019, the united states Commodity Futures Trading Commission and the newest York Department of Financial Services launched the initial physical delivery bitcoin futures license.

In January 2019, the united kingdom FCA issued the "Guide to Cryptocurrency Assets", which demonstrably proposed the supervision of securities-type tokens. Through the same period of time, Singapore passed the Payment Services Act, and businesses such as for example digital currency exchanges can operate in compliance under the supervision with this Act.

Chart: The trend of major countries or regions in the supervision of encrypted assets, source: Xinghan Finance, CICC Research Department; Note: The encrypted assets discussed in this dining table usually do not include central bank digital currencies

Q: We note that while treating Libra with caution, worldwide central banks may also be accelerating the exploration of digital currencies. Do you know the causes of this?

A: Currently, worldwide central banks are accelerating the development of digital currencies. Weighed against conventional cash, the central bank digital currency (CBDC Central Bank Digital Currency) gets the benefits of convenient use, easy supervision, and functional scalability. For developed countries, central bank digital currency can provide consumers with a broad coverage, cross-platform payment method; for emerging market countries, central bank digital currency is part of inclusive finance, which can be likely to greatly accelerate the penetration of financial services.

Q: Do you know the traits of my country's central bank developing digital currencies?

A: The near future development of my country's central bank digital currency is especially positioned to displace M0. A two-tier system will undoubtedly be adopted. Blockchain technology can be viewed as, or other new technologies could be adopted. With regards to anonymity, the central bank's digital currency achieves controllable anonymity, that's, only the central bank discloses transaction data.

Chart: Comparison involving the current currency model and the central bank digital currency model with an individual and two-tier structure. Source: Central Bank Digital Currency Research Institute, CICC Research Department

We believe that the introduction of the central bank's digital currency, in addition to providing consumers with a fresh wide-coverage, cross-platform payment method, will also assist in improving the accuracy of monetary policy operations, promote the internationalization of the RMB, and more. To effortlessly combat financial crimes. We believe that my country is likely to get to be the first country in the world to issue central bank digital currencies.

Chart: Comparison of major currencies, source: IMF, Libra, Bitcoin white paper, CICC Research

Q: Which industry changes linked to central bank digital currencies should investors pay attention to?

A: We believe that the issuance of central bank digital currency could have less affect the present electronic payment system, but it may accelerate the differentiation between commercial banks, payment institutions as well as other commercial institutions. Nevertheless , with the escalation in scenario applications, the customer activity and stickiness of institutions that have obtained digital currency operation qualifications may increase. Financial IT service providers are expected to reap the business enterprise opportunities brought by the transformation and upgrading of core transaction systems in financial institutions. We believe that the launch of digital currency is likely to have the fastest influence on government users and gradually affect corporate users; relatively speaking, the utilization of digital currency by individual clients could be the slowest.

Q: The other applications of blockchain technology at the enterprise level? Just how do Chinese technology organizations perform in the worldwide blockchain industry?

A: Currently, blockchain technology has shown to be ideal for many financial scenarios that need "multi-party sharing", "high-frequency repetition", and "long transaction chains. The layout of financial organizations in blockchain is definitely an investment zone on the one hand. Blockchain startups, alternatively, are blockchain business practices predicated on open source architecture or self-built architecture.

Chart: Blockchain industry map, source: CICC Research

The blockchain industry currently has four categories: 1 ) Semiconductor organizations that provide consensus mechanism chips; 2. Open source blockchain frameworks such as for example Ethereum and Hyperledger Fabric; 3. Blockchain platforms such as for example Ant Financial, Ping An, Tencent, and Wanxiang, And organizations that provide blockchain-based services or software solutions.

Based on statistics from IPRdaily and incoPat, Chinese organizations accounted for 75% of the most notable 20 worldwide corporate blockchain patents in the initial half 2019. One of them, Ant Financial, Ping An, Tencent, Wanxiang as well as other organizations accounted for blockchain platform technology. leading position. We now have done research and analysis on the blockchain business of those organizations in the report, welcome to consult.

Chart: The development history of major domestic blockchain platforms, data sources: Hyperledger, R3, Ping An, Ant Financial, CICC Research