Gu Yanxi: Analyzing the key to digital financial ecological construction from the perspective of strategy and paradigm change
Huobi University Huobi Education
Huobi University Huobi Education
Gu Yanxi: Analyzing the key to digital financial ecological construction from the perspective of strategy and paradigm change
Gu Yanxi believes that the current infrastructure in the financial market, including clearing companies, settlement companies, and securities custody companies, is supported by a centralized system, and in the future, distributed accounting technology will support the financial market infrastructure. If blockchain technology is applied to the clearing and settlement field in the securities industry, it will bring about fundamental changes in the clearing and settlement work.
Faculty Profile
Faculty Profile
Gu Yanxi is the founder of Liyan Consulting Company in the United States, a researcher and practitioner in the blockchain and encrypted digital asset industry, and a practitioner in the Chinese and American capital markets. He has published a large number of research articles on blockchain and encrypted digital assets in domestic and foreign blockchain and technology media. He has written a large number of research articles on blockchain and encrypted digital assets, and published them in domestic and foreign blockchain and technology media. Participated in the writing of "Libra, a Financial Innovation Experiment" and "Understanding Libra".
The following is the essence of Gu Yanxi’s speech, organized by Huobi University.
Hello everyone, I am very glad to have this opportunity to share with you how to build a future digital financial ecosystem.
The content shared today revolves around the digital financial ecology: what is the digital financial ecology, how does blockchain technology change the banking and The development trend of financial ecology.
1. What is a digital financial ecosystem
Before we start, let’s briefly introduce the evolution of blockchain technology. The blockchain began to appear with the circulation of Bitcoin, and has undergone great changes in the Ethereum stage. Now, blockchain technology has evolved into various forms, and the traditional blockchain is still preserved. The first is the form of a public chain; the second is a permissioned chain, such as Facebook's Libra; the third is a distributed accounting technology (Distributed accounting technology), which evolved from the traditional blockchain and is more suitable for today's Financial business applications.
The underlying technology used in the blockchain applications in the securities industry and banking industry shared in class today is distributed accounting technology, rather than traditional public chains. Distributed accounting technology is represented by R3's Corda. Corda is very popular around the world and is often adopted by financial institutions. Many cases shared in the following courses are based on Corda.
Since the development of digital finance, there are mainly two types: digital currency and digital securities. In the future, it will have a great impact on the securities industry and the banking industry. If it can be laid out on this road as soon as possible, it will occupy a leading position in the next development of the financial industry.
2. The basic components of digital financial ecology
The current infrastructure in the financial market includes clearing companies, settlement companies, securities custody companies, and so on. These companies are all supported by a centralized system. I think in the future this will be supported by distributed accounting technology to support financial market infrastructure.
For example, the Australian Stock Exchange is changing the original underlying clearing system to an underlying clearing system based on distributed ledger technology. In Switzerland, the development of underlying distributed ledger technology support began with digital asset exchanges as an entry point. Thailand is also vigorously promoting the application of blockchain technology, which is led by various departments, such as the Thai Bond Market Association, banks, and other institutions. Some focus on industry, some focus on traditional industries, and some are based on IBM. Develop financial infrastructure based on Corda in Switzerland, first build a digital asset exchange, and then test the issuance of CBDC on top of the infrastructure, forming a unified financial infrastructure. Moreover, the corresponding organizational form of these financial infrastructures is membership-based, and the scalability is very strong. Switzerland is at the forefront of the world in this regard and has a very strong room for development in the future.
Digital currency is a basic part of the future digital financial ecology, including compliant digital tokens such as Libra, USDT, USDC, Pax, GUSD, etc., among which Libra is the most typical. Now the development process of CBDC is gradually advancing. At present, there are very strong forces in the United States to promote the development of USD CBDC. It also includes Switzerland, Thailand, and China's DCEP (Digital Renminbi).
The development of digital assets is also very rapid, and tokens were used for financing in the early stage. However, due to the regulation of various countries, this form has become a thing of the past. At present, financing is mainly carried out in a compliant manner. Due to regulatory restrictions in the UK and the US, there are fewer types of products and fewer people who can participate, so the progress is relatively slow. The United States is representative in this regard. There are no problems in terms of infrastructure or the generation, circulation, trading, storage, and settlement of digital assets. However, due to the lack of supervision, it cannot be applied to a large number of assets.
At present, the whole world is facing such an embarrassing stage, but there are exceptions in some places, such as Thailand. In terms of financial supervision, Thailand has begun to test digital products, produce and distribute them. In January 2020, Toyota Leasing Thailand began to issue digital bonds. This is not a test project, but completed the issuance of digital bonds to corporate and high-net-worth individuals on the chain. According to news reports, the bond issuance process has been shortened from the original 15 days to 3 days. The significance of this improvement is huge. However, with the development of blockchain technology and distributed ledger technology today, this improvement is expected. However, due to various problems, it cannot be widely promoted in terms of landing at present.
In June 2020, Thailand carried out another digital bond issuance project, which was different from the one issued in January and was issued to public investors. The total amount of the issuance is 200 million baht, and the minimum purchase price is 100 baht. Just imagine, if the per capita purchase is 100 baht, there will be 2 million investors participating in this project.
This brings out the value of the combination of blockchain and the financial industry. Thailand is far ahead of other countries in the issuance of digital assets based on blockchain. Although Switzerland has established financial infrastructure, it has not issued financial products. Although Thailand's financial infrastructure planning is not as perfect as that of Switzerland, the main reason why this can be done is that projects in the financial sandbox are supported by financial regulation. In terms of policy, Thailand is very supportive of the development of the digital financial ecosystem in the market.
In addition, the future digital asset exchange must be a core component of the future financial ecology. We must pay attention to the combination of transaction and payment, and seamlessly connect transaction and payment. For example, in cooperation with Starbucks, users can use digital currency to buy coffee, or use digital currency to purchase digital asset products provided by the exchange at any time.
3. What paradigm changes has blockchain brought to the digital financial ecosystem?
Blockchain technology is a distributed accounting technology, which is fundamentally different from centralization. So from a technical point of view, it is a change to the existing paradigm.
The fundamental change is an infrastructure change. Regardless of whether it is a securities firm, an exchange, a clearing and settlement company, etc., the carrier of its financial products is based on a centralized system. In addition, there is a difference in the product circulation mechanism. In the future, blockchain technology will adopt distributed technology, and all processes will be completed on the chain, which will no longer require the support of many centralized systems.
For the primary market, there will be more types of assets in circulation. In the future digital financial ecology, distributed ledgers can flow some assets through ABS issuance. In the example just mentioned, Thailand has achieved 200 million baht (about 6.5 million U.S. dollars). Such a specification can be made into small units and distributed among customers.
The blockchain supports peer-to-peer direct transactions. If private equity is circulated on the blockchain, private equity investors can trade directly with each other and will not enter the secondary market for transactions. At present, a lot of funds are backlogged in the primary market, which will go through a long cycle. For many private equity investors, a large amount of funds have been accumulated in it for a long time and cannot be circulated in time. But if blockchain technology is introduced, direct transactions can be made between peers. For private equity investors, as long as both parties agree, the transaction can be completed directly, so that in the private equity stage, the circulation of equity is much better than it is now, which is a very big change for the primary market.
There will be very big changes in the secondary market. After more trading products appear, they will become global 7×24-hour transactions. In the future secondary market, there will no longer be a distinction between on-market and off-market trading markets. In terms of transaction methods, the off-site is a peer-to-peer transaction, and the on-site transaction is a centralized matchmaking transaction. With the support of future blockchain technology, both trading methods can be carried out, and there is no longer a distinction between on-site and off-site. Another change to the secondary market is that the transaction is the settlement, instead of the current situation, where there is a transaction first, and then the settlement is completed in two processes. This method of transaction and settlement can improve the efficiency of funds, and all funds can be released without mortgage to ensure the completion of the transaction.
As for the specific landing situation, the progress of each region in the world is different. The Boston Securities Exchange in the United States is applying to establish a national stock exchange. At present, it adopts the structure of many existing securities markets, so the benefits it brings are not obvious. It was originally planned that the SEC will make a resolution in April 2020, but it is currently postponed.
In terms of clearing and settlement, I think it is not an appropriate choice to apply blockchain technology to the transaction clearing of the existing securities market. Because there are too many parts involved in the settlement of transactions in the original stock market, it will be very difficult to advance.
The paradigm change brought about by the banking industry is mainly clearing and settlement companies. Clearing and settlement companies are actually the foundation of the banking industry in the financial industry, providing clearing and settlement services for currencies. Any system payment is completed by the underlying clearing and settlement company, including the use of third-party payment tools. In the future digital financial ecology, the underlying clearing and settlement company is not needed through blockchain technology. Including the Libra stable currency and the CBDC issued by the central banks of various countries, as long as they run on the blockchain, transfers between accounts can be realized. The completion of the transfer is guaranteed through blockchain technology, without the need for an underlying clearing and settlement company. Clearing and settlement is first applied in the cross-border field, and then with the development of technology, it will gradually be applied to the existing single legal currency jurisdiction. This is the most important impact on the financial industry in my opinion.
For commercial banks, facing very big challenges, but also new opportunities. After the emergence of digital currency, the development of ecological applications will be very vigorous, which will definitely lead to a large amount of deposits being transferred from commercial banks to applications. With the development of the digital financial ecology in the future, this loss of deposits will become more obvious. Commercial bank deposits will decrease. The reduction of commercial bank deposits will directly affect the loan business, because the reduction of deposits will naturally weaken the ability to lend.
But on the other hand, commercial banks will also have new opportunities. You can participate more in the securities industry business. For example, based on blockchain technology, the generation and circulation of digital finance will be more convenient and the liquidity of funds will be enhanced. Some smaller loan products can be packaged and made into standardized financial products for circulation, including small and micro enterprise loans and housing loans. The volume of this field will be very large. On the other hand, CBDC will still be issued and circulated through commercial banks in the future. The structure of commercial banks will continue to exist in the future digital financial ecology, and the central bank will also issue CBDC through commercial banks. This is an event with a high probability.
In terms of digital currencies, many central banks are developing their own CBDCs, including China's digital yuan (DC/EP). Stablecoins in the market are also developing, including: Libra, USDT, JPMCoin, etc. The advancement of digital asset transactions is relatively slow, and it is already in progress in various regions of the world, including digital asset exchanges. In the future, this should be a unified digital financial ecology.
The exchange will still exist, and the scope of future transactions will be much larger than the existing stock exchange. I think the strategy of the Swiss digital asset exchange SDX is relatively correct in this regard. Starting from the initial digital asset trading business, it is currently testing the issuance of Swiss franc CBDC, which has become another set of parallel distributed distributed currency in addition to the Swiss financial market infrastructure. Financial market infrastructure supported by bookkeeping technology. In the future, more financial businesses will be developed based on this. For retail users of exchanges, the start is to apply CBDC. However, after the launch of CBDC, the application scenarios are not limited to transactions. You can use CBDC to buy coffee through the client to open up daily transaction scenarios.
4. How to build a digital financial ecosystem
"Huobi University" Gu Yanxi: Analyzing the key to the construction of digital financial ecology from the perspective of strategy and paradigm change
In the previous course, we talked about the methodology of blockchain technology application. One of the most basic principles is the principle of least resistance, that is, the areas of least resistance that blockchain technology should be applied to. Only in this way will it be beneficial to realize the benefits as soon as possible, so that the promoters of the application of blockchain technology and the whole market can see the benefits that blockchain technology can bring. If it is delayed for too long, both implementers, promoters, and the market will lack confidence and the cost will increase. Therefore, we must control the scope of the project well to ensure better returns in the short term.
