Interview with Livio, the new COO of HashKey Group: Compliant exchanges will become the main theme of industry development in the next ten years
Livio Weng, nicknamed "Qi Ye" in the industry, was the CEO of Huobi Global from 2018 to 2021. In the glory days of the three major exchanges, it was a banner of the old Huobi. On April 13, HashKey Group officially announced that Livio Weng has officially joined as Chief Operating Officer (COO).
During the Hong Kong Web3 Carnival, PANews conducted an exclusive interview with Livio Weng, discussing Hong Kong’s policy dividends, the global encryption market pattern, Bank of America’s thunderbolt and ETH Shanghai upgrade and other hot spots, and revealed HashKeyGroup’s compliance exchange HashKeyPro Next trend. At present, the licensed exchange products under HashKey are basically ready and are in the final stage of grayscale testing. At present, early registration and product testing have been opened to professional investors (PIs), which can support the deposit and withdrawal of virtual assets, and launched USD fiat currency trading pairs. It is expected that the fiat currency channel will be launched this month to provide support for deposits and withdrawals in US dollars.
The following is the transcript of the interview (slightly adjusted without changing the original meaning):
1. The Hong Kong Web3 Summit is very lively. As one of the organizers, can you introduce the situation of the event?
Livio Weng：It is a great honor for HashKey to be one of the sponsors to present this Hong Kong Web3 Carnival for industry organizations. The conference was honored to invite important officials including Mr. Chen Maobo, the Financial Secretary of Hong Kong, and Clara Chan, the executive director of the Hong Kong Monetary Authority. It also attracted more than 10,000 participants from different countries and regions, as well as more than 140 events of various sizes. Activities, these have exceeded previous expectations.
The eve of the conference coincided with the establishment of the Hong Kong Web3.0 Association, and the support of the Chief Executive made people have more expectations for the Hong Kong Web3 industry. In addition, this summit also coincided with the Shanghai upgrade of ETH, which happened to gather the three major elements of time, location, and people.
As the first large-scale industry event after the beginning of spring in 2023, many friends hope to take this opportunity to reunite offline. It is expected that many new stories will happen in this hot land of Hong Kong. The conference is a fulcrum, accompanied by the rapid influx of practitioners into Hong Kong like a tide, further promoting Hong Kong to become the Web3 center of Asia.
2. How do you view Hong Kong's Web3 industry policy?
Livio Weng：As one of the global financial centers, Hong Kong has always held a positive attitude towards the development of the blockchain track, so a number of leading Web3 companies and brands have been born in Hong Kong. After Hong Kong issued the "Policy Declaration on the Development of Virtual Assets in Hong Kong" in October last year, it further clarified the government's attitude of recognizing and supporting Web3-related industries. Not long ago, Liang Fengyi, chief executive of the Hong Kong Securities Regulatory Commission, also made it clear that the virtual asset platform is a part of the Web3.0 ecology and supports the development of related ecology. The launch of the virtual asset exchange license system this time provides a legal guarantee for compliant virtual currency exchanges and promotes the industry to enter a period of strategic opportunities.
1) The new pattern of "rising in the east and falling in the west" has become a trend
From a global perspective, due to the accumulation of a large number of risks and contradictions in the long-term bear market, for a period of time, the regulatory attitudes of various countries to the Web3 industry have diverged. Among them, Western countries represented by the United States have begun to adopt strict and conservative regulatory measures against the Web3 industry.
In contrast, the Hong Kong government has a farther and deeper view on the Web3 industry. For example, Director Chen Maobo said that in the past period of time, the virtual asset market fluctuated greatly, and some virtual asset exchanges even went bankrupt, which made some people doubt the prospects of Web3, but this is the best time to promote the development of Web3. Under this clear new rhythm, industry resources and talents are rapidly converging to the east, and Hong Kong has become a new growth pole of the global Web3 industry, forming a trend of "rising in the east and declining in the west".
The more essential reason behind the "rising in the east and falling in the west" is the chaos in the global capital market brought about by the dollar tide. An important factor driving the last bull market was the excessively loose monetary policy during the epidemic, and the overflowing liquidity quickly pushed up the prices of risky assets such as virtual assets. However, the indulgence of the regulators made some European and American institutions ignore the risks and still use high leverage to amplify their profits at the height of the bull market. Immediately, the Federal Reserve raised interest rates rapidly and sharply to shrink the balance sheet, which led to a sudden tightening of liquidity in the market. These institutions formed a book deficit. In order to fill the hole, they adopted risky behaviors such as attracting deposits with high interest rates, misappropriating customer funds, and manipulating market prices. thunder. As a result, the industry's concerns about the risks of institutional agents, that is, various "FUD" have intensified. In particular, the compliance of virtual currency exchanges has become an important issue in the industry.
2) Compliance exchanges will become the main theme of industry development in the next ten years
The exchange is one of the core links of the Web3 industry, and it is also the business that is most likely to receive regulatory attention. In the past few years, due to the lack of unified and effective regulatory standards and mechanisms, there have been many problems and risks in virtual asset trading platforms, such as fraud, money laundering, hacker attacks, and user fund security. These problems not only damage the interests of investors, but also hinder the healthy development of the Web3 industry.
Therefore, it is necessary and urgent to establish a compliant, safe and credible trading platform regulatory framework. The Hong Kong Securities Regulatory Commission's virtual asset trading platform licensing system has taken an important step in this direction. The new licensing system, which will take effect in June, has attracted the attention of global practitioners.
The value of a compliant exchange lies in safer asset custody and more convenient deposit and withdrawal channels. It is neutral in various "FUD" in the industry and allows digital currency holders to "sleep soundly."
With the implementation of licensed exchanges in Hong Kong and the clarification of the regulatory framework, it is expected that a number of countries and regions will emerge around the world to follow up and adopt similar policies. Compliant exchanges will develop into the mainstream of the market and become the first choice of more institutions and investors.
3) Hong Kong will become the birthplace of the Eastern encryption industry with its unique advantages
In addition to its leading and comprehensive compliance policy advantages and its strategic position as a global financial center, Hong Kong will also attract enterprises from the entire Greater East Asia ecosystem to settle in by virtue of its unique geographical advantages and open talent policy. After this summit, it is expected that a number of Web3 companies will emerge to settle down in Hong Kong, gestating a bigger future for the Web3 world.
3. The recent upgrade of ETH in Shanghai is a hot topic. What is the short-term and long-term impact of this upgrade on ETH?
Livio Weng: The focus of this upgrade is to allow pledgers to withdraw the pledged ETH and Staking income. After the implementation of the Ethereum merger in September last year, ETH officially shifted from POW to POS, but it is not yet possible to get back the Staking income. After the upgrade in Shanghai, the stakers can get back their income in a stable and predictable manner. If BTC is compared to digital gold, after the upgrade in Shanghai, ETH Staking will allow the chain to have "digital U.S. debt", which will give birth to a series of upstream and downstream business formats.
In the short term, after the successful completion of the Shanghai upgrade of Ethereum, a large number of unlocked ETH will form selling pressure on the market, which may lead to bad news, but the impact is limited.
In the long run, the ETH Shanghai upgrade will improve the security, efficiency, and scalability of ETH, laying a solid foundation for the future development of the public chain. The most important point is that the upgraded ETH will realize the return of pledge income, which will form a positive cycle and encourage more capital to buy ETH for pledge, thereby pushing up the pledge rate of ETH (refer to other public chains at 40 % or so), reducing the actual circulation, thus forming a long-term positive for the currency price.
4. After the upgrade of ETH Shanghai, what developments are worth looking forward to?
Livio Weng：After the Shanghai upgrade, we pay more attention to the sharding technology (DankSharding) proposed in EIP-4844. The implementation of sharding is expected to push the performance of ETH to the order of 100,000 TPS, which will push the Web3 industry into a real application landing cycle.
The development of the public chain began in 2017 until now, and it is still in the early stage, showing the characteristics of air and bubbles, and the essence is the "unusability" of the chain. Due to the limited throughput and expansion capabilities of ETH, network congestion and high handling fees have seriously affected user experience and developer innovation. Compared with traditional web2 applications, the speed and stability are far from comparable.
And after ETH sharding, the blockchain will become "usable". Sharding is one of the core technologies of ETH 2.0. It will divide the ETH network into multiple shards running in parallel, each shard has its own state and transactions. Fragmentation is expected to bring more storage and access data capacity to Ethereum, making the Ethereum blockchain faster and more scalable. At the same time, sharding is expected to make the transaction costs of the Layer-2 technical solution lower, while maintaining the advantages of the security guarantee of the Ethereum blockchain. This can greatly improve the throughput and scalability of ETH.
Before the performance of Ethereum meets the market demand, various other public chains essentially undertake the performance requirements of the ecological overflow of Ethereum. After ETH 2.0 completes a series of technical upgrades, in the long run, we can expect "ten thousand chains to be unified", and there will no longer be various public chains, fragmented users, assets, data, services, information islands and value barriers. This stimulates more innovation and collaboration. At that time, DApps will usher in a real period of prosperity, and the application scenarios and value creation of the Web3 ecology will explode rapidly.
It can be said that the landing of ETH sharding will be close to the important role of broadband in the Internet and iPhone in the mobile Internet in terms of historical status. It marks the real maturity of the blockchain infrastructure layer and has epoch-making significance.
5. What is the impact of changes in the external environment such as the Bank of America thunderstorm on virtual assets?
Livio Weng：One of the more significant trends in the current global macro environment is that the Western legal currency order represented by the U.S. dollar is collapsing at an accelerated pace. In this context, virtual assets, as a decentralized digital asset, are showing their unique comparative advantages.
The "big tide" of the US dollar in the past few years has directly contributed to the current worldwide banking liquidity crisis, and it is not ruled out that it will further trigger a new round of global financial crisis. As a result, people have a crisis of trust in the legal currency led by the U.S. dollar, which indirectly promotes some foresighted people to accelerate their embrace of virtual assets. Due to the original and transparent supply and distribution mechanism of virtual assets, it can hedge against monetary policy changes and inflation erosion, and has stronger anti-risk capabilities.
From the perspective of Web3, the essence of the collapse of US dollar trust lies in the fact that it adopts the single-currency pledge unlimited issuance model.
As the world's main reserve currency and settlement currency, the unlimited issuance model of the U.S. dollar has led to an imbalance in the global financial system and planted hidden dangers in the financial market. In the past few decades of economic prosperity and long-term quantitative easing in the West, the hidden risks of this model have not been revealed. Once the economy falls into recession, risks will surface. The U.S. debt is out of control, Credit Suisse is thundering, and some Western countries have broken the pretense that private property is sacred and inviolable. To some extent, the single currency pledge unlimited issuance model has reached its bottleneck.
What many people forget is that Bitcoin was born in the background of the collapse of Lehman Brothers. In the last financial crisis in 2008, Lehman Brothers declared bankruptcy in the United States, which triggered credit crunch, asset depreciation, market panic and other issues around the world. Against this backdrop, Bitcoin was born. Bitcoin is the first successful virtual asset. It is based on a decentralized consensus mechanism and has the characteristics of security, transparency, and traceability. The emergence of virtual assets is a challenge to the traditional financial system, and it is also a self-protection mechanism for people to deal with financial crises.
Today, due to changes in the external environment such as bank thunderstorms, safe-haven assets such as gold continue to heat up. In comparison, digital assets such as Bitcoin and Ethereum have greater selection advantages in terms of liquidity, storage costs, and transaction efficiency, and have advantages such as digitization, programmable, divisible, and easy to transfer. Virtual assets are gradually becoming one of the mainstream safe-haven assets.
6. Has the current market situation gone out of the deep bear? Will the continuous industry thunderstorms in the past affect the entry of new capital in the future?
Livio Weng：Although mainstream currencies such as BTC and ETH have rebounded this year, the overall transaction volume and market value are still not comparable to the bull market, and the volatility and uncertainty of the market are still high. The previous continuous thunderstorms in the industry also brought a huge blow to the market, affecting investor confidence and the entry of new players.
But in essence, continuous industry explosions prove the value of decentralization:
1) The essence of continuous thunderstorms is the evil of centralization, rather than negating decentralization. The thunderstorms come from the lost institutional agents who added various forms of leverage at the high level of the bull market, and finally formed a series of trampled consequences in the bearish market;
2) Decentralized applications represented by Uniswap, Compound and other DeFi rely on better transparency on the chain to avoid problems caused by human manipulation, and instead prove the value of the decentralized model.
Therefore, it is believed that the industry will usher in greater development after the roots are rectified.
There are still big variables about whether to get out of the deep bear. Factors that affect the market in the short term include the following aspects:
1) The Fed's interest rate hike is coming to an end, and when will the rate cut cycle come. In the short term, it is expected that there will be another rate hike within this year. Although the rate hike expectation has been greatly reduced, the interest rate has already reached a high level, which will have a huge impact on the precarious US bond market. At the same time, the Fed's continued shrinking of its balance sheet will greatly test the liquidity of global funds, and the negatives have not diminished. But at the same time, capital’s risk aversion sentiment and demand are favorable to BTC, and the recent rebound is based on this narrative.
2) Whether there is a bigger bank thunder event, triggering a global financial crisis. The banking crisis will also greatly test the liquidity of global funds in the short term, and may form a series of stampedes similar to the "312 Incident" in 2020. If such a situation occurs, the digital currency market will also face enormous pressure and challenges, and there may be a sharp decline and panic.
3) After the upgrade of ETH Shanghai, there may be a period of selling pressure due to the unlocking of assets on the chain to retrieve the pledged income. After the market digests the selling pressure, the ETH pledge rate is expected to rapidly increase from about 15% to close to 40%, and the market will also warm up simultaneously. The ETH Shanghai upgrade is an important milestone in the ETH 2.0 roadmap and will bring greater security, scalability, and efficiency to ETH.
On the whole, this round of crypto bear market is not completely over. In the short term, the market has not completely come out from the previous series of thunderstorms in the industry. Many capitals are still fearful, and the market trading funds and willingness to trade are still in a state of tension. It is necessary to closely observe the momentum and sustainability of this round of rebound this year.
But what is more certain is that in 2024-2025, with the halving of BTC, the US dollar entering the interest rate cut cycle, ETH sharding and other technologies to promote the iteration of infrastructure efficiency, and the widespread popularization of compliant trading platforms, the industry will enter the next outbreak cycle. At that time, virtual assets will usher in wider application and recognition, and the market will also show a healthier and more active state.
In the past two years of the bear market, the truly powerful and valuable projects in the Web3 industry have been preserved. After the tide of speculation ebbs, the remaining capable participants will focus more on competing in technological innovation, practical application and value creation, and contribute to improving the quality of the real economy. This is the course that the Internet technology industry has gone through.
7. HashKey has previously announced that it has obtained a Hong Kong virtual currency exchange license. Can you disclose the current business progress?
Livio Weng：At present, the licensed exchange products under HashKey are basically ready and are in the final stage of grayscale testing. At present, early registration and product testing have been opened to professional investors (PIs), which can support the deposit and withdrawal of virtual assets, and launched USD fiat currency trading pairs. It is expected that the fiat currency channel will be launched this month to provide support for deposits and withdrawals in US dollars.
As a licensed virtual asset trading platform in Hong Kong, HashKey PRO fulfills the regulatory requirements of the Hong Kong Securities Regulatory Commission and is currently limited to providing services to professional investors. The Hong Kong government currently has plans to open virtual assets to retail users. We are working closely with regulators to ensure that after meeting all necessary regulatory requirements, relevant products will be launched as soon as possible to provide retail users with safe and reliable transaction services.
8. You have been a leader in the exchange track for a long time. What is the opportunity to join Hashkey this time? What are the differences between licensed exchanges and traditional exchanges?
Livio Weng：The compliance management of encrypted virtual currencies such as Bitcoin is inevitable in the history of the development of this new thing. Most of the trading categories in the world, including gold, silver, stocks, bonds, etc. in history, originated from private behaviors and experienced a long period of natural evolution, accompanied by various risks during the period, and finally led by the government Under the regulation of market behavior, a unified large market or license supervision system was established.
For example, banks are developed from the historical norms of bank accounts and banks. In Ming and Qing dynasties, bank accounts relied on the personal credit of organizations or entrepreneurs to attract savings, but the credit of private enterprises could hardly support the economic cycle or various accidents caused by runs, which ultimately left a lot of risks for the society. As the government led the regulation of order and established various management mechanisms and safeguards, the banking industry gradually entered the public and became prosperous.
Virtual currency is no exception. After more than ten years of development, it has reached the stage where it has to be managed. The early transactions on the market relied on the reputation and integrity of the operators, but judging from the series of thunderstorms in the industry in the past two years, such a model also contains huge risks, and standardization and legalization are imperative.
I personally chose to join the ecology of licensed businesses in Hong Kong because I saw this historical inevitability, and I am firmly optimistic about the future development opportunities of this hot land of Hong Kong in Web3.
Licensed exchanges represent the future and will be the main theme in the next 5-10 years
With the tightening of the global regulatory environment, more and more countries and regions will introduce regulations and requirements for virtual asset transactions in the future. Unlicensed or non-compliant exchanges will face enormous operating pressure, and even outlawed or shut down. In the past, the legality of virtual assets has been questioned, causing new players to be afraid to enter the market rashly. After the HashKey Group applied for the license, many traditional institutions quickly contacted us and hoped to cooperate with them. The demand and willingness were very strong. With the rapid clarification of the regulatory framework for virtual assets in various countries around the world, licensed exchanges will become a necessary condition for compliant operations, not an option. For the development of the entire blockchain industry, the current moment is likely to be a historically critical turning point.
Licensed exchanges have a long application cycle, high operating costs, and limited asset types, but these constraints also bring operational barriers:
1) Provide convenient and safe legal currency deposit and withdrawal. Licensed exchanges can legitimately cooperate with banks and other financial institutions to provide legal and convenient fiat currency channels, allowing users to conveniently conduct two-way exchanges between local currencies and virtual assets. Compared with most of the current centralized exchanges that still only use riskier P2P OTC transactions, the security is greatly improved. In every round of bull market, the deposit channel is often a battleground for the competition between exchanges.
2) Safe asset custody capabilities. According to regulatory requirements, licensed exchanges need to adopt professional risk control systems and security measures to ensure the safe storage and transfer of user assets. At the same time, licensed exchanges also need to accept regular reviews and random inspections by regulators to ensure that their operating conditions meet standards. In addition, licensed exchanges also need to provide users with insurance or compensation mechanisms to deal with possible accidents or hacker attacks.
3) Sustainability of operation. Under the development trend that the license system is gradually becoming the mainstream, all countries will continue to complete the compliance transformation of virtual currency exchanges, and unlicensed exchanges will continue to be squeezed by policies and even face criminal risks. The sustainability of operations will also be a long-term competitiveness of compliant exchanges.
The compliance market in the United States has given birth to Coinbase, which once had a market value of more than 60 billion U.S. dollars. In the eastern market of the same size, we believe that the market has the same potential. Especially in the next round of bull market, as the price of virtual assets rises, compliant exchanges will usher in a greater manifestation of value.
9. After the performance of Ethereum is expanded, the experience of decentralized exchanges (DEX) will also be improved. Will DEX fully replace centralized exchanges in the future, including compliant exchanges?
Livio Weng：Both DEX and CEX are important components of the virtual asset trading ecosystem, and each has different advantages and disadvantages.
The advantages of DEX are decentralization, security, transparency, and no need for trust, and are more suitable for advanced users with wallet operation capabilities.
The advantages of CEX are:
1) Lower industry entry barriers (no need to open chain wallets and manage private keys)
2) Reliable fiat currency deposit channel (DEX cannot open a bank account)
3) One-stop financial services (derivatives, wealth management, staking, information, etc.)
For a long time, DEX and CEX will coexist rather than replace each other. At present, the overall transaction volume and user scale of CEX are still in an absolute advantage.
10. In addition to exchanges, what other layouts will HashKey Group have?
Livio Weng：HashKey Group has a complete business ecosystem, including digital asset trading, custody business, brokerage business, venture capital, asset management, node verification, and one-stop solutions for Web3 infrastructure services such as DID, NFT, and GameFi. It has a complete CeFi and DeFi strategic planning, covering the main areas of virtual assets.
In terms of exchange business, HashKey Group is the first digital asset group in the world to obtain virtual asset licenses (including over-the-counter trading licenses) issued by the Hong Kong Securities Regulatory Commission and the Japanese Financial Services Agency at the same time. An exempt holder of a license under the Payment Services Act to provide Digital Payment Token (DPT) services, including OTC services, for a specified period.
At the same time, HashKey Capital is one of the most influential and largest encryption funds in the world. It is also the earliest institutional investor in Ethereum. Since its establishment, the asset management scale has exceeded US$1 billion. , applications and more than 500 projects in multiple tracks.
HashQuark, a subsidiary of HashKey Group, is a leading staking service provider, ranking in the top ten globally and top three in Asia. Since 2018, it has been serving customers with stable security and zero faults for more than 5 years. It supports the Classic Staking service of most mainstream public chains including Ethereum and Cosmos, and also provides Liquid Staking products.
HashKey Group has just released the ecological credit HSK, which is used to motivate various businesses that empower the HashKey ecosystem. (Related Reading:HashKey Group will release ecological points to understand the rights and distribution mechanism of HSK in one article) is different from the platform currency in the traditional concept, HSK does not carry out public sales with the goal of raising funds, but rewards early participating users and core contributors of HashKey PRO exchange and other ecological businesses, including this time Attendees of the Web3 Carnival event.
HashKey Group will continue to invest more resources and enthusiasm, along with Hong Kong's Web3 strategy, to contribute to the development momentum of the industry.
This is an era full of changes, and Hong Kong is expected to unleash powerful policy dividends in the changing global pattern of "rising from the east to falling from the west", and become a highland of the global Web3 industry. We will vigorously promote the development and growth of licensed businesses, especially compliant exchanges, and become a safe haven for people to protect asset security and obtain the development dividend of the Web3 industry in the complex global macro-financial environment.
