CZ HKU Dialogue: 10 major conclusions on stablecoins, RWA, exchanges, DAT, etc.

Note: This article is a conversation between Binance founder Changpeng Zhao and the Vice-President of the University of Hong Kong at the "Hong Kong Crypto Finance Forum" hosted by MetaEra on August 27th.

10 Key Quotes:

1. The current US administration is very smart and has a deep understanding of Tether's strategic value to the US dollar's global status. Americans themselves don't need stablecoins. Almost all USDT users are outside the US, which actually expands the dollar's global influence.

2. Stablecoins are essentially tools that help the underlying currency achieve globalization. Currently, more than a dozen countries I've contacted hope to have their fiat currencies on a blockchain. I believe every country should have at least a few stablecoin products.

3. As the world's largest stock market, the US is extremely beneficial to its economic development by attracting global investors to US stocks through blockchain technology. If US stocks can also be successfully put on a blockchain, it will further consolidate the US's dominance in the global financial market.

4. Other countries that do not participate in the RWA transformation risk being marginalized and eliminated. Just as China's e-commerce market would likely be completely dominated by Amazon without Alibaba, its absence in the fintech sector will similarly have profound economic consequences. 5. Exchanges should not restrict tradable assets; all assets should be able to circulate freely on the same platform. Once on the blockchain, all assets are simply tokens, with no real distinction. The real difference lies in compliance: which regulatory agency to apply for a license from and whether approval is granted. 6. Regulators require that all operations be conducted locally, but this is of little significance in the digital currency industry. If only local residents are allowed to trade, it will be impossible to generate sufficient trading volume. Without liquidity, price fluctuations will be extremely volatile, which is actually harmful to users. True user protection comes from a sufficiently deep order book. 7. As far as I know, most licensed exchanges in Hong Kong are currently operating at a loss. While this may be manageable in the short term, this loss-making model is unsustainable in the long term. 8. In 10 to 20 years, decentralized exchanges will undoubtedly surpass centralized exchanges in scale. This is the future trend. 9. The core logic of DAT is to package digital currencies in a stock-like format, allowing traditional investors to gain exposure to digital currencies. This group is actually a very large market, much larger than the cryptocurrency market. 10. The combination of AI and Web 3.0 is not just hype; it is an inevitable trend of breakthrough development in the future. What currency will AI use? The answer is clearly not the US dollar or the traditional payment system. AI's monetary system will inevitably be based on digital currencies and blockchain. This means that blockchain transaction volume will grow exponentially. In the future, each person may have hundreds or even thousands of AI agents. Full text follows: 1. On Stablecoins: From the Birth of USDT to the US Stablecoin Act. I'm not an expert in the stablecoin field, but Binance handles approximately 70% of global stablecoin trading volume, making us the industry's most important stablecoin distribution channel. Let me give you a brief introduction to the history of stablecoins. The earliest prototype of stablecoin technology was Colored Coins, which was one of the first asset-on-chain solutions explored by the Bitcoin community. USDT, launched by Brock Pierce in 2014, experienced lackluster initial development. Pierce subsequently stepped down, handing over leadership to the current USDT team, including Craig Sellars. Until 2017, the project still saw little growth. When Binance was founded in 2017, we focused on crypto-to-crypto trading, supporting Bitcoin against Ethereum and BNB, but lacked fiat currency trading capabilities. This created a user experience issue: whenever Bitcoin prices fell, users could only withdraw their Bitcoin to other fiat exchanges, with significant uncertainty about whether these funds would be returned to our platform. This also significantly impacted the user experience. To improve this user experience, we decided to support USDT as a safe haven during market downturns. At the time, we understood stablecoins as a short-term store of value, so the decision to support USDT was relatively simple—no complex partnership agreements or strategic collaborations; simply integrating the product. At this time, USDT entered a period of rapid growth: First, after 2017, the cryptocurrency exchange market entered a period of rapid development, with numerous platforms, including Binance, beginning to support USDT, driving its rapid growth. Subsequently, USDT experienced a second wave of growth: Many Asian users had demand for US dollars but struggled to open direct dollar accounts. USDT provided an alternative. Tether has always been highly profitable, but due to US regulatory pressure and difficulties in securing banking partnerships, it has maintained a relatively low profile. In 2019, Paxos, a US compliance firm, approached us with a proposal to collaborate on a stablecoin, which led to the creation of BUSD. From 2019 to 2023, BUSD's market capitalization grew to $23 billion. During this period, we invested minimal resources, primarily supporting the brand and promoting it through initiatives like "free withdrawals." In 2023, the US government shut down the BUSD project. Had BUSD continued, it would have achieved significant growth, as its growth rate at the time surpassed both USDT and USDC. It's worth noting that when the BUSD project was shut down, all user funds were fully refunded, fully demonstrating BUSD's credentials as a compliant, transparent, and secure project. Stablecoins and exchanges have become one of the most profitable sectors in the crypto financial sector. The stablecoin business model is highly simplified: after obtaining a regulatory license, users deposit funds, and the platform issues tokens. When users redeem tokens, the platform offers cash exchange. This model offers low barriers to entry, high liquidity, and enormous market potential, resulting in significant long-term profitability. From a national strategic perspective, the US government's stance on stablecoins has shifted significantly in recent years. This current US administration is highly astute. Drawing on its business background, it has a deep understanding of Tether's strategic value to the US dollar's global status. Currently, over 100 billion USDT has been used to purchase US Treasury bonds, and Tether is widely used globally. Crucially, Americans don't need stablecoins themselves—they can simply use their bank's ACH system to transact in U.S. dollars. Almost all USDT users are outside the United States, effectively expanding the dollar's global influence. This aligns perfectly with China's desire to expand the international influence of the renminbi. Stablecoins are essentially tools that help globalize the underlying currency, which should be highly attractive to countries around the world. Of course, as freely circulating blockchain assets, stablecoins do pose challenges to foreign exchange controls, but these challenges are solvable. Currently, more than a dozen countries I've spoken with have expressed strong interest in developing local stablecoins, hoping to put their fiat currencies on a blockchain. When the United States passed the GENIUS Act in July, it proposed restricting the development of central bank digital currencies (CBDCs). This move reflects a far-reaching strategic shift towards the dollar's global dominance. Stablecoins are so popular precisely because of their high degree of free circulation and excellent user experience. However, some government-issued digital currencies may be subject to stricter regulation and monitoring, which could negatively impact market acceptance. In fact, since 2014, over 20 countries have attempted to issue CBDCs, but none have achieved true market success. Blockchain technology is essentially a ledger technology, and its first application scenario is finance. Therefore, stablecoins are a natural application of blockchain technology. Currently, we only see relatively mature development of US dollar-denominated stablecoins; stablecoins based on other currencies have yet to emerge, indicating enormous potential for future growth in this sector. Nowadays, every country wants to develop stablecoins. I believe every country should have at least a few stablecoin products. II. On RWAs: Challenges and Far-Reaching Impacts Although the RWA sector holds broad market potential, its implementation is far more challenging than the market anticipated. The specific challenges can be summarized as follows: 1. Liquidity Dilemma From a practical perspective, products with strong financial attributes are relatively easier to tokenize, primarily because traditional financial products inherently possess high transactional properties and relatively mature digital representation. However, the tokenization of non-financial assets faces fundamental obstacles. While theoretically, it's possible to tokenize everything—every city, every building, every individual can issue a token—in practice, numerous problems exist. Take real estate, for example. Even the volatile Hong Kong real estate market remains relatively stable compared to Bitcoin. After the issuance of these low-volatility assets, trading activity is low due to low volatility, and the order book is shallow. This leads to low liquidity, and investors are reluctant to place many orders, creating a vicious cycle: a shallow order book leads to low trading volume. Investors attempting to transfer hundreds of millions of yuan in funds find it nearly impossible to execute transactions. Even if the assets are on-chain, liquidity remains insufficient, making them more susceptible to unexpected fluctuations and even short-term manipulation. 2. Regulatory Complexity Products with financial attributes often raise a core question: Is it a security? Is it a security, a commodity, or something else entirely? In large or financially developed countries, there are clear definitions and distinct regulatory bodies. In smaller countries, a single regulatory body may oversee everything. Compliance requirements become more complex when multiple regulatory bodies are involved. Companies must apply for various licenses: futures, spot trading, digital currency, and bank custody. Obtaining numerous licenses can limit business models, and in many cases, even a single business model may be unable to launch.

3. Product Mechanism Flaws

In my opinion, US securities tokenization is currently untenable at the product level. Current stock tokenization products, such as xStocks, don't link their token prices to the actual stock prices, which is unreasonable. Theoretically, if there's a price difference between the two, investors can profit through arbitrage. However, in reality, this price difference persists—which demonstrates that the product's underlying mechanics aren't working. In other words, in the current stock tokenization landscape, there's no true linkage between tokens and stocks, making the entire model untenable at the product level. Although the US is experimenting with various tokenization methods, a truly viable solution has yet to be found.

4. If you don't do it, you'll be eliminated

Despite these challenges, there's still a truly viable RWA model—stablecoins. The underlying assets of stablecoins are primarily traditional financial instruments like US Treasury bonds. The success of this model demonstrates the feasibility of tokenizing financial assets. The US dollar has already been put on-chain via stablecoins. In the current blockchain ecosystem, almost all assets are denominated in US dollars, with the euro and renminbi largely absent. As the world's largest stock market, the US is using blockchain technology to attract global investors to its equities, which is extremely beneficial to its economic development. If US stocks can also be successfully put on-chain, it will further consolidate the US's dominant position in the global financial market. From a rational perspective, the US should actively support this development direction; 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 a major exchange with global influence, could see its influence gradually diminish if it is absent from this round of reform. Other Asian exchanges, such as the Shanghai Stock Exchange, face similar strategic choices. From an economic perspective, this is absolutely necessary. Failure to do so will lead to obsolescence. Just as China's e-commerce market would likely be completely dominated by Amazon without Alibaba, its absence in the fintech sector will similarly have profound economic consequences. Despite regulatory challenges, this trend has profound economic implications, and all countries should seriously consider relevant strategies. With the wisdom and innovation of Asians, these issues will eventually be resolved, and one key factor lies in timing. For businesses and entrepreneurs, it's crucial to precisely capitalize on market opportunities: entering too early could put them at risk, while entering too late could lead to missing out. And now is a rare golden window. US policy has shown unprecedented support for virtual currencies, which will inevitably prompt other countries seeking to develop their economies to take corresponding action. As a long-standing Asian financial center, Hong Kong, with its government's support, presents a rare historical opportunity. Therefore, we should fully seize this strategic opportunity.

III. On Exchanges: How can Hong Kong build a world-class exchange?

1. Exchanges should be unrestricted

I believe that exchanges should not restrict tradable assets; all assets should be able to circulate freely on the same platform.

Once on-chain, all assets are simply tokens. From an exchange's technical perspective, there's no real difference between crypto-native assets and real-world assets (RWA). Adding a new asset class generally doesn't require complex development; simply supporting it on the existing chain is sufficient.

Currently, most RWA projects don't require independent blockchains. Instead, they issue tokens based on public chains like Ethereum, BNB, or Solana, making support on wallets and exchanges extremely easy. The real difference lies in compliance: which regulatory agency you need to apply for a license from, and whether you can obtain approval. Once the licensing issue is resolved, there are few technical obstacles. In the long term, future exchanges should enable unified trading of all types of global assets, allowing for the circulation of assets like a building, a celebrity's future IP rights, or even an individual's net worth. This will not only maximize liquidity but also make price discovery more efficient. Of course, RWAs also present unique challenges. For example, if you tokenize a building and later want to sell it, you may only be able to sell a portion. Once the token is issued, if an investor holds only a single unit and refuses to sell, you won't be able to buy back the entire building, or you'll incur significant costs. This can be understood as the concept of "chain holdouts." While the realization of "global asset blockchains" will take time, it's within reach for 90% of the world's countries. Compared to some larger 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 blockchains and their free circulation. 2. How Can Hong Kong Build a World-Class Exchange? Regarding the question of how Hong Kong can build a world-class exchange, I can analyze it from a logical perspective. In the early stages of crypto industry regulation, many countries or regions often choose to implement strict controls to mitigate risks and ensure security. Regulators, fearing errors, typically require that all operations be conducted locally: local licenses, local offices, local employees, local compliance departments, local servers, local data storage, local matching engines, local user base, and local wallet infrastructure completely independent of foreign jurisdictions.

This idea is relatively easy to implement in the traditional physical world, such as through safes and physical isolation. But in the digital currency industry, this distinction doesn’t mean much.

Whether the server is located in Hong Kong, Singapore or the United States, the chance of being hacked is the same because everything runs online.

What’s more, if operations are to be split, building a secure wallet infrastructure alone often requires an investment of $1 billion. And the problem is not just funding, but also a shortage of talent — it is difficult to repeatedly recruit hundreds of the world’s top security experts to build this basic system. The cost of replicating a complete system is actually equivalent to the cost of building a first-class international exchange. From a liquidity perspective, if only local residents are allowed to trade, Hong Kong, for example, with a population of 8 million, or a base of 200,000 to 300,000 active users in other smaller countries, simply cannot generate sufficient trading volume. Without liquidity, price fluctuations will be extremely volatile, which is actually harmful to users. True user protection comes from a sufficiently deep order book—large orders of hundreds of millions of dollars won't crash the price, and when futures prices fluctuate, sufficient market liquidity prevents forced liquidations. Buying 10 bitcoins on an exchange with lower liquidity will result in significant price slippage, resulting in higher costs for users. Therefore, large, global exchanges can provide the most basic user protection—reducing user transaction costs. When each country attempts to establish an independent system, it inevitably creates complex management challenges, which isn't commercially feasible. Furthermore, many countries impose restrictions on tradable assets. For example, Hong Kong currently has numerous restrictions on listed currencies, limiting product coverage. As far as I know, most licensed exchanges in Hong Kong are currently operating at a loss. While this may be manageable in the short term, this loss-making model is unsustainable in the long term. However, Hong Kong also has its advantages—it's a very fast pace of improvement. We saw Hong Kong launch a new stablecoin draft in May, even before the United States. The government is very actively communicating with industry participants, including those of us in the industry. While Hong Kong may have been relatively conservative in previous years, which is completely understandable, it is now very proactive as the global situation evolves. I believe now is a good starting point. Past restrictions don't necessarily mean future limitations; on the contrary, now is an excellent time to explore opportunities. This is precisely why many Web 3.0 practitioners, including myself, are exploring opportunities in Hong Kong.

IV. On DEX

I believe decentralized exchanges will undoubtedly become larger than centralized exchanges in the future. While Binance may be larger currently, I don't believe it will maintain its position as the largest exchange forever.

Decentralized exchanges currently have no KYC requirements, making them very convenient and fast for users who know how to use a wallet. They also offer a high level of transparency—although sometimes too much transparency, with everyone seeing everyone else's orders.

From a regulatory perspective, we've paid a heavy price for inadequate KYC practices on centralized exchanges. However, the US currently doesn't seem to have much regulatory oversight of DeFi, which could potentially bring regulatory dividends to DeFi. However, due to historical reasons, I personally find it difficult to venture into this field.

From a user experience perspective, decentralized exchanges offer a good user experience, but users do need to understand how to use a wallet. In fact, anyone who has used centralized exchanges in the past knows that the user experience is less than ideal. The interface is filled with numbers and gibberish like addresses and contracts, requiring frequent checks on block explorers and careful attention to details like MEV attacks. I personally encountered attacks multiple times while learning. Therefore, for users transitioning from Web 2.0 to Web 3.0, most will still choose centralized exchanges, as the email and password login method and customer support are more familiar. However, over time, as some users become more familiar with wallets, they may switch to decentralized exchanges. Currently, decentralized exchange fees are actually more expensive than centralized ones, but in the long run, as technology advances, decentralized exchange fees should become cheaper. Many decentralized exchanges currently have their own token incentive mechanisms, using token issuance as a means of providing incentives. However, these incentives will eventually fade, as unlimited token issuance is not feasible—infinite token issuance would cause the price of existing coins to fall. Therefore, the market is still in its early stages, with these token incentives still in place. But in the long term, I believe decentralized exchanges will become enormous in five to ten years. I believe that in ten to twenty years, decentralized exchanges will definitely surpass centralized exchanges in size. This is the future trend. Although I won't be leading related projects anymore, from an investment perspective, we've invested in many similar projects, albeit with small stakes, and we're currently providing support. I believe this sector still has considerable room for future development. V. Digital Asset Treasury: Traditional Investors Gaining Crypto Exposure Many people tend to oversimplify the concept of DAT (Digital Asset Treasury), but in reality, this sector is diverse and diverse. Ultimately, however, the core logic is to package digital currencies as stocks, allowing traditional investors to easily participate in investment. The DAT sector exists at various levels and forms, and just like traditional companies, various models can coexist. Crypto ETFs are primarily issued in the United States, but many investors lack US stock accounts or are unwilling to bear the high transaction and management costs. In contrast, publicly listed companies like Strategy can often achieve lower-cost asset allocation by directly holding digital currencies. Furthermore, they have more diverse financing methods, raising funds in markets such as the United States, Hong Kong, and Japan. Differences in financing channels and investor structures among listed companies in different regions also shape their unique market landscapes. Among publicly listed companies, DATs primarily operate in the following ways: 1. Passive Single-Asset Holding Model Strategy, for example, focuses on passively holding Bitcoin. This model is relatively simple, with low management and decision-making costs, allowing companies to adhere to established strategies regardless of Bitcoin price fluctuations. 2. Active Single-Asset Trading Model While similarly holding only one coin, the management strategy is completely different. These companies attempt to predict price fluctuations and actively trade, requiring an assessment of the trading capabilities of managers. Because this involves subjective judgment, the results of this model can be both positive and negative. 3. Multi-Asset Portfolio Management Model More complex DATs hold a variety of different digital currencies. Managers need to make complex decisions: how much Bitcoin, how much BNB, how much Ethereum to hold, and how often and when to rebalance this portfolio—all of which test their abilities.

4. Ecosystem Investment and Development Model

This is the most complex model. In addition to holding tokens, 10%, 20%, or more of the funds are invested in ecosystem development. For example, a company focused on Ethereum might hope to support the development of the entire Ethereum ecosystem through investment, making this model even more interesting. Projects supporting other digital asset ecosystems, such as BNB, also adopt similar approaches, but this places higher demands on management capabilities.

Therefore, DATs are more than just "holding tokens." Different models correspond to different management costs and requirements.

The DAT companies we currently support tend to favor the simplest first model. We prefer companies focused on a single asset, especially BNB, because they are easier to judge and require less involvement in day-to-day management. In bull markets, publicly listed companies generally benefit, but in bear markets, especially in the United States, companies are often vulnerable to lawsuits. If the strategy is clear and simple enough, litigation risk will be relatively reduced, and the company's legal costs will also be reduced accordingly—after all, lawsuits are extremely expensive. Our goal is to minimize operating costs while promoting a long-term investment philosophy. We don't want companies to use their funds for additional investment, but rather to participate more deeply in supporting the development of the ecosystem. The significance of the DAT model lies in that many corporate finance departments, listed companies, and even state-owned and central enterprises cannot directly purchase 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 world. In the DAT projects we participate in, we usually only play the role of a small supporter. Most of the funding for these projects comes from traditional stock markets or other channels, which has greatly helped the development of our ecosystem and attracted many people outside the cryptocurrency community to purchase digital currencies. We generally do not lead or manage these companies, but instead seek out suitable managers through our ecosystem and connections. While managing listed companies isn't our specialty, there are many within the industry with relevant experience, and we prefer to collaborate with them to leverage synergies. 6. On the Integration of AI and Web 3.0 Frankly speaking, the integration of AI and Web 3.0 is still not ideal. However, I believe this trend is not just hype; it is bound to see breakthrough development in the future. A few months ago, I posed the question: What currency will AI use? The answer is clearly not the US dollar or the traditional payment system, as AI cannot perform KYC. AI's monetary system must be based on digital currency and blockchain, with payments completed through API calls or broadcasting transactions. This means that blockchain transaction volume will grow exponentially. In the future, each person may have hundreds or even thousands of AI agents, performing tasks like video production, multilingual translation, content distribution, booking, and message replying. Their frequent interactions will drive massive micropayments, and crypto-financial transaction volume is conservatively estimated to increase by a thousandfold. For example, a blogger could make the first third of an article free, and charge only 0.1 yuan per read for the remaining two-thirds. If hundreds of thousands of people pay, they could earn tens of thousands of yuan—a model impossible in the traditional financial system but easily supported by the combination of AI and Web 3.0. Transactions will also become more global. I can hire engineers and designers from China, India, and around the world, and AI will automatically handle settlements and payments. However, most so-called "AI agents" in Web 3.0 are still stuck in the Memecoin-style pseudo-product stage: the frontend displays novel content, while the backend calls mature large-scale model APIs like ChatGPT, lacking real practical value. What we really need are AI tools that can actually accomplish tasks and create economic value, and top large-scale model companies are diligently exploring this direction. However, the development of AI requires enormous capital. Competition for large-scale model computing power is fierce, and the costs are staggering. OpenAI currently reportedly has approximately 1–2 petabytes of computing power, with annual costs per petabyte estimated at $6.5 billion. Its expansion plan calls for a 10x to 100x increase in scale—an astronomical investment, not including the cost of chips. No VC, company, or even country can shoulder such enormous financial pressure alone. This is why the AI ​​industry is beginning to explore new financing paths through the lens of Web 3.0. Fundamentally, AI should be considered a public good. Many current large-scale models are too closed. Allowing token holders to share in the profits, making the models more open source, decentralized, and accessible to all, may be a more reasonable direction for development. I have discussed this with several founders of top large-scale models. While it's still early days, this trend is inevitable. Although the integration of AI and Web 3.0 is not yet perfect, its future development prospects remain highly anticipated.