TOKEN2049 Xiao Feng talks to Vitalik: This wave of innovation comes from the combination of finance and non-finance.

*Source: *Wu Says Real

The Global On-chain Asset Summit, hosted by HashKey Group, is being held today in Singapore. During the event, Ethereum founder Vitalik Buterin engaged in a fireside chat with Dr. Xiao Feng, Chairman and CEO of HashKey Group, to discuss the future development direction of Ethereum applications and blockchain.

The following is the content of the discussion:

Xiao Feng: Today we are discussing this topic in Singapore. We want to talk about how Ethereum faces or promotes applications on Ethereum, because in my opinion, while there are thousands of blockchains, they can basically be divided into two categories. One category does not support applications from others at all, like Bitcoin, which has already been very successful and represents a killer application of blockchain, accepted globally over 15 years. The other category is represented by Ethereum, which is inherently designed to attract and promote developers and users. Now, the first question I want to ask is, what is your basic view on applications on Ethereum or applications on blockchain? Do you think the moment for applications has arrived? Which direction do you think it will take?

Vitalik Buterin: I think we can now say that there are roughly two directions for application. The first is the low-risk DeFi financial applications that I wrote about in an article two weeks ago. Low-risk DeFi refers to some applications that have existed on the Ethereum chain for a long time, and we already know they are safe, everyone knows what they are. You can hold tokens, trade, lend, and exchange, which are all relatively simple. These already exist in traditional finance, but the advantage of blockchain is globalization and openness, so they have value. For example, Morpho, and some stablecoins, they provide users with 3% to 4% interest on fiat currencies like USD and EUR. This is important for most people who do not have good bank accounts. Three years ago, low-risk DeFi did not exist; at that time, vulnerabilities and hacking risks were very high. But you see that in 2019, the amount stolen was 5% of DeFi TVL, and this year it has dropped to 0.02%, which is very low. This shows that the maturation of the ecosystem takes time, and now we have reached a relatively successful stage.

The second category refers to more creative applications, such as decentralized prediction markets, ENS, ZKID, and so on. We also do not know which one will succeed, but it is possible that one may suddenly take off. For example, last year with Poly, everyone previously thought that prediction markets were just something for economists to discuss, but starting in 2024, mainstream media and a large number of users have been sharing its prediction screenshots. This indicates that these small innovative applications also have the potential to grow rapidly. Therefore, Ethereum has these two directions, both of which are very important.

Xiao Feng: You just mentioned the prediction market, and I remember very clearly that you introduced it to us back in 2015, and we even invested in it, which was Algo at that time.

Vitalik Buterin: I still have 50,000 of their coins.

Xiao Feng: Since then, I have been paying attention to prediction markets, but after 2017, discussions decreased. I didn't expect that Polymarket would suddenly become popular in 2024, even accurately predicting Trump's election. My first reaction at that time was — — what Vitalik said about prediction markets has finally arrived, finally mature and useful. It indeed took a long time to wait; the explosion of applications outside finance has been slower than expected. So far, besides prediction markets, do you think there are any other non-financial applications that have already seen success, or like what you said about Algo in 2015, have the potential to become the right direction?

Vitalik Buterin: I have been frequently mentioning ZKID recently. Why? Because identity and privacy are very important issues in today's society. Centralized databases will inevitably be hacked, and data will certainly be leaked; we have seen this many times. The value of ZKID lies in the ability to prove certain key information without revealing all the data. For example, in under-collateralized loans, the hardest part is determining who can repay and who cannot. The combination of ZK and AI can provide such proof, enabling people worldwide to obtain loan support. This is an example of the combination of financial and non-financial aspects, which I find very interesting. In the future, many applications will have both financial and non-financial components. Decentralized social networks are similar; they started as non-financial but now many platforms are experimenting with financial features. Although 90% may fail within five years, that 10% could be very interesting.

Xiao Feng: This reminds me of an economic observation. The British Industrial Revolution relied on banks and bonds, while the information revolution relies on VC. Every industrial revolution is accompanied by a financial revolution. Now that AI and Crypto are considered the fourth industrial revolution, we should also expect new financial service models to emerge. In the past, VCs were not successful in the crypto industry, but in the future, entirely new financing methods might appear. For example, entrepreneurs could use ZK identity verification and token mechanisms to raise $100,000 in startup funds globally. This approach might replace traditional VCs and become a new financial revolution in the digital age.

Vitalik Buterin: Yes, I also believe that the combination of finance and non-finance will drive this wave of innovation.

Xiao Feng: Let me ask another question that developers often encounter. In Web2, people ask whether it's ToB or ToC. Do you think there's still such a distinction in the blockchain industry? Is Ethereum ToB, ToC, or is there a third path?

Vitalik Buterin: In blockchain, the boundary between ToB and ToC is much smaller than before. For example, when you issue an ERC-20 token, individual users can hold it, and institutions can also hold it. The status of institutions and individuals on the chain is equal; the only difference is that institutions have larger amounts of funds and higher security needs, using multi-signature wallets. But essentially, they are all one address. The relationship between L1 and L2 is also not a simple ToB/ToC distinction, but rather based on the adaptability of the application.

Xiao Feng: Users at the application layer will also encounter another confusion, which is the boundary of decentralization. For example, stablecoins cannot be said to be 100% decentralized, as there is always a centralized issuer like Circle. What are your thoughts on this?

Vitalik Buterin: This is a complex issue. Many applications do require some degree of centralization and trust. For example, in under-collateralized loans, you are essentially trusting certain individuals. However, if decentralization is completely ignored at the application layer, problems will arise. Email is an example: it is theoretically a decentralized protocol but has been monopolized by large platforms in practice. The difference with blockchain is that even if L2 is semi-decentralized, users can independently withdraw assets through L1 contracts, which ensures decentralization.

Xiao Feng: The last question. Recently, Google and EF have been promoting the Agent-to-Agent Payment standard. What is your view on the trend of AI payments?

Vitalik Buterin: In the next five to ten years, AI will be involved in many payments. However, the risks of large payments are too great to be fully entrusted to AI. Small payments are feasible, and AI can also serve as a risk control tool to help humans assess whether a payment is risky. Therefore, we will gradually find the right balance, and this process will involve mistakes as well as successes.

Xiao Feng: Thank you very much for Vitalik's sharing. Today, you have answered many of our confusions from the perspective of the Ethereum founder.

Vitalik Buterin: Thank you.

Source: Wu Says Real