Key takeaways
The Web3 Festival Hong Kong took place from April 12 to 15, and was one of the largest crypto events ever held in the city.
On the first day of the festival, CZ spoke in an informal discussion on “The Future of CeFi”.
The main themes of the discussion: asset security, trust, user experience, regulation, CeFi vs. DeFi, mass adoption and the future of the sector.
Changpeng Zhao (CZ), CEO of Binance, spoke during the Web3 Festival Hong Kong in a virtual informal discussion themed “The Future of CeFi”. The four-day festival was one of the largest crypto events ever hosted by the city of Hong Kong, and kicked off on April 12, 2023 with over 10,000 participants and welcoming 100 Web3 projects to discuss crypto. future of blockchain.
Main themes of the informal discussion with CZ included asset security, trust, user experience, regulation, CeFi vs. DeFi, mass adoption and the future of the sector. This article summarizes his remarks. Note: For clarity, this transcript has been edited and/or shortened.
Asset Security
Some people argue that CeFi is inherently less secure than DeFi, due to its reliance on centralized infrastructure. How does Binance ensure the security of user funds?
CZ: The characteristics of CeFi and DeFi are different, and neither is more secure than the other: security measures must be observed in both areas.
CeFi can become very transparent if certain mechanisms are put in place, such as proof of reserves which makes it possible to verify that the funds are indeed on the blockchain. This is a measure adopted by Binance, which also made our wallet addresses public. When a CeFi company demonstrates transparency, it can become more open than a traditional financial service provider.
As for DeFi, the possibility of holding one's own keys can represent an advantage if they are properly stored: users thus have better autonomy and greater control. Today, however, most of them still need help to keep them safe, a process still often considered complex and requiring many steps.
Ultimately, both CeFi and DeFi have different specificities when it comes to risks and security, and we should not take a one-sided view that claims one area performs better than the other.
Trust
How can users place their trust in CeFi companies with complete peace of mind? What steps can crypto and CeFi companies still take to build trust among users and relevant stakeholders?
CZ: For confidence, I make sure to consider three important factors.
The first: the usefulness of technology. We work in a so-called trustless industry, where technology is used for verification purposes, and most blockchains allow users to directly verify where their funds are, view their own keys, etc.
The second factor is that of the role of the community. Whether they use blockchain or not, all services and platforms must earn the trust of the community. This trust must be built gradually, and this is particularly true for centralized platforms which earn it through their actions. Binance has been there, and the trust placed in it by its users is exceptionally strong.
The third and final area is that of independent learning of risk management. CeFi, DeFi, and traditional finance all present risks, and we must learn to manage them effectively ourselves. Ultimately, it is crucial to have a balanced view on all parameters.
User experience
Can you give us some examples of measures Binance has implemented to improve the user experience? Do you think CeFi can go even further to improve the user experience and attract new Internet users to Web3?
CZ: I recognize that the current user experience on Web3 and in CeFi still needs to be improved, but this improvement takes many steps. For example, it is not as easy to browse Web3 as it is to browse Web2.
On Web3, it is users' money and assets that are manipulated: therefore, we must first think about security, and devices like KYC and the request for proof of address are essential for this. regard. The sector has not yet managed to implement strong security that is easily accessible to Internet users, and unfortunately, the quality of security is inversely proportional to its ease of use.
However, we have implemented many safety procedures, and with technological improvements, we intend to reduce their number. Binance, however, has already done a lot to improve the user experience: even within the framework of KYC, the measures are adapted to each country or region. We try as much as possible to localize our solutions using government databases, suppliers and specialized tools.
CeFi or DeFi?
CeFi is widely criticized because of its values opposed to the fundamental principle of decentralization of cryptocurrencies. What do you think of this review? What do you think are the pros and cons of CeFi and DeFi? Do you believe these two ecosystems will ever be able to coexist?
CZ: CeFi did not arise in opposition to DeFi, nor does DeFi oppose itself in any area. In a truly decentralized universe, everyone would evolve on their own: as soon as projects and initiatives are created, it becomes a matter of centralization. Spaces of centralization will always exist, even within the decentralized world.
CeFi unites the worlds of traditional finance and DeFi, and we maintain these links in both directions. We must approach them as complementary ecosystems that each respond to the gaps of the other, gaps that we still strive to fill. It’s not a competition: we have to grow together to strengthen the sector.
Adoption massive
What would trigger the mass adoption of blockchain and cryptos?
CZ: It’s never easy to predict the next trigger that will drive mass adoption. At the start of 2013, I would never have bet on such a boom in Bitcoin, and at the start of 2017, I wasn't even talking about ICOs! During the summer of 2020, DeFi was the talk of the town, and in 2021, NFTs were the trending topic. What matters to Binance is providing an ecosystem where it is possible to try different things, as their popularity can explode at different times.
If I had to choose a possible triggering event in the current climate, it would be the increased interest of many countries around the world in the crypto sector and their initial attempts to regulate it. This phenomenon, combined with the limitations of the traditional finance sector, can stimulate the adoption of cryptos.
Regulation
What advice would you give to regulatory authorities to design a thoughtful regulatory framework for CeFi and the blockchain industry as a whole, and what would be your suggestions to industry players interacting with these regulatory authorities?
CZ: This topic is of the utmost importance. Lack of regulatory clarity is the worst situation, and restrictive regulation would be even better: not ideal, but at least there would be clear rules. Obscure regulations and ambiguous enforcement make our job more difficult.
We would prefer to adhere to clear regulatory frameworks, although any regulatory guidance has both advantages and disadvantages. There are always some things to consider when it comes to finding the optimal balance, which is likely to change over time. Generally, when an industry is still developing, it is best to let it evolve, as it is impossible to predict what will become popular and regulate it accordingly.
Malicious actors exist and will always exist in all sectors, and to put them out of harm's way, we must decide on an adequate regulatory framework. Authorities tend to apply the rules of classic finance to cryptos, but cryptos are different, and even basic questions like defining crypto assets are problematic because they fall into many different categories.
For optimal results, regulatory authorities must understand all the ins and outs of the crypto universe: this is why it is essential to take the first step towards regulators and policy makers, and organize conferences such as this one.
When it comes to crypto industry players, we need to reach out to regulatory authorities and governments around the world. We need to start an open dialogue, and be patient: it is through honest discussions and collaborations between industry players and regulators that we will see the frameworks evolve over the years, as we move towards optimal balance.
Future prospects
From an innovation or new technology perspective, what are you most excited about in the blockchain or crypto space this year?
CZ: I look forward to many different things, although I follow fundamental applications more closely, and less experiments or early innovations. Only when something new is proven to work normally do I start to get interested in it and think about how I could make it available to perhaps several billion people.
There are a lot of exciting experiments happening right now, but ultimately I think we need to focus on solving the problem of wallets, which are not yet accessible enough for many users. This represents a significant obstacle to the adoption of cryptos. Binance remains above all a platform provider, which aims to open the way to cryptos for Internet users.
Watch the informal discussion with CZ in full on Binance Live. Note: CZ speaks from 1:25:04 until the end of the video.
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