On October 31st, Dr. Feng Xiao, Chairman and CEO of HashKey Group, delivered a keynote speech titled "On Chain" and "On Chain" at SmartCon 2024 hosted by Chainlink. The following is the full text of the speech, compiled from on-site notes, with some deletions that do not affect the original intention.

Hello everyone, it's a great pleasure to be here at SmartCon 2024 hosted by Chainlink. Chainlink is a decentralized Oracle network that links blockchain with off chain data, making it one of Chainlink's core businesses. Today, I'd like to share with you the themes of "on chain" and "on chain".

Traditional Financial Market vs. Cryptocurrency Financial Market

Looking back at the development of blockchain in the past decade, we are actually building a new financial market system, namely the Crypto Financial Market.

Unlike traditional financial market systems, it adopts a distributed accounting system where bank accounts record all economic activities of users, with the accounting unit being fiat currency. Since the birth of Bitcoin in 2009, blockchain has adopted distributed accounting, based on digital currency accounting, with corresponding accounting units in the form of cryptocurrency.

This is clearly two sets of financial market systems. However, these two financial market systems are gradually showing a trend towards interconnectivity.

2025: Interconnection and intercommunication

The interconnection between these two markets can be achieved through the following five channels.

The first is stablecoin. At present, the market predicts that the trading volume of Stablecoin will reach six trillion US dollars by 2024. PayFi, tokenized through fiat currency, is the largest channel connecting fiat and cryptocurrency.

The second is ETF, the off chain securitization of encrypted assets, which transforms digital native assets on the chain into ETFs off chain. At present, the total holdings on the US spot Bitcoin ETF chain are close to 70 billion US dollars. This approach facilitates traditional investors to allocate cryptocurrency assets without managing their own private keys.

The third highly discussed new asset class recently is RWA (Real Asset tokenization). RWA is a traditional asset that includes features such as Chainlink and Oracle on the blockchain, but on the blockchain is not their ultimate goal. Oracle is just a channel aimed at tokenizing the asset once it is on the blockchain.

The fourth approach is STO (Stock Exchange Token Issuance), which has been discussed for the past five or six years, but so far we have not seen many practical cases. I believe that in the next six months, many businesses engaged in Web3 will directly use tokens to raise funds and go public, and may no longer need to follow the only path of IPO.

The above four types of channels actually need to be carried out through compliant, licensed, and regulated financial institutions. Therefore, licensed financial institutions are obviously one of the channels to help connect the two financial markets.

'On chain' and 'On chain'

All assets have two states, one is called on chain, all real-world assets, all digital twin assets are on chain, which means registering these asset data on DLT (distributed ledger). The biggest difference between distributed ledger and all previous ledger systems is that it is an open and transparent global public ledger. When data information or assets can be registered on DLT, then a global liquidity is obtained.

Another state is digital native assets, which occur on the chain themselves. For example, Bitcoin is a digital native asset that occurs on the blockchain and requires securitization from on chain to off chain. This provides a very convenient channel for traditional financial market investors to share the huge returns brought by cryptocurrency without managing their own private keys.

Three ways to 'go on chain'

The ways of going online will become increasingly diverse and are undergoing some changes.

Firstly, it is data on chain. For example, from the perspective of Chainlink, some data from the Web2 world is moved to the chain through Oracle, making these data assets or data registered on the global public ledger.

Secondly, DePIN (decentralized physical infrastructure network) has been a very hot topic during this period, and what DePIN needs to do is to put hardware devices on the chain. The ultimate goal of DePIN on the blockchain is not to tokenize real-world hardware devices, as devices can only achieve RWA after being on the blockchain.

The third way to go live is through asset on chain, also known as DeFi (decentralized finance), which tokenizes many financial assets in the real world.

No matter how it is put on the chain, the ultimate goal, or the desired commercial closed loop, is tokenization. It is to enable assets to obtain liquidity globally and facilitate global investors. Regardless of whether the asset is in China, the United States, or Argentina, as long as it is on the blockchain and registered on the DLT ledger, any investor worldwide can invest in it on the blockchain.

The two-tier value of DLT

Using DLT on two levels, one is that we can use DLT to improve the marginal benefits of some mature business models in the real world.

For example, the International Settlement Organization (BIS) promotes the use of DLT for bank fund settlement and clearing, which can reduce costs and increase efficiency, but it does not change the current business model of clearing and settlement.

In addition, if using existing models for cross-border payments, it may require paying 3% to 6% of intermediary costs. If using DLT, intermediary fees may decrease from 3% to 3 ‰. So currently, traditional banks are also discussing how to use DLT to improve their internal processes, deposits, loans, and remittances. Therefore, the Hong Kong Monetary Authority is also encouraging the tokenization of bank deposits and tokenization of deposits.

However, only by viewing DLT as a complete set of mechanisms and a systematic transformation can innovative business models be achieved. Bitcoin is a new business model created on DLT, which creates a new asset class called Token.

The value of tokens on DLT actually comes from computer systems and is a type of usage license. After the birth of ChatGPT, in the era of AI, Token is a unit of data and also a unit of valuation. The fee charged to the user is actually the number of tokens input or output by the user.

Token: Cryptocurrency Asset

In DLT, the scope of tokens has undergone greater evolution, becoming a type of financial asset. Thanks to DLT and blockchain, a new asset has been created, namely Crypto Asset, which is the newest asset class.

From the perspective of assets, tokens are based on cryptography, distributed ledgers such as blockchain, and self managed digital wallets. HashKey Exchange is a platform that assists users in trading and investing in Crypto (virtual currency). The biggest difference between HashKey Exchange and traditional stock exchanges is that all Cryptos or Tokens traded on HashKey Exchange allow users to self manage their assets and withdraw virtual currencies purchased on HashKey Exchange for trading on other virtual asset exchanges, and vice versa. This is also the biggest difference between Web2 and Web3.

DLT that meets compliance requirements

When the era of interconnectivity arrives and traditional and encrypted financial markets become interconnected, there is a new demand for distributed ledgers, which includes compliance, KYC, AML, and CFT, as well as understanding customers, anti money laundering, and counter-terrorism financing. Because whenever it comes to finance, whether it's traditional finance or encrypted finance. Deposits, remittances, loans, and investment transactions all have significant externalities. Externalities require independent third-party supervision, so licensing, compliance, and regulation will become increasingly important after interconnectivity.

In the past decade, people have emphasized decentralization, self-organization, and distribution because from the perspective of infrastructure, it must be decentralized. But when it comes to the application layer, it will inevitably face specific scenarios, specific judicial regions, specific users, and specific needs, which may generate negative externalities and therefore require third-party supervision.

So, HashKey plans to launch HashKey Chain in December, based on Ethereum's Layer 2 protocol. Welcome everyone to cooperate with us. The difference between HashKey Chain and other chains is that we provide different levels of financial services and products, from KYC, AML to CFT, with varying requirements for KYC. This allows everyone to securely engage in blockchain applications, especially those involving virtual currencies and tokens, while complying with regulations.

What the customer wants is a hole in the wall, not an electric drill in their hand

Finally, I would like to conclude this speech with a statement from the CEO of Bosch in Germany: what the client wants is the hole in the wall, not the drill in their hand.

DLT and Chain are both electric drills. Users do not want blockchain, but rather many new assets created based on blockchain and distributed ledgers. These assets can become an indispensable part of user asset allocation.

That's all for today's sharing, thank you everyone.

(责任编辑：基金专题)

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