金色财经_

At the TOKEN2049 themed event on September 19, 2024, a panel of industry leaders engaged in an in-depth discussion on 'The Argument for Ethereum and Layer 2 Solutions'. Joyce Yang, the founder of Global Coin Research, posed thought-provoking questions. Steven Goldfeder, co-founder and CEO of Offchain Labs, Eli Ben-Sasson, co-founder and CEO of StarkWare, Sandeep Nailwal, co-founder of Polygon, and Sandy Peng, co-founder of Scroll, each discussed the following controversial issues. For readability, we have summarized and retained the main points.

Main Content

**Recently, some opinions believe that L2 is splitting Ether and capturing value from Ethereum. Is this true? As the ecosystem of Ethereum, what can we do to do better?

Offchain Labs co-founder and CEO Steven Goldfeder believes that today's L2 and layered design are the 'superpower' of Ethereum. He uses the most successful protocol in history - the Internet as an example, the Internet is also a layered architecture. In the 1990s, we also had similar discussions, whether the emergence of the Internet was a good thing or a bad thing? It turned out to be a good thing. L2 is the same, it's also a good thing.

Now more than 100 L2 and L3 can be queried on L2BEAT, thanks to the layered architecture of Ethereum, where Ethereum is located at the bottom layer, providing Consensus for it. These L2 and L3 do not need to develop their own Consensus Mechanism, as they are all driven by Ethereum and can innovate on Ethereum, which provides security for them.

However, this does bring interoperability challenges and we need to figure out how they communicate and interoperate with each other. Steven Goldfeder believes that one thing that can be improved as a community is that sometimes people are too focused on their own technology stack, which may be for technical reasons, but he thinks that whenever possible, we should consider "how to make all ETH blockchains communicate with each other" rather than limiting ourselves to our own ecosystem due to technical limitations.

Regarding whether L2 is parasitic on Ethereum or brings value to it, Eli Ben-Sasson, co-founder and CEO of StarkWare, believes it is too early to discuss this issue now. This is because the proportion of people currently using blockchain technology is very small. Our real challenge is to provide scalability, use cases, and a new vision for humanity to embrace this technology. When all the dust settles, value will always gather somewhere, perhaps in places that do not currently exist. He admits that he is not sure whether the value will ultimately accumulate at StarkWare, or at a competitor, or elsewhere. But that's okay. The most important thing is to invest time in valuable things and drive technological progress. He has no doubt that advancing the development of L2 and Ethereum in various ways will bring enormous value to humanity. Looking back, he is proud of the efforts he and his team have made, and although he is not sure about the future value vesting, he is satisfied with the technology being built.

Polygon co-founder Sandeep Nailwal used a proof by contradiction to answer this question. Suppose all L2 solutions are removed from Ethereum, it would become a very slow chain capable of processing only 13 transactions per second (TPS). Without L2, most decentralized applications (dApps) and activities may have migrated to other L1 on-chain solutions. It is because of L2 that all these developers are still part of Ethereum's ecosystem. Ethereum is no longer a single network but a constellation, where developers can deploy applications on L2 solutions like Starkware, Arbitrum, Polygon, and Scroll, enabling massive adoption. Without L2, and with gas fees as high as $50, Ethereum developers would be unable to utilize these resources, resulting in very limited on-chain activity. In the past, the market has doubted the success of Ethereum and believed that other L1 solutions would replace it. Without L2, everyone would believe that Ethereum will gradually be phased out. 'If there were no L2, Ethereum would not exist as it does today,' said Sandeep Nailwal.

Scroll co-founder Sandy Peng remembers the first time she heard about Ethereum's L2-centric roadmap and the concept of the 'Infinite Garden' (see previous article: 'The Vision of Ethereum's Infinite Garden'), which left a deep impression on her. She believes that this innovative and unprecedented approach of applying different technical variants and experiments to expand Ethereum is highly innovative.

At that time, multiple L1 chains had already split the on-chain experience, Liquidity, and developers. Therefore, from the perspective of the underlying layer, she believes that adopting L2 solutions in Ethereum is a pragmatic choice. Different technical solutions are also being experimented and explored for scaling Ethereum. Now, she believes that the entire ecosystem is in a very healthy state, and many capable participants are demonstrating their understanding of scaling Ethereum. Today, we have different solutions and numerous strategies,

We have entered the next stage, and the technology stack has become mature. There are now many ready-made solutions that can be applied immediately. It is believed that Ethereum (ETH) has been at the forefront of the industry when proposing these concepts, while other blockchains attempt to describe similar architectures using different names. But fundamentally, a L2-centric scaling roadmap may be the only true way to achieve scalability.

For developers and new users who want to enter the Ethereum ecosystem, how to simplify their experience when facing the access and operation of cross-chain bridges among many L2s?

Polygon co-founder Sandeep Nailwal said they have recognized the issue of fragmentation between L2 ecosystems. To address this, Polygon is developing a solution called AggLayer that can integrate with most L2s, providing a unified interface that makes interoperability simple and intuitive, without requiring users to go through complicated operations. Developers also have corresponding libraries, and ordinary users do not need to face complex technical operations.

He believes that every ecosystem, especially the L2 ecosystem, is thinking about interoperability solutions in some way, or collaborating with other ecosystems, to find better user experience paths for users and developers.

The real challenge for StarkWare co-founder and CEO Eli Ben-Sasson is how to attract non-native encryption users. On StarkNet, a 100% native account abstraction mechanism is adopted, which provides users with a Web2-like experience through Wallet, such as facial recognition or biometric login, without the need for complex operations such as Secret Key or mnemonic phrase, while still maintaining Web3 security. Because this is a fully self-hosted Wallet, it ensures security and provides a more convenient user experience. Ethereum is also moving towards account abstraction and other directions. He believes that the future direction is to make all operations more abstract and seamless. With the improvement of blockchain computing power and the improvement of standards, users will be able to enjoy the same convenience as other fields while maintaining Web3 security.

Offchain Labs co-founder and CEO Steven Goldfeder believes that while account abstraction is important, the issue of specifying the Address on a designated chain should not be overlooked. Currently, users switching between different chains may easily transfer funds to the wrong chain, resulting in loss of funds. Goldfeder believes that users should not have to worry about the technical aspects behind these chains, but rather focus on the application scenarios, just like using ride-hailing apps in the Web2 world, where users only need to know how to use them to get a ride and not worry about the underlying network stack (TCP/IP stack). In the blockchain user experience, it is important to minimize these technical backgrounds.

Do you think there will be an L2 that will separate from the Ethereum network and become an independent chain in the future?

Steven Goldfeder believes that it is not difficult to establish an independent L2 chain now, and someone may do so in the future. However, for serious builders who truly care about security and decentralization, this is not likely to happen. It's like separating a ride-hailing app from the internet. It can be done, but it cuts off the connection with the outside world, making it impossible to hail a ride. L2 relies on the support and security assumptions of Ethereum. Without Ethereum, all of this ceases to exist.

Polygon co-founder Sandeep Nailwal believes that dividing L1 and L2 into two categories is an oversimplification. L1 should be understood as the Settlement layer, while L2 serves as the execution layer. Ethereum acts as the Settlement layer, providing Decentralization, security, and guarantees. If high performance is to be achieved in a serious execution environment, some Decentralization and other prerequisites need to be moved to the Settlement layer, and Ethereum is indeed the most powerful Settlement layer.

In the future, many L2s may gradually become Decentralized and look more like L1 because they will have their own validators and Consensus Mechanism, but they still rely on Ethereum as the settlement layer. Therefore, from this perspective, the future L2s will operate independently like L1s, but their core will still serve as the execution environment, and Ethereum will continue to be the main settlement layer.

In addition, he believes BTC also has the potential to become a trustworthy Settlement layer that can compete with ETH. If BTC can open up more functionalities, there may be some L2 options to settle on BTC in the future, instead of solely relying on ETH. However, for now, ETH remains the most powerful Settlement layer.

Does Ethereum, as a settlement layer, need to provide anything in terms of ideology or technology?

StarkWare co-founder and CEO Eli Ben-Sasson believes that Ethereum must pursue maximum decentralization and inclusivity, as this is the unique and fundamental trust foundation in blockchain. Whether on L1 or L2, decentralization and inclusivity are crucial.

Polygon co-founder Sandeep Nailwal believes that in addition to Decentralization, resistance to censorship is also needed. Ethereum has experienced shocks when facing increased OFAC scrutiny, although the community successfully restored it to a sustainable level, there are still challenges that need continuous improvement in this area. Another key point is that the base layer needs to provide a better environment for Settlement and L2 technology. In addition, Ethereum also needs a more predictable roadmap. With the increasing number of L2, the base layer of Ethereum should remain stable and should not introduce too many features, otherwise it may affect the trust of the L2 ecosystem.

Recently, the ETH community has been facing pressure on price and value, and is discussing how to integrate more functions into L1. Sandeep Nailwal believes that this may be a problem in the long run, and the use case of L1 should be simple. For Ethereum, the most important thing is to become the best settlement layer.

How do you view Vitalik's current role in the ETH ecosystem?

Steven Goldfeder believes that Vitalik is an extraordinary leader with a powerful vision. He is a staunch long-termist committed to building technology that can revolutionize the world at its core. He advocates for decentralized governance and embraces many controversial ideas. Vitalik is a leader in promoting the values of decentralization.

Sandeep Nailwal believes that Vitalik's role is that of a mediator. He does not treat Ethereum as his own network, but sees it as a public good, welcoming anyone to build on it. In past discussions about the roadmap, he has always listened to feedback, made multiple changes, and adopted various feedback. Vitalik needs to continue to provide this good mediation, ensuring that the core of Ethereum is not affected by the current market cycle and price pressure.

Will Solana replace Ethereum?

Sandeep Nailwal said that ETH was also heavily attacked by the BTC community in the early days of its rise, but the ETH community maintained an open attitude towards this and thought about how to make the entire industry more open and inclusive. The ETH community acknowledges that the Solana community may also be doing some interesting things and follows it.

Sandeep Nailwal believes that the construction of L1 is a long-term process, which requires the construction of a long-term, sustainable and organic rise community. This is the key to the success of L1. Moreover, Ethereum and Solana have different core goals. Ethereum is committed to becoming a settlement layer, while Solana is more focused on building a fast execution environment. The competition between the two is only a difference in marketing strategies and not a direct competition.

Eli Ben-Sasson believes that the internal competition in the Cryptocurrency field is meaningless from a macro perspective. What is truly important is to provide practical value for everyday life in the external world.

Steven Goldfeder believes that the existence of Solana has prompted the Ethereum community to accelerate the promotion of L2 expansion, especially in terms of security, Decentralization, and scalability improvements.

Summary

Overall, L2 solutions have been widely recognized in the development of Ethereum. Despite facing challenges in interoperability, decentralization, censorship resistance, etc., we look forward to seeing better solutions with the advancement of technology.

Author: Metrics Ventures, Source: @MetricsVentures

The wide-ranging oscillation will eventually come to an end, and the risk-reward ratio of profiting from "buying low and selling high" will decrease significantly. It is wiser to stay focused on the market and identify the turning point after the market hits a low point.

****I. ****crypto market secondary fund Metrics Ventures September market observation guide

1/ Recently, BTC has been fluctuating in the range of 50,000 to 60,000, and the market sentiment is low. The Trading Volume hit a new low again, and the fee rate continues to be negative. The ETH Exchange Rate once again fell to a new low, and the market has entered a freezing point. Altcoins rebounded somewhat after the FOMC broke the emotional freezing point, but still driven by chip vacuum, and the market Trading Volume remains sluggish.

2/ Continuing the analysis from last month, currently, AltCoins are generally in a consolidation phase after the pullback from the high points of March and April. However, the accumulation of time in the chip pattern is crucial, and we have not yet observed signs of a large-scale preparation of AltCoins. It is worth noting that many targets' chips have failed to form effective distribution and have been passively pulled back to the low point. This means that market makers still have the incentive to maintain prices or drive a Rebound market in a short window after the emotional low point. This may be a positive signal.

3/ From a current perspective, we believe that international risk markets have unleashed risk for the first time since August. Although some altcoins have recovered well during the month, we believe that the encryption asset will still need time to gather strength. For now, the market will continue to be in a state of disorderly shock. Looking ahead, we believe that the correction during the year will be a good foundation for the market in the coming year, and there is no need to worry too much about the volatility of the market.

**Second, an overall inventory and review of the market situation and market trends

The market performance was flat this month, and the hype and duration of speculation were weaker than at the beginning of 2023. The market once again widely discussed the issue of blockchain-native innovation represented by ETH and its penetration rate being hindered. In a sense, the current sentiment is even lower than that of 2019. With the easing of sentiment after the FOMC, some altcoins have shown a good recovery trend, but the market is still scattered with weak trading volume.

Reviewing the trend, BTC has continued its erratic wide-range oscillation since April. This is mainly due to the synchronous contraction of trading volume, market attention, and risk preference. It is worth noting that we are witnessing an erratic wide-range oscillation close to a new high, which confirms our consistent view - we may be experiencing a unique cycle of major asset classes.

From the perspective of alts, the current market opportunities are mainly focused on chip games. This highlights the current lack of narrative and weak industry-driven nature. Except for AI and MEME, there has been no obvious capital synergy and main narrative trend. As we have mentioned before, the market's pricing model and gameplay conversion have gradually been recognized by more practitioners.

However, the characteristics of reflexivity markets have always been the same. If this trend continues, the future may see a return to a pure speculation driven mainly by narrative and chips, once again highlighting the "casino" nature of the market. From the perspective of the Secondary Market operation, the grasp of the escape window and the choice of escape posture become more important.

Overall, our focus will continue to revolve around waiting. The wide range of fluctuations will eventually end, and the risk-reward ratio of profiting from "buying high and selling low" will decrease significantly. It is wiser to stay focused on the market and identify the turning point after the market reaches its lowest point.

****Three, ****industry development trends

1. Primary Market VC is experiencing a severe reshuffle, with many small and medium VCs clearing out, and the DPI of many projects is even less than 1. In contrast, top VCs continue to grow, quickly completing a new round of financing in just 5 months. In the future, the Primary Market will present an extremely polarized development trend. Apart from the top VCs, only incubators focusing on early-stage projects with unique taste, or vertical VCs focusing on specific ecosystems, can find a space for survival in the market by using extremely high odds and vertical domain competitive advantages.

The most discussed application tracks are SocialFi and AI Crypto. There are technical barriers to the landing of AI, and we need to wait for key moments of technological breakthroughs. Pumpfun is the most successful case of SocialFi, and the SocialFi that is truly suitable for Web3 is not the Web3 version of Twitter, but a socialized casino.

3. BTC, Stable Coin/payment, and casino are currently the only proven effective business models in the industry. Stable Coin has become the new 'king of volume' in the Primary Market, but no one can clearly explain how to break the network effect of Tether. The development trend of the industry is becoming more and more clear. In addition to BTC, the ultimate business model of Web3 is all about the casino.

4. Quantitative earnings continue to be under pressure, and many quantitative teams that have switched from A-shares are pouring into the encryption market. However, considering the overall scale of the current quantitative market and the comparison with the active trading liquidity, it is expected that quantitative earnings will further shrink. At the same time, we should be vigilant about high-leverage quantitative strategies, as the risk of getting liquidated faced by these strategies is constantly rising in extreme market conditions.

Author: Revc

Preface

"He built the vermilion tower, he entertained guests, and he saw the tower collapse."

Friendtech, once launched on Base, quickly gained follow in the Web3 field. At its peak around September 14, 2023, the daily fee income reached $2 million. The team sold 19,477 ETH from December 2, 2023 to June 11, 2024, with a total value of approximately $52 million. However, the price of its FriendToken has big dump by 95% since its launch, with current daily trading volume of only $180,000.

About Friendtech, this article author wants to praise the team from the perspective of a 'supporter'. To use an inappropriate expression, 'one who carries firewood for the benefit of others should not freeze to death in the wind and snow', to highlight the heroism of the Friendtech team, despite having received millions of dollars in revenue.

In the Ether decentralized infrastructure, which is an orthodox encryption industry, Friendtech once wanted to move away from L2 - Basechain and turn to Solana, which is more friendly to the Application Layer. However, history will not give Friendtech a second chance. But without the Decentralized Finance atmosphere of Ether, the team might not have come up with such a small and beautiful asset issuance protocol, and Pumpfun might not have appeared so early. Perhaps this is the significance of exploring its impact on the Web 3 social track, after all, most people still do not understand its innovative significance of unilaterally launching the Liquidity economic model.

Friendtech and its clones

FriendtechWhen the high-rise building is , **** is like a city, **** is busy, **** public chain foundations**, **** head project party****, **** well-known VCs are all incubating their imitations****, **** for a time in the limelight****. **The encryption industry has such a "tradition", because this industry is full of speculative and short-sighted "smart people", "eaters" chew the essence, the track begins to decline, maybe the world of Decentralization is more difficult to protect innovation, and VC also plays a role in fueling the flames.

Speaking of the product itself, KOL is the first stop for Web3 projects to connect with users, and to a large extent, it is also the first channel for users to reach cutting-edge projects. Products that tokenize KOL influence or social relationships cater directly to the mainstream group's most immediate need for encryption. At least, projects that allow KOL to profit at zero cost can cover various corners of the encryption community without the need for marketing and promotion. However, this is also the problem with FT design, allowing KOL to go public and users to foot the bill, and many staunch 'Bro' celebrities have suffered losses.

First, let's briefly review the formula for FT: P = K²/C+ D (where C and D are constants). Now let's break down the formula parameters:

K's square and constant C：Affect the price curve (tangent slope), corresponding to the price difference between P(X) and P(X-1) in the chart below. If the square becomes a cube (due to Ethereum Smart Contract restrictions, non-integer exponentiation is not supported), or if the constant C decreases, then the P value will change more steeply as users buy in, leading to a steeper price curve (easily generating Fomo emotions). This is reflected in the game theory of buying - with a steep curve, users will have a better return expectation, but they are also susceptible to front running by bots, with the cost borne by later participants. As the purchase price increases, in the case of a limited number of dumb buyers, the expected return rate drops, affecting user entry and rendering the model unsustainable.

If you need to accommodate more people and make the curve smoother, you can drop the index, increase the coefficient less than 0, or enlarge C.

Constant D: Amplifying will raise the base price of P, increase the user threshold, and also lead to a decrease in wealth effect.

Friendtech will also face the 'MEV problem' of robots. Robots have the advantage of contract monitoring, and they can purchase new issuances of Keys at extremely low prices. Although there are various solutions on the market to govern robots, such as increasing the threshold for purchasing with D, setting a slowing price curve on the left, presales, etc., there are still limitations.

Friendtech has more than 10 imitation products with a solid background and product implementation. Among them, the main imitations, SA and TOMO, have made some adjustments to the price curve formula in order to reduce the purchasing cost while maintaining attractiveness. Secondly, the native governance Token of the underlying blockchain is different, so the 'C' parameter in the formula has been converted to ETH's Exchange Rate.

Adjustment of SA: On the basis of the quadratic term, SA added a linear term and a constant term, and dropped the coefficient of the linear term. This adjustment makes the price curve flatter, with a slight rise in the initial price, but no significant overall change.

The adjustment of TOMO: The adjustment of TOMO is relatively simple, just dropping the coefficient of the quadratic term, which directly leads to a slower rise in the curve.

Due to the gradual curve, the price of SA and TOMO is lower than FT under the same key supply. On one hand, the lower price helps attract more users and expand market share. On the other hand, the slower rise speed may weaken users' enthusiasm for participation and impact the platform's long-term development.

PumpFun also relies on the Bonding Curve (BC) to gain momentum. The core of the BC curve is that the trading market can obtain one-sided Liquidity support, and users interact with Smart Contracts. Although the trading experience is relatively rigid, the real-time trading price deviates from the market value, but one-sided Liquidity builds a runway for To The Moon for all assets. DeFi configurations require two-sided Liquidity for trading pairs.

From social relationship tokenization to social asset issuance

The above-mentioned imitations are all adjusted from the perspective of curve parameters and supplemented with a friendly mechanism for tokenization of social relationships. There are currently two problems with tokenization: one is that social relationships do not generate predictable and visualized cash flows, resulting in the key having no value support. The second problem is that the post-transaction scenario still returns to the Web2 platform, although Friendtech has also explored some information flow. I learned that the DeTikTok project is using Bonding Curve to explore social asset issuance, and there are some interesting designs, which are shared in the article with permission.

1. First of all, the product is oriented towards the issuance of social assets, although it may not be as marketable as the tokenization of social relationships, but it has endowed the attributes of Key from the beginning, and its vitality may be longer than the existing Key.

2. Due to the diversity of KOL's own community, especially in terms of purchasing power, DTT supports KOL to customize the index and denominator parameters when initiating Bonding Curve. KOL can decide the steepness of the curve to match the purchasing power of their own community, while rebalancing the potential value of social assets.

3. Friendtech's social relationship tokenization, in theory, has eternal trading curves, while DeTikTok's social asset issuance will have a contract clearing point, which can be automatically triggered, such as when the transaction fee reaches the initial set value.

The specific operation process of DeTikTok is as follows:

1. KOL custom curve parameters for social asset issuance, and set contract termination conditions, such as when the fee income Token reaches a value equivalent to 20,000 USDT.

2. The contract is traded based on custom parameters, and before the contract is terminated, the transaction reference of Key is based on existing FT products, and players can engage in arbitrage trading.

3. When the commission income reaches the pre-set amount**, the contract will terminate the transaction****, Snapshot of the holding Address for Key, and execute social asset distribution.

4. According to the principle of Last In, First Out (LIFO), users can exit in reverse order based on the buying order of the Key, which ensures that those who enter at a higher price can exit at a higher price, avoiding the serious exit stampede behavior commonly seen in existing FT products.

In addition, due to the expectation of social asset distribution by the holder of Key, even if Arbitrage is sold initially, if the attractiveness of social assets is strong enough, Key will eventually be repurchased to obtain the qualification for social asset distribution, promoting transactions. Social assets can be Non-fungible Tokens, whitelist, or even Token shares.

Users can eventually retrieve the assets in the contract according to the order of purchasing Key**, which is similar to the second-order function of transaction fees for the allocation qualification of social assets, increasing the attractiveness of the game and providing security for its assets.

But in the author's view, DeTikTok lacks a lot of permissionless and trustless.

）'s design, because of the industry downturn and other reasons, its products are not eager to be pushed to the market. Taking DeTikTok as an example, the reason is that it represents a new exploration of the social track, but in the current well-developed infrastructure, KOL and other influencers have a lot of automated platforms or tools for asset issuance, and there are no new outbreak conditions in the social track at present.

Conclusion

The current market view of Friendtech is that it has failed to attract new users and also failed to maintain the participation and satisfaction of early users. Social platforms should focus on building long-term sustainable products and strategies, rather than pursuing short-term gains. Priority should be given to lasting solutions, rather than extracting market Liquidity through fee mechanisms. Without a sustainable value proposition, relying solely on speculation will lead to rapid user loss and huge disappointment.

From the perspective of production relations and productive forces to understand SocialFi, the production relations depend on the development of productive forces. Specifically in the encryption industry, the key is not to try to revolutionize Web2 with productive relations, but to empower new productive forces with Web3 productive relations. This is also the reason why many TwitterFis, TikTokFis, and YoutubeFis have failed. There is no new innovation at the level of productive forces to meet the needs of users and creators, so the production relations cannot be established.

In the encryption industry, where there is not yet widespread adoption and a market environment with a concentration of a small number of high net worth users, the products that can obtain user follow are short-term social products with wealth effect, such as Friendtech. This situation is expected to continue for several years. Social media is a way of social interaction, self-awareness and information acquisition. It satisfies users' needs for sense of belonging, self-expression, information acquisition, emotional support, entertainment and career development. A certain scale of users is required to form positive feedback in order to create it. Currently, the user base of Web3 is small, and it is difficult to gather a large number of user demands to form a composite product.

The rise of FT has epoch-making significance, which has gained multiple supports for the product and successfully formed a threat and challenge to Web2 social media platforms. A whale falls and all things are born, and FT has also accelerated the arrival of Pumpfun. New Web3 social products will continue to emerge. The industry and builders need to be patient and persistent. Finally, I wish you all a happy holiday.

Previously, VISA's Stable Coin report provided us with the following data: The total supply of stablecoins is approximately $170 billion. They settle assets worth trillions of dollars annually. About 20 million addresses conduct stablecoin transactions on-chain each month. On-chain, over 120 million addresses hold non-zero stablecoin balances.

In addition, the report also surveyed five major emerging market economies (Brazil, India, Indonesia, Nigeria, and Turkey), indicating that Stable Coins have risen in non-encrypted transaction usage, especially in emerging markets. They are used as a replacement for local coins (to avoid fluctuations or depreciation), as a substitute for USD-based bank accounts, for B2B and consumer payments, for obtaining various forms of yield products, and for trade settlement.

These numbers all indicate that Stable Coin, a coin operating on the Block chain financial infrastructure, is reshaping the economic landscape of emerging markets. This coin, parallel to the TradFi infrastructure, started from scratch just five years ago.

The Chainalysis team recently released a report on the adoption of encryption in the Sub-Saharan Africa region, further demonstrating that these emerging markets (Sub-Saharan Africa) are fully embracing stablecoins for commercial payments, HedgingInflation, and for more frequent, smaller-scale (i.e. retail scale) transfers. Cryptocurrency is promoting Sub-Saharan Africa to become a global model for how cryptocurrency is driving real-world impact, especially in areas where TradFi systems are underserved.

Therefore, we can no longer confine our vision to the trading use case of Stable Coin in the native encryption market, but should look at the use cases of Stable Coin in non-encryption native scenarios from a completely new perspective. Stable Coin has become an important part of the narrative in the sub-Saharan Africa encryption region, and is a popular hedging tool against long-term inflation and currency depreciation.

一、encryption overview - Sub-Saharan Africa

The sub-Saharan Africa region accounts for the smallest share of the global Crypto Assets economy (2.7%) and 2.7% of the global volume from July 2023 to June 2024, reflecting a relatively smaller GDP compared to other regions. Nevertheless, the sub-Saharan Africa region has still achieved a moderate rise, with an estimated on-chain value of $125 billion during this period, an increase of $7.5 billion from last year.

Cryptocurrency is undoubtedly changing the financial landscape of the region, which is home to many countries that rank high in our global adoption index. Nigeria maintains its global leadership, ranking second globally, while Ethiopia (26), Kenya (28), and South Africa (30) also make it to the top 30.

The actual application of Cryptocurrency in Africa is particularly noteworthy. Africans use Cryptocurrency for commercial payments, HedgingInflation, and for more frequent, smaller-scale (i.e. retail) transfers.

It is worth noting that the Sub-Saharan Africa region is at the forefront of adopting Decentralized Finance, which may be partly due to the increasing demand for accessible Financial Services in the region. According to World Bank data, as of 2021, only 49% of adults in the region have a bank account.

With its position at the forefront of financial innovation and inclusivity, Sub-Saharan Africa is becoming a global paradigm for how cryptocurrencies can drive real-world impact, especially in areas where TradFi services are inadequate.

Second, stablecoins are driving Africa's economic development and global connectivity

Stablecoins have become a key element of encryption economies in sub-Saharan Africa where some local currencies experience high fluctuations and the use of the US dollar is restricted. Stablecoins pegged to the US dollar, such as USDT and USDC, have gained popularity, providing businesses and individuals with a reliable store of value while further promoting international payments and supporting cross-border trade.

Stable Coin currently accounts for about 43% of the total encryption transaction volume in the region.

To further understand the importance of the increasing rise of stablecoins, the Chainalysis team interviewed two key figures shaping the cryptocurrency landscape in Africa: Rob Downes, Head of CIB Digital Assets at ABSA Bank (one of Africa's major banks operating in 12 African countries), and Chris Maurice, CEO and Co-founder of Yellow Card (one of Africa's leading encryption asset exchanges, operating in 20 countries across the continent).

The primary driver for Africa's adoption of stablecoins is the forex (FX) crisis faced by many countries. Maurice explains, "About 70% of African countries face a forex shortage, making it difficult for businesses to obtain the required dollars for operations." In countries like Nigeria, the local currency Naira (NGN) has significantly depreciated, and stablecoins provide a much-needed alternative. Maurice points out, "Banks don't have dollars, the government doesn't have dollars, and even if they do, they won't give them to you."

Chainalysis team measures small to medium stablecoin inflows of less than $1 million often align with the devaluation of the Naira. "As the Naira devalues, we can see an increase in stablecoin inflows for transactions below $1 million, and the activity becomes more pronounced during periods of significant currency devaluation."

Ethiopia is the second most populous country in Africa with a population of 123 million. It is currently the fastest growing market for stablecoin transfers in its retail sector, rising 180% year-on-year.

The local currency, the Ethiopian Birr (ETB), depreciated by 30% in July, as the government relaxed currency controls to secure a $10.7 billion loan from the International Monetary Fund and the World Bank. The devaluation of the Birr may further stimulate demand for stablecoins.

For many African businesses, acquiring Stable Coin through platforms such as Yellow Card provides an alternative to traditional financial institutions that are unable to meet their dollar needs. "Stable Coin is an alternative to the U.S. dollar," says Maurice, "and if you can get USDT or USDC, you can easily exchange it for hard currency elsewhere." **”

This reality makes stablecoins indispensable for companies participating in international trade. From small importers buying overseas goods to large multinational companies importing raw materials from Europe, stablecoins are facilitating transactions that would otherwise be stalled due to currency shortages.

Stablecoins are also completely changing cross-border payments throughout Africa. "People don't care about cryptocurrency," Maurice said, emphasizing the practical use cases of cryptocurrency in the region. He cited Yellow Card's enterprise services, such as a large food producer using stablecoins to pay overseas suppliers. In addition, many African fintech companies rely on stablecoins to manage large amounts of local coins, which they can then exchange for stablecoins to facilitate cross-border payments.

Downes from Absa Group pointed out that institutional clients in South Africa also have similar trends. 'Our institutional clients are particularly interested in using Stable Coins as tools to manage liquidity and reduce the risk of coin fluctuation,' Downes told us. 'In countries where the value of local coins fluctuates, Stable Coins may be an attractive choice for businesses seeking to hedge coin risks.'

Downes also pointed out that the use of Stable Coin in remittances and international payments is increasing. "We believe that Stable Coin will change the game rules," he said. For individuals sending money to overseas family members or paying expenses, Stable Coin provides a faster and more affordable alternative to traditional remittance services.

Starting from the end of 2023, the Stable Coin has been continuously rising on the local exchange in South Africa, with a month-on-month increase of over 50% in October 2023. Stable Coin has replaced BTC as the most popular cryptocurrency in recent months.

Although the use of stablecoins is rapidly expanding throughout Africa, the regulatory landscape is also gradually evolving. In South Africa, the Financial Sector Conduct Authority (FSCA) has provided regulatory clarity by classifying encryption assets as financial products, although there are no specific regulatory provisions for stablecoins.

"We are working closely with regulatory bodies such as the South African Reserve Bank to ensure that we are prepared for any developments in stablecoin regulation, and we expect this to soon become a major area of follow," Downes added.

Maurice pointed out that in many cases, Stable Coin is in a "gray area", with no clear regulation or prohibition. He emphasized the importance of working with regulatory agencies to ensure Compliance for Stable Coin users. "We have done a lot of work with local regulatory agencies," Maurice said. "We are working with central banks and financial authorities in 20 countries to help them understand how to use Stable Coin safely and effectively."

Looking ahead, both Downes and Maurice believe that stablecoins will continue to play a central role in the African economy. "I believe stablecoins will become the main use case for South African Cryptocurrency in the next three to five years," says Downes.

Maurice agrees and adds that Stable Coins can help African economies open up to the global market. 'Stable Coin is actually creating a brand new market for African coins that have never had a place in the international market,' he said. By providing businesses with a way to trade in non-volatile coins, Stable Coin is increasing price transparency and encouraging foreign investment. 'It is creating a more open economy and actually encouraging investment,' Maurice added.

Three, Nigeria - Crypto Assets Activity Center

In recent years, Nigeria has become a global leader in the adoption of Crypto Assets, thanks to innovative use cases to address economic challenges. According to the Global Adoption Index of the Chainalysis team, the country ranks second overall, having received approximately $59 billion in Crypto Assets from July 2023 to June 2024.

Encryption activities in Nigeria are mainly driven by small-scale retail and professional-scale transactions, with about 85% of the transfer value below 1 million US dollars.

The Chainalysis team interviewed Moyo Sodipo, COO and co-founder of Cryptocurrency exchange Busha in Nigeria, to find out what is actually happening with Cryptocurrency adoption in the country. According to Sodipo, daily activities such as bill payments, mobile deposits, and retail shopping are increasingly driven by cryptocurrency. "People are starting to see the utility of Cryptocurrency in the real world, especially in everyday transactions, which is different from the previous view of Cryptocurrency as a means to get rich quick,**" he explains.

Like Ethiopia, Ghana, and South Africa, stablecoins are also an important part of Nigeria's encryption economy, accounting for about 40% of all stablecoin inflows in the region - the highest in sub-Saharan Africa.

Due to the inefficiency and high cost of traditional remittance channels, many Nigerians rely on stablecoins for cross-border remittances. Sodipo pointed out, "Cross-border remittance is the primary use case for Nigerian stablecoins. It is faster and more affordable."

As shown below, the average cost of remitting $200 from sub-Saharan Africa using stablecoins is about 60% lower than using traditional remittance methods with fiat currencies.

Like other African countries, the main driving factors for Nigeria's adoption of Stable Coins are Inflation and the devaluation of Naira - which fell to an All-time Low in February 2024. We can understand the impact of this trend by looking at the transfer scale below $1 million. In the first quarter of 2024, the value of Stable Coins approached $3 billion, making Stable Coin the largest part of transactions below $1 million in Nigeria.

Although BTC and alts are still of great significance, representing billions of dollars in value, stablecoins are clearly becoming the preferred medium of exchange for small and medium-sized transactions, indicating that they will be widely adopted.

In addition to the rise of stablecoins, Decentralized Finance has also experienced a significant moment in Nigeria, echoing the widespread trend of sub-Saharan Africa becoming a global leader in Decentralized Finance applications. Nigeria stands at the forefront of this trend, with the value of Decentralized Finance services exceeding 300 billion USD last year.

In addition to the traditional financial system, Decentralized Finance platforms have provided Nigerians with new opportunities to earn interest, borrow, and participate in decentralized transactions. Sodipo said, 'Decentralized Finance is a key area of rise because users are exploring ways to maximize returns and access financial services they may not have been able to obtain.'

In December 2023, the Central Bank of Nigeria lifted the ban on banks providing services to cryptocurrency companies, which played a crucial role in this momentum. 'Since the lifting of the banking ban, it has opened up many possibilities for cooperation and smoother transactions,' Sodipo explained. Building on this, in June 2024, the Securities and Exchange Commission (SEC) of Nigeria launched the Accelerated Regulatory Incubation Program (ARIP), which requires all Virtual Asset Service Providers (VASPs) to register and undergo evaluation before obtaining full approval. 'The industry is optimistic about ARIP; it is a shift away from uncertainty and a positive step towards regulatory clarity,' Sodipo said.

Despite the progress Nigeria has made in initiatives such as ARIP, many Financial Institutions are still hesitant to fully engage in the Crypto Assets field due to regulatory ambiguity. Sodipo explained, "Banks are still cautious, waiting to enter the market fully after receiving clear signals from the Central Bank and Securities and Exchange Commission."

Nevertheless, the cryptocurrency market in Nigeria is still thriving. Looking ahead, Sodipo is optimistic about the future of cryptocurrency in Nigeria, especially in the ongoing regulatory reforms. "Open dialogue with regulatory agencies is key. We hope further clarity will drive more banks and Financial Institution into the space," Sodipo said.

Four, South Africa - Driven by TradFi participation, the Cryptocurrency market is booming

As the largest economy in Africa, South Africa has become one of the largest cryptocurrency markets on the continent, with a cryptocurrency value of about 26 billion US dollars in the past year. The number of licensed companies in South Africa has risen significantly, and institutional activities have also been increasing.

The chart below shows the increasing influence of institutions and major scale trades on South Africa, which have become the largest contributors to the total index value, especially from the end of 2023 to the first quarter of 2024.

The connection between TradFi and Crypto Assets is particularly active in South Africa. Rob Downes of Absa Group said that South Africa is at a crucial moment of integration between TradFi and digital assets. "We see growing interest from institutional clients, especially in digital asset custody solutions, which will play a key role in supporting the cryptocurrency ecosystem here," Downes said.

While institutional participants drive much of the market activity, the participation of retail investors and professionals remains steady. In order to gain a deeper understanding of the business environment, the Chainalysis team interviewed Carel van Wyk, founder of MoneyBadger, a company focused on integrating encryption payments for retailers. Van Wyk pointed out that the encryption market in South Africa has been steadily maturing, especially in the payment sector.

"In the past, people tried to make on-chain payments, but this was impractical because blockchain transactions could become expensive and not suitable for small, fast transactions." He talked about the progress of Layer2 and payment APIs, which make encryption payments more suitable for daily use, allowing retailers to accept cryptocurrency while settling in fiat currency.

The FSCA has decided to regulate encryption assets based on existing financial regulations, which is a major catalyst for the rise of the market. This provides much-needed clarity for businesses and investors, enabling licensed companies to develop responsibly and encouraging financial institutions to explore encryption services. 'Compared to other regions, the regulatory environment here is relatively favorable. This gives us confidence to explore more powerful solutions, such as custody and payment,' said Downes.

The trading pair with the South African Rand (ZAR) is also thriving, with a monthly trading volume of hundreds of millions of dollars.

The performance of ZAR indicates that South Africa's encryption ecosystem is becoming increasingly mature, Downes believes this will drive further institutional participation. "We see exchanges becoming more and more complex, which is very important for establishing trust with retail investors and institutional investors," he explained.

**South Africa's regulatory transparency and market rise have attracted the interest of Financial Institutions. One of South Africa's largest banks, Absa Group, is actively exploring blockchain and Crypto Assets plans. Downes emphasized that Absa Group's primary focus is to provide institutional-level Crypto Assets custody services, which they see as a key opportunity in the near term. "The thing I'm most excited about - and our biggest near-term revenue opportunity - is custody," Downes shared. Absa Group considers secure custody services as the foundation for institutional adoption of Crypto Assets, providing security and compliance for exchanges, investment firms, and other major market participants.

The Absa Group and other South Africa banks are increasingly interested in participating in the cryptocurrency industry, although challenges remain in terms of risk management and compliance. Downes acknowledges that banks need to build trust relationships with Cryptocurrency exchanges and service providers to facilitate services such as banking and payments. ** According to Downes, Absa Group has taken a "learning and experimenting" approach and has received support from leadership. Downes explains, "We deliberately positioned our efforts as a relatively light-hearted approach, focusing on learning and engaging in the market. This exploratory approach has enabled ABSA Group to participate in the Regulatory Sandbox and work closely with regulators to ensure compliance while advancing its blockchain initiatives.

Customer demand for encryption-related services is steadily rising. "Over the past 18 months, consultations have doubled," Downes said, adding that this interest covers encryption payments, investment, and exchange banking services. Institutional clients, especially family offices and asset management companies, are beginning to explore how to integrate digital assets into their portfolios. "Traditional financial institutions are still in the relatively early stages of encryption, but customer demand is driving us to accelerate," Downes added.

As banks like Absa Group continue to innovate and explore blockchain technology, they are helping to bridge the gap between TradFi and Crypto Assets. "Traditional Financial Institutions have unique advantages that can be used to introduce blockchain-based finance with our regulatory expertise and controls," Downes said. With the increasing integration of this technology, adoption by businesses and consumers will accelerate, further solidifying South Africa's position in the global encryption economy.

V. Key Moments in Africa

Although the sub-Saharan Africa region has a relatively small share in the global encryption economy, the region is showing strong development momentum. Nigeria and South Africa are leading this trend, promoting a lot of on-chain activity, and positioning the region as an increasingly influential center for Crypto Assets adoption and financial technology.

**Stablecoins have become an important part of the encryption narrative in sub-Saharan Africa, and are popular hedging tools against long-term inflation and currency depreciation, currently accounting for the majority of encryption transactions across the entire African continent. Meanwhile, Decentralized Finance is thriving, with the region taking a leading position in the global adoption of decentralized platforms.

Countries such as South Africa, Nigeria, Ghana, Mauritius, and Seychelles have made significant progress in establishing regulatory frameworks, while other countries are exploring regulatory approaches in the context of rising volume and demand for cryptocurrency. As various market participants, including banks and other financial institutions, continue to deepen their involvement, the need for clear regulation has never been more urgent.

The actual use cases of Crypto Assets in Africa provide valuable lessons for the global market. With a booming fintech landscape, expanding mobile penetration, and the potential for cooperation between regulatory agencies, TradFi, and Crypto Assets companies, the African continent is fully capable of becoming a global leader in Crypto Assets and is expected to drive innovation and financial inclusion on a large scale.

This article will explore the world of Tokenized Real World Assets (RWA) that is full of vitality. Learn how blockchain technology transforms the financial industry by converting physical assets such as real estate and gold into digital tokens. Through in-depth conversations with key industry figures, grasp emerging trends, and learn how local innovations such as KALP Tokenization are triggering waves. The blog provides in-depth insights into major participants and future trends, demonstrating how Tokenization is redefining investment and ownership.

Max and Ella are discussing a blog about the rising trend of Tokenization of Real World Assets (RWA). The blog explains how Blockchain technology is changing the way people invest in high-value assets such as real estate and commodities. The blog focuses on how Tokenization is breaking barriers, the latest trends, and key participants.

1. Leading Trendy Brands

1. JPMorgan Chase

Creating Blockchains through Onyx: JPMorgan Chase is at the forefront of blockchain innovation with its Onyx platform. Onyx aims to simplify financial transactions using blockchain technology. The platform enables JPMorgan Chase to issue and manage digital tokens, including tokenized bonds and stocks.

Testing and Implementation: JPMorgan successfully tested the tokenization of various assets, including bonds and stocks. For example, they conducted a pilot program involving the issuance and trading of tokenized bonds on their blockchain platform. This not only demonstrates their technological capability, but also highlights the potential of blockchain in improving market efficiency, reducing settlement time, and lowering transaction costs.

Wide impact: By integrating Blockchain into their operations, JPMorgan Chase has demonstrated that this technology is not only applicable to tech startups but can also be adopted by traditional financial institutions. Their involvement indicates that Blockchain is expected to drive transformation in traditional banking and finance, establishing their leading position in digital innovation.

2. Societe Generale

Issuance tokenized bonds on the ETH network: Societe Generale, as one of the major banks in France, has taken important steps in asset tokenization and has issued tokenized bonds on the ETH blockchain. This move is noteworthy as it represents the embrace of blockchain technology by traditional financial institutions to innovate core financial products.

Embracing new technology: By using the Ethereum blockchain, Societe Generale is breaking free from TradFi methods and exploring the potential of blockchain in providing faster, more transparent financial transactions. The use of Ethereum Smart Contracts allows for automated processes, thereby improving efficiency and reducing operational risks.

The impact on the financial industry: Societe Generale's actions are a strong endorsement of the blockchain's capabilities, emphasizing its potential in revolutionarily creating, managing, and trading financial products. Their efforts also contribute to the widespread acceptance and application of blockchain technology in the financial industry.

3.Securitize

Simplified digital Token issuance: Securitize focuses on simplifying the issuance process of digital Tokens, while ensuring compliance with regulatory requirements. Their platform helps enterprises achieve asset Tokenization and provides an efficient process for creating and managing these digital securities.

Compliance: One of Securitize's core strengths is its emphasis on compliance with securities regulations. The services they provide ensure that tokenized assets comply with legal standards, which is crucial for maintaining investor confidence and ensuring market integrity.

Improving market Liquidity: By providing a Compliance digital Token issuance and trading platform, Securitize enhances market Liquidity and accessibility. Their technology supports secondary trading of tokenized assets, enabling investors to safely buy and trade these digital securities.

4.Tokeny

Support Block chain integration: Tokeny, based in Luxembourg, assists institutions in transferring their assets to on-chain Block. They focus on ensuring that the tokenization process complies with security standards and regulatory requirements, which is crucial for institutional adoption.

Platform features: Tokeny's platform provides solutions for creating and managing tokenized assets, with a focus on security and compliance. They offer tools for secure token issuance, investor onboarding, and asset management, helping organizations smoothly and efficiently enter the tokenization field.

Establish trust and reliability: By prioritizing security and regulatory compliance, Tokeny helps enhance trust in tokenized assets, encouraging institutional involvement in the exploration of blockchain technology. Their efforts have driven widespread acceptance and normalization of asset tokenization in the TradFi market.

2, What is the latest trend of RWA Tokenization?

Institutional involvement: The main Financial Institutions including Blackstone, Goldman Sachs, and Fidelity are increasingly entering the Tokenization field, enhancing the credibility and influence of the market.

Sustainability: The tokenization of sustainable assets (such as carbon credits and renewable energy projects) is rising, prompting investment in environmental projects while bringing financial returns.

Enhanced Liquidity: Tokenization improves Liquidity by enabling fractional ownership of assets and facilitating easier trading of assets that previously had low Liquidity or were difficult to access Liquidity.

Regulatory Development: Evolving regulations and frameworks are shaping the landscape of tokenization, and governments and regulatory agencies are committed to addressing legal and compliance issues.

Technological progress: The innovation of blockchain technology, such as smart contracts and decentralized finance (DeFi) protocol, is enhancing the efficiency and functionality of tokenized asset platforms.

Global Expansion: Tokenization is gaining widespread follow in multiple regions worldwide, especially demonstrating significant adoption trends in financial centers such as the United States, Europe, and Asia.

The integration with TradFi: The integration of tokenized assets with the TradFi system is deepening, including the partnership between blockchain platforms and traditional Financial Institutions.

Market segmentation intensifies: Tokenization is surpassing traditional asset classes and expanding to niche markets and industries including art, collectibles, and intellectual property.

Transparency and Security Enhancement: The use of blockchain technology brings higher transparency, traceability, and security to tokenization, addressing common issues in asset management.

Innovative investment vehicles: Through Tokenization, new investment products and tools are constantly emerging, such as tokenized real estate funds and commodity-backed tokens, providing investors with a diverse range of investment opportunities.

3、KALPToken transformation: the global potential of a local story

Back in India, an innovative project named KALP is causing a sensation. They have launched BIMTECH CBDC, which is a form of Digital Money for transactions in an academic environment. Students, suppliers, and administrators have all become part of this tokenized ecosystem. More than 1300 transactions have been completed, demonstrating how tokenization can be applied in real-life scenarios. KALP's GINIToken serves as TOKEN to keep the entire system running efficiently, proving that even small-scale ecosystems can benefit from tokenization.

Tokenization of Commodities

Tokenizing commodities like gold and oil has become a major trend. Companies like Paxos and Tether Gold allow investors to hold Tokens backed by physical gold reserves. This eliminates the complexity of dealing with actual assets and enables easy trading or investment in commodities.

Paradigm Shift in Real Estate

Real estate is one of the most exciting areas of tokenization. Platforms like RealT and tZERO enable people to purchase fractional ownership of properties. This means you can invest in real estate without buying the entire property. It opens up real estate investment to everyone, not just the wealthy.

4. Coping with Regulatory Environment

Governments around the world are beginning to recognize the potential of TOKENization and are supporting this trend through regulatory measures. For example, the European Union's Markets in Crypto-Assets (MiCA) regulation and the United States Securities and Exchange Commission (SEC) are increasingly following the TOKENization of securities, paving the way for widespread adoption of TOKENization. With the clarity of these regulations, institutions and individuals will find it easier to safely and legally TOKENize assets.

In short, the global adoption of RWAToken is accelerating, which will change our perception of asset ownership and transactions. Whether it's giants like JPMorgan or innovative local projects like KALP, tokenization is gradually integrating into our daily financial life. As sustainable development and fractional ownership trends emerge, we are moving towards a more inclusive and efficient financial world.

5. FAQ

1. What is the trend of asset tokenization?

The asset TOKENization is rising rapidly, as it offers higher Liquidity, fractional ownership, and more convenient investment opportunities. This trend is driven by the advancements in Blockchain technology and the increasing interest of retail and institutional investors.

2. Which countries are leading in the adoption of RWAToken?

Countries such as the United States, Switzerland, and Singapore are leading in the field of RWATokenization, thanks to their developed financial markets, supportive regulatory frameworks, and innovative technological ecosystems.

3. How can institutions participate in RWATokenization?

More and more institutional participants, including major banks, asset management companies, and investment companies, are participating in the RWATokenization to enhance Liquidity, simplify operations, and open up new investment channels.

4. How big is the market for tokenizing real assets?

RWAToken market is rising rapidly, expected to reach about 20 trillion USD by the mid-2020s, driven by increasing popularity and technological advancement.

5. What is the main challenge to global adoption of Tokenized assets?

The main challenges include regulatory uncertainty, technical integration issues, and concerns about security and market fragmentation, which hinder the widespread adoption of tokenized assets.

6. How big is the market size of RWAToken?

By 2024, the RWATokenization market is estimated to be approximately $10 billion, reflecting the early but expanding stage of this field within the broader financial landscape.

Author: Bai Zhen; Source: Mankun Blockchain Legal Service

The EU's Markets in Crypto-assets Regulation (MiCA) is a significant development in the regulatory framework for digital assets. It aims to provide a clear and consistent regulatory environment for EU member states, covering key areas of the virtual asset ecosystem, including the operation and responsibilities of virtual asset custodians. This article explores specific considerations that custodians need to take into account when complying with the latest regulatory environment.

Introduction to MiCA

MiCA aims to coordinate the regulation of encryption assets in the European Union, providing legal certainty for issuers and service providers. It includes a framework for regulating cryptocurrencies, stablecoins, and other digital assets, and establishes the rights and obligations of virtual asset custodians. These custodians are responsible for protecting and managing digital assets on behalf of clients and will be subject to strict regulatory requirements to ensure security, transparency, and legal compliance.

*Image Source: Screenshot from ESMA official website

The European Commission proposed the MiCA regulation in 2020, and the legislation came into effect on June 30, 2023. However, not all rules of MiCA apply immediately - the rules regarding stablecoin issuers came into effect on June 30, 2024, and additional provisions will come into effect on December 30, 2024.

In the face of MiCA's imminent implementation, the law provides for a "transitional period" whereby if an encryption asset service provider is currently providing services (prior to December 30, 2024), it may continue to do so until July 1, 2026, after which it must be licensed. However, the exact length of the transitional period is determined by the relevant EU member states themselves.

Key Definitions of MiCA

Before discussing the Compliance requirements of custodians, let's quickly review some key definitions of MiCA.

1 encryption assets

Refers to a representation of digital value or rights that can be transferred and stored electronically using Distributed Ledger technology or similar technology.

2 Asset supports Token

Refers to an asset that is not Electronic MoneyToken, which claims to maintain a stable value by referencing another value or right, or a combination thereof (including one or more official currencies) through encryption.

3 encryption asset service provider

A legal person or other enterprise that provides one or more encryption asset services to customers in a professional manner and is authorized to provide encryption asset services according to Article 59.

4 Encryption Asset Services

Refers to the following services or activities related to any encryption assets:

• Represents customer custody and management of encryption assets;
• Operating encryption asset trading platform;
• Convert encryption assets to funds;
• Exchange encryption assets for other encryption assets;
• Represents customers executing encryption asset orders;
• Launch encryption assets;
• Represents customers receiving and transferring encrypted asset orders;
• Provide encryption asset recommendations;
• Provide encryption asset portfolio management;
• Represents the service of transferring encryption assets provided by customers.

5 **** represents the custody and management of encryption assets ****

Refers to the way in which customers hold or control encrypted assets or access such encrypted assets (if any, in the form of Private Key).

6 operating encryption asset trading platform

To manage one or more multilateral systems that aggregate or facilitate the aggregation of the purchasing and selling interests of multiple third parties in encryption assets, and conduct exchanges of funds or encryption assets in accordance with its rules, resulting in contracts.

7 Asset Reserve

The reserve asset basket for guaranteeing claims against the issuer.

Trustee's Compliance Requirements

As mentioned above, a virtual asset custodian is defined as any entity that represents the client's protection of Private Key and management of the client's digital asset. This includes centralized and decentralized custodians, regardless of their storage method (e.g., Hot Wallet, Cold Wallet, or multi-signature solution).

MiCA introduces significant changes for encryption asset custodians in Europe. Under MiCA regulations, custodians face stricter obligations to enhance transparency and security for clients. This includes requirements such as maintaining independent accounts for client assets, robust internal custody procedures, and more detailed client protocols to clarify responsibilities and security measures. Additionally, custodians are now explicitly liable for any loss of encryption assets or access to Secret Keys, increasing accountability for misconduct or security failures. Prior to MiCA, the regulatory environment for custodians was more fragmented, usually operating based on civil or contractual laws of individual EU member states. This shift towards a more structured and coordinated regulatory approach significantly alters the operational landscape for custodians, providing greater legal certainty while also demanding higher compliance.

The custodian will be required to fulfill several key regulatory obligations, involving the following matters:

1 Governance

As part of the authorization application for the Crypto-Asset Service Provider (CASP), the applicant must include a description of the applicant's CASP governance arrangements. In particular, the applicant's CASP will need to consider the following issues:

• Do the members of its governing body have good reputations? Do they possess the necessary knowledge, skills, and experience (individual and collective) to fulfill their responsibilities?
• Have any members of its governing body ever been convicted of crimes related to Money Laundering/terrorist financing or other offenses that have damaged their good reputation?
• Whether its shareholders and members (directly or indirectly) have good reputations, and whether they have been convicted of Money Laundering/terrorist financing or other crimes?
• If its shareholders or members hold qualified shares in CASP, could their influence have a negative impact on the sound and prudent management of CASP? If so, the competent authorities must take appropriate measures to address such risks, such as:

a. Apply for a judicial order or impose judicial penalties on directors and relevant management personnel

b. Suspend the exercise of voting rights related to the shares held by the relevant shareholders/members

• Has it established sufficiently effective policies and procedures to ensure compliance with the regulatory requirements of MiCA? Is it able to assess and regularly review the effectiveness of such policies and procedures?
• Does it employ personnel with the necessary knowledge, skills, and expertise to fulfill their responsibilities, taking into account the scale, nature, and scope of the encryption asset services provided?
• Does it have a resilient and secure ICT system? Are there appropriate business continuity policies covering ICT business continuity, including interruptions to ICT systems?

As mentioned above, business continuity policies are critical to protecting custodians from potential liabilities under the new MiCA regime. This is because custodians of encryption assets may be held responsible for their clients in case of loss of encryption assets or loss of access to encryption assets. In such cases, it is necessary to prove that such losses can be attributed to the custodian. Therefore, an appropriate and effective business continuity plan, which adequately addresses security measures and is regularly maintained, is essential.

2 Capital

According to MiCA, encryption asset service providers always need to have prudential safeguards equal to the higher of the following amounts:

• The permanent minimum capital requirement (125,000 euros) mentioned in Annex IV;
• One quarter of the previous year's fixed expenditure, reviewed annually.

*Source: Annex IV of REGULATION (EU) 2023/1114 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 31 May 2023

3 Disclosure of Conflict of Interest

MiCA provides clear guidance on conflicts of interest. But first, what exactly are conflicts of interest in CASP? Conflicts of interest in CASP may arise between CASP themselves or with the following parties:

• Its shareholders/members;
• Any person directly or indirectly associated with it or its shareholders/members;
• Its governing body members;
• Its employees; or
• Its customers.

If there is a conflict of interest between two or more clients of CASP, there may also be a conflict of interest.

In the event of conflicts of interest, MiCA requires CASPs to disclose the general nature and sources of conflicts of interest to their clients and prospective clients, as well as measures taken to mitigate such conflicts of interest. Such disclosures must be prominently displayed on the CASP's website. In addition, such electronic disclosures must include sufficient details, taking into account the nature of each client, so that each client can make an informed decision based on the types of encryption asset services that arise from conflicts of interest.

Protocol between 4 custodian/manager and its clients

For CASPs that wish to provide asset custody and management services for encryption on behalf of clients, they need to clarify at least the following issues in written protocols:

• Parties to the protocol;
• The nature of the encryption asset service provided and the description of the service;
• Custody policy;
• The communication method between encryption asset service providers and customers, including the customer's authentication system;
• Description of the security system used by encryption asset service providers;
• The fees, costs, and charges levied by the encryption asset service provider; as well as
• Applicable law.

5 **** custody policy ****

The above mentioned "custody policy" refers to a policy aimed at minimizing the following risks:

• Customer's encryption asset loss;
• Loss of rights related to these encryption assets; or
• Due to fraud, network threats, or negligence, the way to access encryption assets is lost.

The custody policy may not necessarily need to be included in the initial protocol with the client, but it needs to be provided to the client in electronic format upon request.

Summary by Lawyer Manquan

The introduction of MiCA regulations undoubtedly emphasizes the importance of security, transparency, and compliance, with the aim of building a more secure and trustworthy digital asset management framework. For custodians, the new regulatory environment brings challenges but also new opportunities. It is crucial to adapt to the dynamic requirements of MiCA to maintain competitiveness. According to lawyer Mankun, although the MiCA bill has not been fully implemented and its final effect remains to be seen, we have reason to believe that MiCA will continue to improve with the accumulation of regulatory experience and market feedback to better accommodate the uniqueness of encryption assets. In the future, more regulations may be needed to fill potential regulatory gaps.

As a professional specializing in Web3 business Compliance, Lawyer Mankun reminds: In order to better respond to the changes brought by MiCA, custodians can take the following three actions immediately:

• Review and update internal processes. Ensure that existing operating procedures comply with MiCA requirements, especially with regard to asset segregation, secure custody, and customer protocol.
• Strengthen Risk Management. Identify and evaluate potential risk points, and formulate corresponding risk mitigation measures to prevent the loss of encrypted assets or the leakage of access Secret Key.
• Improve Compliance Capability. Invest in Compliance training and technology to ensure that the team understands and complies with MiCA regulations, while maintaining continuous follow-up on regulatory developments to adjust strategies in a timely manner.

Author: PandoraLabs

Each encryption cycle will bring about a batch of phenomenal tracks, and everyone hopes to capture such opportunities at the beginning of the cycle. This is difficult because few people can track this market in the long term depth of the underlying logic and know what is happening. More people choose better targets in this track when hotspots emerge.

The embryonic form of mining the next opportunity in the infrastructure field

But the fact is traceable, the improvement of the development environment and user tools of the Ethereum network has led to the explosive growth of Decentralized Finance. The richness and implementation of related protocols have led to the rapid rise of the Non-fungible Token market. The innovation of Bitcoin in liquidity and intelligent protocols has led to unlimited visions for the application ecology of Bitcoin. Therefore, we can often dig out the next opportunity that may experience explosive growth by long-term tracking of the development of industry infrastructure.

We are currently on the eve of a Supercycle, with the two major expectations of BTC Halving and the Fed's interest rate cut, the encryption market is likely to usher in another high-speed rise cycle. The market is choosing a new rise engine.

Return to application, Block chain seeks a way out

Some time ago, the various Web3 elites gathered in the Singapore due to the TOKEN2049 were extremely unanimous in sending a message to the outside world, their concerns about the current development of the blockchain and Cryptocurrency market. On the one hand, there is a boom in market behavior, but on the other hand, there are few new stories about the development of blockchain technology and applications.

From the perspective of public chain infrastructure, simply focusing on improving transaction speed or dropping fees is no longer enough to be the core driving force for market innovation and growth. More people are calling for blockchain to return to applications. There are two ideas here, one is to enhance self-ability based on more feature-rich L2 and protocol. The second is to allow public chains to go out and undertake more Web2 businesses. For example, public chains such as Solana and Polygon have launched enterprise-level blockchain solutions, competing with traditional blockchain technology services such as IBM for the enterprise market. There are also projects like IO.net that are based on blockchain and decentralization, reforming the market allocation of artificial intelligence algorithm resources.

And new-generation public chains like Pandora hope to redesign L1 to have complex computing capabilities, in order to undertake more complex business requirements, rather than just simple Smart Contract+ asset trading. With the help of a complete set of Rollup, this capability can be quickly replicated.

There are currently two obvious application scenarios, one is the enterprise-level application ecology chain. That is, enterprises can quickly build their own L2 blockchain with Pandora's PD-Rollup solution according to their own needs, and then build various applications they need on it. The enterprise-level application chain can still obtain Pandora's computing resources and security.

The second one is the high-performance Web3 game and Metaverse ecosystem. The complex calculations of the public chain in high transaction throughput and low latency characteristics enable players to enjoy a smoother and more realistic game experience. The high throughput and latency time of the public chain often mentioned by people only apply to transaction scenarios. Similarly, the complex computing public chain can support large-scale user concurrency access and interaction within Metaverse, and provide rich application scenarios and functional extensions for Metaverse through its scalable framework.

If only allowing investment behavior and external public opinion to follow the blockchain and Web3, it will not enable our industry to go further. Only by proving to people that blockchain and Web3 can do more, can the market truly enter the next Supercycle.

Author: Liu Jiaolian

11. While we are busy playing around, certain groups in the West are stepping up to take advantage of the opportunity to make trouble. "10.1 Teaching Chain Internal Reference: There is no war on the Eastern Front, and the Western Front is not peaceful", Powell made a speech, denying that 50bp interest rate cuts have become the norm, sending a tone to the market that it is not in a hurry to cut interest rates too quickly, and hitting the market's illusion of rapid easing of Liquidity. At the same time, Israel's ground forces invaded Lebanon, and the situation in the region heated up suddenly. The Pentagon said the United States would "defend" Israel by sending thousands more U.S. troops (bringing the total number of U.S. troops in the region to 43,000).

Rhetoric and heavy artillery have boosted the dollar and sunk risk assets. U.S. stocks fell across the board. BTC also fell for three consecutive days from its highest point of 66k on September 30th, plunging significantly to the MA30 level around 60k.

Now the A-share market is closed due to the National Day holiday. I didn't expect the Americans to make such a big move during this time. With the risk market being manipulated by Powell and Israel, I wonder if the retail investors who chased the market before the holiday are trembling in fear of the judgment when the market opens after the holiday?

Imperialism is imperialism, whether you love it or hate it, it has to devour others in order to thrive, at the cost of other people's money and even lives. Unlike the 'cautious warfare' mindset in Eastern culture, it not only has the audacity to kill and plunder, but also does so wantonly.

The Jiaolian chain once again recalls the day when Satoshi Nakamoto went online with the BTC (BTC) Genesis Block on January 3, 2009, and the other news on the same day in The Times: 'Israel prepares to send tanks and infantry into Gaza'.

15 years have passed, and the underlying color of this world has never changed. It is a bright red color of blood.

"Why is the war flag beautiful? The hero's blood has dyed it red. Why is the earth always in spring? The hero's life blooms flowers."

Why can we travel and vacation with peace of mind? Because the color of the five-starred red flag is dyed with blood. The heroes of steel have dyed the five-starred red flag with their blood. The heroes' steel has always been defending the people under the five-starred red flag.

Money and steel are two sides of the same coin. Those who cannot see this will fall into subjective fantasies about economic data, monetary policy, macro-control, and other dazzling concepts and terms.

The United States is a good teacher. It will definitely coordinate military actions when it is engaged in currency regulation.

Although the United States ideologically opposes mentors, in practice it is the most loyal student of mentors, always practicing the mentor's profound words in the Introduction to the Critique of Hegel's Philosophy of Law: 'The weapon of criticism cannot, of course, replace criticism by weapons, material force can only be overthrown by material force'.

Powell's rhetoric is a critical weapon. The big guns of the US military and Israel are critical weapons.

The mentor continued, "As long as the theory convinces people, it can control the masses; and as long as the theory is thorough, it can convince people."

In the value system of the jungle, power is justice, and cannons are truth. Therefore, the empire is full of confidence, believing that it holds the most powerful truth on earth, and thus can persuade people, persuade the largest masses in the world.

However, the empire's confidence in this kind of truth running rampant is suffocating the world, like black man Floyd unable to breathe.

However, it forgot the last two sentences of the mentor: 'To be thorough means to grasp the essence of things. But the essence of human beings is human beings themselves.'

The truth of the empire, although still powerful, is becoming increasingly detached from the masses. In the eyes of the empire's elites, there are only suckers, consumables, dogs, and AI robots, where are the 'people'? For the elites who are detached from the lower class and high above, the majority of the world's 8 billion people are not seen as 'people' by them. Suckers are repeatedly harvested by them, sucking out every last bit. Consumables are sent to the Western Heaven by their cannons. Dogs and AI robots are the ones who post and comment every day, singing praises to them and smearing their enemies.

This thing is a rebellion in the world. Satoshi Nakamoto brought BTC to the world. With immense Computing Power (physical force) to confront the weapons of the empire (physical force), a tiny crack has been torn open in the powerful imperial territory, allowing people to regain the freedom to breathe.

A dike of a thousand li (a Chinese unit of length), can be destroyed by an ant-hole. An empire's hegemony can be ruined in an instant.

"We can win an important battle in an arms race and take over a new territory of freedom within a few years." - Satoshi Nakamoto, January 16, 2009

Author: Lawyer Liu Honglin

In the eyes of most Web3 practitioners, Decentralization can be absent, but Token must be there.

The reason lies in the fact that, in addition to the underlying technical support of anti-tampering and privacy protection, the Block chain can also effectively incentivize longer participants in the network through Tokens, achieving the ideal state of distribution according to work. In addition to this ideal blueprint, another reason why Tokens are highly regarded is their role as an important means of financing, which has received widespread attention.

In 2017, the relevant regulatory authorities in mainland China issued the well-known '94 document', which clearly restricted the Tokenissuance financing activities, especially the behavior of publicly raising funds through the first Tokenissuance (ICO), which was expressly prohibited. In 2017, at that time, only a White Paper could circle millions of dollars in financing, and the entire industry was filled with a kind of fanatic and disorderly atmosphere. The issuance of the 94 document is undoubtedly reasonable, as its core purpose is to prevent illegal fundraising, pyramid schemes, and other activities that disrupt financial order. However, this document has also led to misunderstandings among many practitioners: as long as the project party issues Token, it is illegal, and may even involve criminal offenses. This view is not only widely spread within and outside the industry, but even some legal practitioners and regulators may hold similar views.

However, Token issuance is not always considered illegal. The key lies in the nature of the Token itself, the issuer, and the legitimacy of the underlying project. In order to ensure Compliance operation, entrepreneurs need to have a deep understanding of these subtle differences to truly avoid legal risks.

Token types are very important

The compliance of Token depends on its type. According to industry conventions, Token is usually divided into Utility Token and Security Token. Utility Tokens are mainly used for products or services within the platform, providing users with usage rights without involving investment returns. On the contrary, Security Tokens have investment attributes, and Token holders expect to obtain economic returns from the project. These two types of Tokens are subject to completely different regulations within the legal framework.

The compliance of functional Tokens is usually strong because they are mainly used for actual services or functions on the platform, rather than as investment vehicles. In some jurisdictions, such as Singapore and Hong Kong, the issuance of functional Tokens is still legal. As long as the use of the Token is linked to platform services and does not have an economic return nature, functional Tokens usually do not trigger strict securities regulation. For example, users can use functional Tokens to purchase platform services, participate in voting, or enjoy rewards without being considered investors.

However, the regulatory requirements for security token are much stricter. Taking the United States as an example, the Securities and Exchange Commission (SEC) of the United States has established very high thresholds for the issuance of security tokens, requiring all security tokens to undergo compliance review. If the token has obvious investment attributes, or token holders expect to receive returns from it, the issuance party must comply with securities laws. This situation also applies in China, where Document 94 clearly stipulates that unauthorized public issuance of token financing is easily identified as illegal issuance of securities or illegal fundraising.

Distinguishing token types is the first step in token issuance, and clarifying the nature of tokens helps entrepreneurs choose the appropriate compliance path. If an entrepreneur plans to issue tokens to international markets, they must understand the legal requirements of each country for token types and ensure that the tokenissuance complies with local laws. For example, the Blockstack project was approved by the United States SEC in 2019 for the first compliance security token issuance (STO). This case demonstrates the path to legal tokenissuance that complies with United States securities laws. Although the process is complex, compliance is essential for security tokens. However, projects that do not adopt the compliance path face huge risks, such as some projects that claim to be "functional tokens", which actually provide investment returns, and are eventually found to be illegal issuance of securities, and are subject to strict penalties.

It is very important to raise funds for TOKENs

In addition to the type of Token, the choice of fundraising target is also crucial. China's regulatory policies have taken harsh measures against Token financing activities aimed at the general public, especially public fundraising activities conducted through ICOs, because such activities are often accompanied by risks such as false projects, fund pools, and illegal fundraising. In order to prevent these risks, regulatory authorities have clearly required that all ICO activities aimed at the general public must be stopped, and projects that have been conducted should be refunded. This means that in China, Token issuance should avoid targeting the general public.

The starting point of China's regulatory policy is to protect investors, especially those ordinary investors who do not have professional investment capabilities. Publicly offered ICOs often carry extremely high risks and are prone to causing substantial losses to a large number of investors, which is also one of the main reasons for the promulgation of Document 94. In contrast, accredited investors usually have strong risk identification and tolerance capabilities, so raising funds from accredited investors can effectively reduce legal risks.

In the international market, the standards for accredited investors are also very strict. For example, in the United States, accredited investors must meet specific income and asset standards to participate in the private sale financing activities of security tokens. This restriction mechanism ensures that only investors capable of bearing risks can participate in token financing activities. For instance, a blockchain project raises funds publicly from non-accredited investors, claiming that investing in its token will yield high returns. These investors are mainly ordinary members of the public, and eventually suffer significant losses, leading to legal sanctions against the platform's principals.

The Token project itself is very important

Many entrepreneurs are prone to a misconception that as long as the Token is defined as a utility token and the fundraising targets are relatively restrained, their projects will be in compliance and everything will be fine. However, in reality, whether the operational model of the project itself complies with legal regulations often determines the overall compliance of the project.

For example, China has strict legal restrictions on industries such as gambling. For instance, if a project involves gambling-related businesses or conducts activities similar to gambling using Virtual Money, the project will still be considered illegal even if the Token issuance method and fundraising targets comply with regulations. For instance, a certain domestic blockchain project involved illegal fundraising and gambling and was sealed by the public security organs. When the project party initially carried out Token issuance, it did not raise funds from the general public, but the project itself engaged in gambling operations using Virtual Money, attracting a large number of Chinese users to participate. Although the project party avoided ICO risks in the Token issuance, its illegal operations ultimately led to the entire project being sealed, and the relevant responsible persons also faced criminal responsibilities.

Similarly, some blockchain projects adopt pyramid scheme marketing methods, attracting investors through token incentives and violating the legal red line of MLM in China. This is why we have always advised entrepreneurs that following the legality of the project itself is far more important than token issuance. If your project model has potential legal risks, no matter how compliant your token issuance is, the future of the project will still be in trouble.

Lawyer Mankun's Compliance Advice

In the majority of blockchain projects, tokens are more like icing on the cake. The beauty of this flower depends on how solid your project itself is. From a compliance perspective, there is no fundamental difference between Web3 entrepreneurs and traditional Web2 entrepreneurs in terms of legal compliance. In order to effectively avoid legal risks in token issuance, Lawyer Honglin provides the following suggestions:

1 Specify Token Type

Entrepreneurs first need to confirm whether the issued Token is a utility Token or a security token. If it is a utility Token, it must ensure that it is only used for services or products within the platform and does not have investment return characteristics. If it is a security token, it must strictly comply with the securities laws and regulations of the country to ensure that the Token issuance complies with relevant requirements.

2 Be cautious in choosing fundraising targets

During Tokenissuance, entrepreneurs must strictly limit the issuance to avoid raising funds from the general public. Especially in China, conducting public fundraising for Tokens easily triggers regulatory risks. Therefore, restricting the sale of Tokens to accredited investors and licensed funds is an effective Compliance strategy.

3 Ensure the business Compliance of the project itself

The business model design of the project is also crucial. Entrepreneurs should avoid adopting high-risk structures such as pyramid schemes and Ponzi schemes, and ensure that the service model of the project complies with legal requirements. Especially when it comes to gambling, betting, illegal fundraising, and other activities involving Virtual Money, measures must be taken to technically block Chinese users to avoid unnecessary criminal liability.

In general, the issuance of Token does not necessarily mean illegality, but its legitimacy depends on multiple factors, including the type of Token, the fundraising target, and the business model of the project itself. The innovation in the Blockchain industry has brought new opportunities globally, but while exploring these opportunities, entrepreneurs must have a clear understanding of the legal requirements in different jurisdictions and promote project development through the path of Compliance. Whether it is a utility Token or a security Token, entrepreneurs should proceed with caution to ensure that their projects operate within the framework of the law. Therefore, only with a solid project foundation and strict Compliance control can Token truly become a driving force for project development, rather than a source of legal risk.