Discus Fish, the Co-Founder and CEO of Cobo, recently sat with DeThings, a Singapore-based blockchain new media platform, for an exclusive interview where Discus Fish shared his views and underlying thoughts on multiple topics such as the current market state, the impact of FTX’s debacle, DeFi innovation, and the future of DExs from the perspective of an “old leek (老韭菜）” who has experienced multiple rounds of cryptocurrency event cycles. He also explained how he constantly remain curious about the crypto industry. Below is a summary of the interview with some editing.

On the current bear market cycle

● Compared with previous bear markets, this bear market in 2022 is not acting desperate enough to recover, which is incomparable to the levels of despair seen previously

● The industry has been in the place for more than 10 years, and with a huge accumulation of trial and errors, we have almost tested everything that the existing blockchain technology can or cannot do

● After various expansion schemes such as the modular blockchain and the layer 2 network, some upcoming schemes have started appearing. Although there are still two or three years before the implementation of these schemes, the dawn can already be vaguely seen.

● The confidence and direction in the future of the industry is much clearer than in the previous cycles

Discus Fish: There were three black swans in 2022. However, comparing the previous bear markets and this bear market in 2022, I personally feel that the degree of despair is not enough.

In the bear market round in 2015, for nearly half a year, the market fluctuated towards a very low level. There were no hot spots in the entire market, and there was basically no main narrative. The main narrative at the time was still targeted towards Bitcoin. At the beginning of 2015, Ethereum hasn’t formed any large-scale industry consensus, and it was still in the early stage — maybe it was still in Vitalik’s mind, the Ethereum white paper had not been released yet, and there were no hot spots in the entire market. Everyone has questioned whether Bitcoin can survive the challenge.

But now, looking at the industry today, it has been more than 10 years and with a huge accumulation of trial and errors, we have almost tested everything that the existing blockchain technology can or cannot do. The form of a coinless blockchain and alliance chain that we are familiar with has already been tested in the previous cycle and it is not feasible. What is the current performance boundary of the blockchain, which applications can match the current performance, and which application forms may be able to run (but most of them cannot run), we have tried it all.

Everyone is very clear about what the industry can and cannot do. In addition, we can also vaguely see that even things that cannot be done now can be done in the future, for example, we ran some demos for these applications that rely on large-scale TPS, just talking about how TPS can solve them. Since 2015, we have been arguing about expansion for so many years, and now the route is basically clear.

Around the expansion schemes such as the modular blockchain and the layer 2 network, some early schemes have also begun to appear. Although there are still two or three years before the implementation of these schemes, the dawn can already be vaguely seen. Therefore, in terms of the future of the industry and confidence in the industry, this round of the market has not caused as many people to quit as before.

There have been a lot of black swans in this round, and many people have lost their entire personal assets because they are not used to the violent shocks in the industry, or most of their assets have been implicated by events like FTX, resulting in a relatively large loss. But in terms of the confidence in the future of the industry and the direction of the industry in the future, I think it is much clearer than in the previous cycles.

How to see FTX accident

● Earlier on we saw Sam move some assets from the exchange to make some low-risk investments. Gradually, he has more and more trust in himself, made more and more expansions, and felt his ability get stronger and stronger, resulting in his risk appetite getting bigger and bigger.

● Centralized exchanges have assumed too many responsibilities, including the responsibility of transaction matching, the responsibility of brokers, and the responsibility of custody. For entrepreneurs and founders, it is difficult to resist the temptation of human nature.

● A large number of similar stories happened in the past ten years. In essence, it is still a problem of human nature. This kind of problem will always exist, but it is only a matter of scale and whether it is exposed

Discus Fish: We have a lot of contact with Sam on the chain. After DeFi became popular in 2021, there were a lot of DeFi investment opportunities on the chain. I personally participated in a lot of early DeFi on-chain investments. In the process of investing in DeFi, there are some points that need to be paid attention to. Who are the people that are investing in these projects with you? What are they doing? What do they think? When do they run? Will it affect liquidity? Therefore, we have done a lot of on-chain data analysis and tracked the addresses of more traceable whales. We often find that some of the addresses we track are related to FTX and Sam, and we have also seen various operations on many of his chains. Through Sam’s investment and transactions in these DeFi, we have some understanding of him.

Essentially speaking, it may have something to do with personality. Sam is a person who can’t sit still — he wants to fully increase the utilization rate of funds and dig deep into profits. He did this in the early days of arbitrage, as did a large number of investments on the DeFi chain. He doesn’t allow a sum of money to sit idle in the account for a long time.

The exchange has a large number of users. In the early days, we saw Sam transfer some assets from the exchange to make some low-risk investments. Gradually, he has more and more confidence in himself, more and more expansion, and when he feels that his ability is getting stronger and stronger, his risk appetite got bigger and bigger. This is human nature, but to a certain extent, this risk may not be controllable, and in the end, there are an extreme situations like FTX.

The Crypto industry is still relatively new, and many infrastructures are not perfect. Coupled with imperfect supervision, centralized exchanges have taken on too many responsibilities, including the responsibility of transaction matching, the responsibility of brokers, and the responsibility of custody. For entrepreneurs and founders, it is difficult to resist the temptation of human nature. They help users manage large-scale assets, and in the process, let these assets flow better, and generate good cash flow easily, especially in the bull market cycle of the past two or three years. At the regulatory level, there are no clear rules. Therefore, these two pieces jointly led to the sudden occurrence of a big scandal like FTX.

From a historical point of view, this kind of stories will continuously emerge, and there are a large number of similar stories, such as the Cunqianguan accident in China, and the Mt. Gox incident. A large number of similar stories happened in the past ten years. Essentially speaking, it is still a problem of human nature. These kind of problems will always exist, but it is only a matter of scale and whether it is exposed.

In the future, similar incidents may be avoided through technical means. The essence of the blockchain is to allow everyone to have the freedom to manage their own assets by managing their own private keys. But now the industry has not developed to that stage. Everyone has some compromises on the necessity and security of managing their own assets, as well as the ease of use. Many people think that they will lose their private keys sooner or later, so it is better to put them on the exchange. Therefore, a large number of assets are still deposited on the exchange. However, with the development of technology, the improvement of infrastructure, and the prosperity of on-chain applications, this will gradually improve.

About Cobo’s mission

● Cobo has focused on how to securely manage private keys since the beginning of its business, as well as supporting security and risk control around the management of private keys

● In the future, the experience we accumulated at the DeFi asset management and internal tools will be commercialized and provided for everyone to use

● We don’t want to become a centralized black box, we hope to provide everyone with a more convenient, safe and easy-to-use solution for interacting with the blockchain

Discus Fish: The FTX incident was a very big wake-up call for us. Cobo has focused on how to securely manage private keys since its inception, as well as supporting security and risk control around the management of private keys. We have been more restrained and try to do as little as possible.

In the cycle of the past five years, we have seen many opportunities to make money, whether it is lending or trading derivatives, and a lot of customers have came to us. After some simple tests, we felt that there were a lot of long-tail risks and uncertainties, so we did not expand the scale.

For a long time, we have been focusing on how to safely store private keys, how to manage the risks of related contract status, and on related systems for private keys.

In the future, we will provide the experience we accumulated at the DeFi asset management and internal tools for everyone to use. We don’t want to become a centralized black box, we hope to provide everyone with a more convenient, safe, and easy-to-use solution for interacting with the blockchain, whether it is managing assets on the chain or managing the contract status in DeFi . From there, we can then make it possible to manage more complex and various on-chain applications. Therefore, we will focus our vision much further and plan towards long-term iterations.

Any innovations in DeFi?

● The underlying financial framework of the entire DeFi is mature, and there may be a large number of composable financial innovations on it

Discus Fish : In the past twenty months, DeFi has moved the financial products that have seen basic success in the traditional financial history of more than 200 years, to the chain. At present, there are four major modules in DeFi.

The first is the stable coins, which is still relatively new, and may only have completed 30 to 40 percent of its progress. Now the mainstream is the USD-backed stablecoin model, plus the over-collateralized model like DAI with a single asset or multiple assets. Stablecoins have made some explorations in the past two years, but because there are a lot of bubbles and Ponzis, there are a lot of failure cases, such as Luna. We are currently still exploring in this area to see if there are some more mature and feasible technical solutions.

The second is the DEX exchange, which is mainly a spot exchange. The current AMM mechanism solves most of the long-tail needs. For order books and derivatives that require higher chain performance, it will require the development of the future layer-2 network to be implemented. This has a progress ratio of 60 to 70, and we can basically see his future product form clearly.

The third is lending. Over-collateral lending and over-pledged lending in DeFi are quite mature, and there have been a large number of security incidents and attacks, especially when the liquidity is relatively low recently, there have been a large number of price manipulation incidents targeting the lending market. Everyone basically explored the boundary conditions in lending more clearly. We can basically see the future clearly. How to segregate assets? How to do risk control? There may be 70 to 80 percent progress in this piece.

The fourth is derivatives and risk management on the chain. At present, it is relatively early, and the amount of insurance options is not big.

The underlying financial framework of the entire DeFi is mature, and there may still be a large number of composable financial innovations on it. It is not mature yet, and there are only a few attempts. I think that in the future, the core modules of DeFi will degenerate into typical protocols on the chain, and other applications such as NFT and GameFi can directly call these protocols.

There is still room for some cutting-edge applications and risk-balanced innovations. I don’t think it’s reached a very mature stage yet.

The Future of Centralized Exchanges

● Crypto is a global thing from the first day, it should not become a regional thing because of the skin colour or the place of birth of the founder

● The FTX incident basically marks the arrival of the twilight of centralized exchanges

Discus Fish: Crypto has been a global phenomenon from day one. It should not become a regional issue because of the skin colour or the place of birth of the founder. Everyone‘s behaviours and interactions on the chain have been globalized from the first day, and we should be able to use them even when we go to Mars. We shouldn’t add all these regional assumptions.

Looking at it today, the FTX incident basically marks the arrival of the twilight of the centralized exchange. Although individual emotions will not last for a long time and the market cycle will soon be forgotten by everyone, this round has made many institutional users, such as traditional family offices and traditional financial institutions that came in after 2017, deeply aware of this industry’s problems.

We have also seen the transfer of a large number of assets from various large and small exchanges to on-chain wallets during the FTX storm. From this perspective, most of the things that centralized exchanges are able to do, can actually be done on decentralized exchanges, and may even be done better. Even for the part that can’t be done, you can use the MPC solution, for example, to make the whole process of the transaction happen. It’s no longer a unilateral uncontrollable black box state.

In the future, there will be some ways of combining decentralization and centralization to avoid these risks. Even for some long-tail needs, we can directly solve them in decentralization, which may be more efficient.

What else is possible in mining

● The future of mining should not be the status quo

● The ideal final state of the mining industry is that there are a large number of small and medium-sized mines connected to the global power grid, and some of them are used to adjust the state of the entire power grid

● It may go to another stage and it will be decentralized again. Mining at home will yield higher returns, and even connect to the power grid to help the power grid adjust its peaks and troughs. There will be some additional benefits, not just money from mining

Discus Fish: Let’s first sort out the history of the mining industry. The earliest miners were home miners, mining at home with one vote for one CPU and one vote for one GPU. ASICs began to appear in 2013, and the transition from graphics cards to ASICs began. However, in the bear market of 2015, the market turned cold, and everyone could not pay these electricity bills, so small-scale miners began to turn into factory-style miners to optimize the cost of electricity bills. In 2015, large-scale industrialization, containerization, and modularization of mines began.

At present, in the entire crypto mining industry, most of the computing power is still concentrated in North America. Especially after the Russia-Ukraine conflict, the global energy structure has changed significantly. The cost of energy in Europe has become very high, and the remaining available energy may only be in large-scale natural gas energy and some hydropower energy, mainly in North America. There are also some power sources in Southeast Asia and some power sources in South America and a few parts of Africa. Therefore, it is still in an end state in scale.

I think the future of the mining industry should not be the status quo. Now, in order to optimize costs and improve efficiency, a large number of machines are placed in a single mine, similar to the form of IDC in the Internet age, and maybe a more cost-effective IDC.

The ideal final state of the mining industry is that a large number of small and medium-sized mining farms are connected to the global power grid, while some of them are being used to adjust the state of the entire power grid. Because electricity is difficult to store, and a lot of electricity is actually wasted, we can eliminate peaks and fill valleys, where some of them exchange heat between energy to provide power and heating for the industry or life; while some of them will be used by some large financial institutions when they turn mining into a traditional fixed-income product, making some investments available to investors.

The trend of decentralization may gradually become prominent in the future, because at present, the iteration space of the entire mining chip is not so big, and the power consumption is already relatively low. Under such circumstances, the life cycle of the mining machine will be very long, and it can play a better role in other aspects.

There are not many mature surpluses of energy in the world and except for China, there are not so many large-scale and rapidly available energy sources. Hence, it may go to another stage where it will be decentralized again. Mining at home will yield higher returns, and even connect to the power grid to help the power grid adjust its peaks and troughs. There will also be some additional benefits, not just money from mining.

New things

● This industry is a spiral development, there are a lot of similar or repeated things, so it is very important to be curious, to observe, to think

● I am an NFT counter-pointer, what I buy and what to drop

Discus Fish: I’ll go and see what’s interesting, and then give it a try. For example, I have played some NFTs in the past year or so. Everyone jokes that I am an NFT counter-pointer and that what I buy will fall. GameFi I also gave it a try.

I will think about and look forward to the future development direction of the industry, and take a look at several directions in the future, and what the core inflection points in these directions are. In the early days, I would try to make mistakes and explore. If I find that the inflection point of the subdivision field or the subdivision track is mature, and its iconic inflection point event occurs, I will spend some extra time on research. Why is there an inflection point? Where can the future go? Then I will invest more time to try and make mistakes, basically in a state of trying to be at the forefront of the industry.

If I find something fun, but it’s not for me, or it’s interesting now, but it’s hard to find a good opportunity to capture the rapid growth, I might put it aside first, and give it a next mark to observe what the inflection point will be. If the inflection point has reached, I will spend time studying it again.

There are a lot of opportunities for trial and error in each round of bear market. Stories like DeFi happened during the bear market in 2018. There is a wave of development on the EOS chain, and then everyone has played a wave. Soon in 2020 and 2021, DeFi made those iterations again, and then it launched very successfully.

This industry is a spiral development, there are a lot of similar or repeated things, so it is very important to be curious, to observe and think.

To retire or not?

● Looking at what happened in the past 200 years of financial history, it is difficult to empathize with it. But, in the crypto industry, history is what you experience every day

Discus Fish : When I graduated from school, I set a goal to retire at the age of 30, and now I have exceeded it. The crypto industry is so much fun, and its iteration speed is very fast. As we mentioned just now, it has a strong cycle, and the bubble bursts very quickly. There are a lot of innovations and all kinds of interesting and fun things, forcing you to learn and grow. This is why this industry is very attractive to me.

I have been able to spend a lot of time learning in the relatively early days of this industry, or in some cutting-edge fields, because these things are very interesting. If you have read history and looked at what happened in the past 200 years of financial history, it is difficult to empathize with it. But, in the crypto industry, history is what you experience every day. Then you think again, learn again, grow up very fast, it is also very interesting, and the doses of dopamine are also very strong. So, I think it’s hard to leave the industry, and if you really understand the industry, it’s hard to retire after you are in it.

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