Author: Huang Shiliang

Original Link: https://mp.weixin.qq.com/s/LWzrQenRhz2UkaVbGhzMmA

The blockchain industry has been a bit sluggish recently, with prices down, but more worrying than the price is the sense that the broader blockchain community seems to have lost its direction for development.

One of the topics that seems to have been debated for the longest and most intensely this year on X is whether meme coins are a legitimate subject of discussion, with people like Vitalik Buterin, major VCs, and KOLs all joining the debate.

The main viewpoints are divided: one side believes that memes are noise or even a negative influence on blockchain, while the other side argues that memes represent the essence of cryptocurrencies and blockchain.

Another major focus is the attention on organizations like the Federal Reserve, SEC, and Wall Street. Regardless of whether the original intent of cryptocurrencies was to oppose these institutions, the fact that the industry is revolving around them suggests that it has lost its core and is willingly becoming a tool of U.S. policy.

I don’t want to get involved in the debates surrounding these two major focuses. I just want to use these phenomena to argue that the broader blockchain community seems to have lost its sense of direction and is getting bogged down in trivial disputes.

A few years ago (around 2016), Bitcoin scaling was almost the only important issue in the entire blockchain industry. But Ethereum quietly developed and successfully completed a series of major innovations in the blockchain space, including smart contracts, DeFi, and rollups — transformative inventions for the industry.

Looking back at the Bitcoin scaling debates of that time, it was not actually an important issue, just a minor episode in the industry’s development. The real main themes during those years were the developments of smart contracts, DeFi, and the like.

I feel that the current focus on memes and the intense energy spent on the Federal Reserve are just minor episodes on the path of the industry’s development. The main themes are the following.

I believe the true major directions for the industry, and the goals that are highly likely to be successfully achieved in the next five years, are as follows:

1. Stablecoins Will Occupy a Very Important Position in Global Economic Activities

If we have to speculate with some data, I think it could be:

1) The total supply of stablecoins will exceed $1 trillion;

2) The trading volume of stablecoins could account for 10% of global trade settlements.

On-chain stablecoins are extremely useful, combining the dual advantages of blockchain and fiat currencies while eliminating some of the major flaws of fiat currencies.

The most important advantage of stablecoins compared to traditional currencies is their high efficiency, far exceeding that of bank transfers. This is especially true when it comes to cross-border transactions, where the advantages of on-chain stablecoins are almost overwhelmingly superior.

The transaction costs of stablecoins are also significantly lower compared to fiat currencies.

Another major advantage is the absence of KYC requirements, although this is somewhat politically incorrect.

I believe these advantages make stablecoins at least 10 times better than fiat currencies in the context of international trade.

On one hand, the total supply of stablecoins will increase significantly, and reaching $1 trillion within five years should not be difficult.

On the other hand, the variety of stablecoins will also expand, most likely replicating the major currencies used in current international trade. In addition to the dominant USD stablecoin, there will likely be Euro stablecoins, RMB stablecoins, GBP and JPY stablecoins, and more.

This is a highly worthwhile goal for the broader blockchain industry to pursue.

2. I believe another direction where the blockchain industry will see significant growth in the next five years is the on-chain tokenization of more existing assets, particularly Real World Assets (RWA). Essentially, this means bringing products like stocks, funds, bonds, and insurance — currently traded on traditional securities exchanges — onto the blockchain for trading.

In comparison to the current BTC and ETH ETFs, I think it would be more fitting to refer to RWA as “reverse ETFs” for stocks, bonds, and other such assets.

BTC and ETH ETFs convert on-chain assets into products tradable on traditional securities exchanges, while the tokenization of stocks can adopt a similar ETF mechanism — just in reverse. This involves custodianship of stocks by a fund company, followed by the issuance of corresponding tokens on the blockchain.

The benefits of on-chain assets compared to those on traditional securities exchanges are also tenfold.

On-chain assets can thrive in the DeFi ecosystem.

Stocks have been around for centuries and have accumulated some inherent issues. For the vast majority of people, buying stocks is merely about selling them at a higher price; stocks have no other uses. Addressing these problems requires the introduction of external innovations, and blockchain is one such force that can be leveraged.

Tokens can participate in various DeFi mechanisms. Particularly, users can mint LP tokens in liquidity pools to earn transaction fees or lend their tokens to lending pools to earn interest.

So, when can you ever lend your stocks to earn some interest?

In reality, after experiencing blockchain, the current system of traditional securities exchanges feels completely outdated.

Nasdaq should consider issuing its own rollup on Ethereum and building an on-chain Nasdaq DEX.

3. I believe the third major direction and goal for the industry is enhancing privacy protection, which has become increasingly urgent.

Blockchain has achieved extreme transparency, but this creates challenges for privacy protection.

With the introduction of ETFs, the entire industry is increasingly leaning towards Americanization. Blockchain could potentially become a tool of the U.S. dollar, with U.S. law enforcement possibly fully infiltrating on-chain activities. The decentralization, censorship resistance, and permissionless nature that blockchain promised to users may be forcibly stripped away under the influence of dollarization.

One direction for privacy protection is zero-knowledge (zk) technology, which is a strength of the Ethereum ecosystem.

However, I personally feel that the Ethereum ecosystem’s investment in this area is becoming increasingly superficial. They are now using zk for rollups, but this doesn’t protect privacy. True privacy protection involves using zk to hide or obscure transaction details, making them harder to trace and less transparent.

Since the Tornado Cash project was targeted by law enforcement, there hasn’t been a truly privacy-focused project emerging from the Ethereum ecosystem. Instead, there is increasing compliance with censorship, such as MakerDAO’s DAI, which, after being upgraded to USDS, now has blacklist capabilities.

Another direction for privacy protection is the development of the UTXO ecosystem, represented by Bitcoin. UTXO technology, overall, offers better privacy protection compared to Ethereum’s account-based model. At least, so far, there hasn’t been any evidence of UTXO blacklist technology.

Privacy protection is a key focus for Bitcoin Core developers. However, Core’s conservatism also leads to Bitcoin’s weak programmability, meaning it’s difficult to implement tokenization and DeFi.

Although we often see various proposals for issuing assets and second-layer solutions in the Bitcoin ecosystem to improve programmability, these still seem to be expressions of strong community desires. So far, there hasn’t been a truly decentralized solution.

Among other UTXO chains, only the BCH ecosystem seems willing to develop these technologies, offering a faint hope. Other chains like LTC and Dogecoin, however, show no competitive drive.

Without tokenization and DeFi, the ecosystem lacks vibrancy.

In summary, the UTXO camp has not prioritized these aspects. Therefore, the hope may still rest on Ethereum.

Of the three directions mentioned above, the only one I am genuinely concerned about is privacy protection. Currently, there doesn’t seem to be a strong force driving this forward.

Stablecoins reaching $1 trillion and the reverse ETF movement are almost certain to be achieved in the next five years.

And there’s a good chance that the privacy protection direction will eventually succeed as well.

Why? The answer lies in the belief in decentralization.

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