Lau: All right. So you are talking to us from Toronto.
Dhaliwal: That’s right. Toronto, Canada.
Lau: All right. But Conflux is very Chinese friendly, Chinese-based almost with Shanghai and Hunan-backed endorsements. How does a guy from Toronto and how does Conflux with its reach deep into China, how does this all work?
Dhaliwal: Yes, a good question. So, yes, it’s true that Conflux is a China-originated public network, but we’ve got significant ties to Toronto in the sense that one of our founders is actually a professor at the University of Toronto. And we have a number of advisors from the University of Toronto. So I’ve been based out of Toronto for the last few years. And prior to joining Conflux, I was actually working with Outlier Ventures and building their crypto practice. And a lot of that work involved working with academia, economists, computer scientists.
And over time, they brought me to the University of Toronto, where I caught up with Fan Long, one of the founders and as I mentioned, a professor at the University of Toronto, and we started talking about Conflux Network. And I quickly realized that Conflux is a bit of a sleeping giant. And I was very intrigued by their march towards mainnet. And I took the challenge of helping introduce Conflux to the world.
Lau: Well, let’s break some news right now and right here, it’s the first time the public is hearing about it, Eden — an East-West alliance. Tell us what Conflux is announcing today.
Dhaliwal: Sure. So we’re announcing Open DeFi, it’s something that we’re super excited about. It’s a global project initiated by Conflux. We’re bringing together basically the top crypto finance players in China, in Asia, that consists of finance, Sequoia Capital, Blockpower Capital, Antelope, and dForce. This project is also state supported through the Shanghai Science and Technology Committee. And we’ll be announcing in the next two to three weeks some more established Western DeFi partners for this project.
And so the goals of Open DeFi are firstly to improve security and liquidity across geographies, across applications, across networks, including from CeFi [centralized finance] to DeFi. And then secondly, to drive innovation across both the Western and Asian markets. And so Conflux is uniquely positioned to sort of drive this innovation within the DeFi ecosystem. And we’re really excited to be pushing this initiative.
Lau: All right, we know what DeFi is, what is CeFI? Is that China finance?
Dhaliwal: Centralized finance.
Lau: Centralized finance. OK, got it. Centralized finance, and that’s really interesting in terms of interoperability between centralized and decentralized finance. How are you going to achieve that?
Dhaliwal: Well, we’ve developed three tracks that are going to enable this initiative that is going to, we hope, create bridges and more liquidity within the DeFi ecosystem. So these three tracks involve risk management, incubation and innovation, and then bringing everybody together to develop new liquidity strategies. So we think the combination of these three tracks and these three goals are going to enable and facilitate assets to move more freely between centralized and decentralized systems.
Lau: It’s very interesting to see how that actually will work in China. This is notoriously, a very authoritarian, with very strict capital controls, the People’s Bank of China, a very controlling central bank with very specific protocols when it comes to how much money people can keep bringing in and out of China. How do you meet those regulatory and political parameters?
Dhaliwal: Well to be quite frank, I don’t think we’re really too concerned about the sort of the regulatory issues around DeFi at the moment. I think what we’re really trying to do is introduce the new innovation and financial engineering around DeFi to the China market. And I think what’s going to happen over time, and again, we’re uniquely situated at Conflux to kind of be this advocate, leading the charge for decentralized and open applications in marketplaces. We want to introduce some of these new innovations so that they’ll have their place in the future of decentralized finance in China.
Lau: And so the average Chinese citizen post this initiative, what are they going to be able to experience when it comes to being able to access DeFi, to access yield farming, to access all of these other things that allow them to move in and out of DeFi?
Dhaliwal: So we want to enable financial innovation, financial engineering that’s going to develop new products, new services for the China market. And so right now, we have a market that’s sort of still using traditional quant trading and order book models. And we want to start to enable things like bonding curves, automated market making to kind of provide greater liquidity, even the movement of assets through stable coins and wrapped assets. So we just want to essentially introduce these products to the market.
Firstly, by introducing and initiating innovation and incubation and then through providing a sandbox for users to safely use these products that have been tested for security and for economic design, that we’re really trying to just foster a risk managed approach that can provide the market some assurances that they’re not going to lose their money. Let’s put it that way.
Lau: Yeah, [but] a lot of people are probably scratching their heads right now. Isn’t cryptocurrency banned in China? So, on one hand, cryptocurrency is banned in China. And then on this hand, it seems like they are building out open access to DeFi — how do these two things jive?
Dhaliwal: When you think about cryptocurrency being banned in China, it really stems from the level of, I hate to say it, but just how ICOs, and token sales were abused for a period of time and how the speculative market drove a lot of scams. And so what the government really wants is compliant fundraising. And I wouldn’t go so far as to say that the cryptocurrency is completely outlawed. We’ve done a regulatory compliant fundraise and we do have a cryptocurrency and we’ll be able to sort of operate in the China market.
I think I would say the market as a whole and the government understands that there’s a tremendous amount of innovation and value that could be created from cryptocurrency. And I think as long as the approaches are regulatory compliant and safe, I think they, to tell you the truth, are open to experimenting, seeing that experimentation and understanding how we can sort of introduce some of this new value to the market.
And so, again, for Conflux, we are sort of the advocates of public permissionless blockchains. And we have this unique role of sort of facilitating this introduction to not just public blockchain, but also these decentralized marketplaces, applications, and in this case, DeFi offerings.
Lau: Is it fair to say that Conflux has the ear of high level officials in China, and you’re able to shape the collaboration and the cooperation as China moves towards what it hopes to be a blockchain based future?
Dhaliwal: I think we have a very good relationship with the government where they understand that at the heart of our project are a group of computer scientists that are trying to deliver an open network for open commerce, create a bridge that basically global markets could use to tap into open commerce, decentralized applications in China. And so there’s quite a bit of credibility and trust that we’ve developed with the government. I think our project being born out of Tsinghua University, which is sort of the top university in China.
Our project, having been led by Turing Award winner Dr. Andy Yao, brings a lot of credibility. And then again, I think going a regulatory compliant route similar to BlockStack in the U.S., we built a lot of trust as well. So the fact that we have been at our core computer scientists that want to introduce this technology and sort of enable commerce, open commerce for China, I think has resonated really well for the government. And it’s the reason why we’re able to have conversations with them and talk about how we could push forward blockchain as a technology.
Lau: And really bringing the understanding to a greater level, but it does also come in a time where China is at the crosshairs of some geopolitical storms. The U.S.-China trade tensions that have gone beyond trade, quite frankly, now has bled into technology. Huawei with a semiconductor ban. We have TikTok in the crosshairs. We have Tencent in WeChat. All of these China technology firms are now being targeted. Do you have concerns about that as you try to to move forward with innovation?
Dhaliwal: We prefer to just demonstrate value and almost take a ‘proof is in the pudding’ type of approach, right? We have built a breakthrough, highly scalable, developer-friendly, public permissionless blockchain infrastructure. And we have a beachhead into China that’s going to put not just transactions on the network, but transactions of real value. We think that we can kind of walk the walk in terms of creating a public network that’s going to be a public network for the world, not just China.
And so I think we understand that there’s, especially in the blockchain, crypto space, that the Western viewpoints are highly ideological. But I think there are advantages that we have in being very pragmatic about our adoption that sort of integrates some top down strategies for adoption that will help us put a lot of value on this network. And then I think what will eventually happen is that we will be that gateway. We will be this value pool that Western projects, businesses outside of China can tap into, to conduct transactions, to exchange assets, you know, to build marketplaces.
So I think our approach is that we’re going to build our network. We have a very clear path to operate in China. It means that not only can we operate freely, but we can actually operate with a great deal of speed. And we have a tremendous amount of adoption that’s going on right now. We have 50,000 people in our community. We just got the second state endorsement, as you mentioned. And we are onboarding quite a few government projects I think that will get announced over time.
So there’s a lot of transactions, a lot of value that’s going to be built on this network. And I think for those that might be sort of skeptical, because we are sort of China-originated, I think there’s going to be a certain point in time where it’ll be somewhat unavoidable, where we really do have a valuable network and a public permissionless network, which does fit the ideologies of Western markets. And I think we’ll win them over.
Lau: All right, decentralization is a key theme, let’s talk about BSN, the Blockchain Service Network, there’s some real clear developments there and it has captured the imagination and the attention of the West, to be sure. And there’s two forks. So one is the local version — domestic, internal to China. And the rules are very different than the BSN international, which is much more permissionless and collaborative.
The BSN local asks for very specific things. Know your customer is very, very clear. Everybody needs to get state approval before they participate, which, if you think about it in the broader scheme of things, really flies in the face of the philosophy of decentralization and permissionless. And so how do you make sure that you balance that? On one hand, you are permissionless, you are decentralized, but internally in China, you have to play very strictly to the rules of the game.
Dhaliwal: Well, I think two things. One is BSN is, I would say, is oriented towards enterprise, and as a result, there’s been a long history of enterprise taking a consortia approach to take a private blockchain strategy, especially in China. And so BSN is facilitating a lot of that. They’re sort of creating this marketplace where people can go in and they can use a variety of tools and have some choices around blockchain to kind of facilitate that.
The public, they have this other set of offerings that are on the public blockchain side of things. And to the extent that the market can kind of utilize that, I think it remains to be seen. In our case, I don’t think there’s any ambiguity. With BSN, I think there’s some ambiguity. I think there’s a lot of value with BSN, as I said, on the enterprise side. But in our case, what we’re doing is we are demonstrating the value of public blockchain to the government. And so part of that is onboarding government use cases and continuing to build this case for public networks.
Our strategy is very much oriented around building up, continuing to build a case for more regulatory breakthroughs. And so we’ve kind of got that inside track to introduce public blockchain to make that case. We’re very confident that as time goes on, as we are able to demonstrate more and more successes, we’re going to get more regulatory breakthroughs. And there’s just going to be a lot more applications. Marketplaces built on the Conflux public network.
Lau: We heard very early on as China was developing its CBDC now called DCEP, the digital currency electronic payment, essentially the digital RMB, that Conflux was in the early days advising and participating in educating what we are now seeing going into its seventh year. China started a couple of years back. They’ve got a little bit of a head start. Where are we with DCEP? What can you tell us about it? And what is it shaping up to be, especially with the kind of architecture that you’ve helped advise on?
Dhaliwal: Yeah, to be honest, I wish I could say more, I don’t really have a ton of information on it. I do know that we remain a sort of trusted advisor, especially on the technical end of how to implement and execute the digital currency. I think we’re very supportive. And it remains to be seen how it’s going to be rolled out.
Lau: Got it. All right, let’s talk about the very unique role that Conflux [has]. A very rare bird’s eye view. It’s got offices in North America, in Africa and in China. As you kind of take a look at what we’re watching emerge, which is essentially a digital race between sovereign nations, what’s your perspective as to who’s got the ecosystem, the petri dish in place that supports the kind of developments that we’re seeing in this space?
Dhaliwal: Well, I think, firstly, I don’t believe the Web 3 space is a winner take all space. I don’t think you’re going to see as many outcomes like Facebook and Google that own their categories. I think the Web 3 space and when it comes to decentralized technologies, I think what’s unique is that each network builds its own community, has its own set of values, has its own set of value propositions, and are able to create a set of economics and governance that can sort of keep those constituents motivated.
So Ethereum, I think, is an extraordinary network with a tremendous community and their community is almost their moat, to tell you the truth. And I think when it comes to sort of leading the experimentation in this space, that network, those developers are certainly on the forefront. But then I also see networks like Celo that are focused on emerging markets, Africa, and they are really thinking about where we can make an impact. Like here today for people who need it, like how can we put blockchain and decentralized applications to work where it actually has a meaningful impact?
And so, from a Conflux standpoint, we kind of incorporate both of those visions. Like in China, we’re developing our own sort of developer community. We’re doing it in a way with a different strategy. Hacker culture and developer archetypes are very different in China. And so, we’re taking a kind of a top down approach where we’ve integrated with universities and are kind of introducing our technology to developers in a very structured, almost programmatic way. And we’re building our community and facilitating innovation through things like open DeFi in China.
Likewise we are very interested in taking our technology and making a real impact in places like Africa, where we could facilitate things like payments and other sort of financial services. And so we’re very focused on creating not just value for on the network, for our community, but also creating, developing some social impact where we can address not just those that want to opt out of our banking systems, but those that are unbanked and under banked.
Lau: You know, and bringing it back to the news that you broke right here on Forkast, which is an open DeFi project in China, it’s very interesting to understand that you do have the China endorsements behind you. What’s the political perspective on open DeFi in China? You’ve got a lot of huge state owned banks. So does this also communicate that even the banks themselves in China are starting to think about crypto and DeFi?
Dhaliwal: I think like all banks all around the world, just the pace of innovation and what’s happening, the growth for example — I think we’re now at $9 billion dollars locked up in DeFi as of today. I think like all banks, you just absolutely have to be on top of what’s going on in this space, what are the new innovations. Because there certainly are offerings coming out of DeFi that I think are innovations that the banks and regulators over time will want to closely consider.
So everything from credit and lending, to how exchanges are working with automated market makers to using bonding curves to do fundraising. I think these are all new innovations that are going to be around for a very long time and I think at some point will be institutionalized.
And so like the government, the banking system, I think, is looking for some almost hand-holding in terms of having someone introduce them to some of these DeFi innovations. And so that’s kind of our role, and especially with Shanghai being one of the states that’s endorsed us and also being a financial center in China.
Lau: That’s really interesting. You mentioned bond-raising. I mean, local governments and local provinces across China. This is one of their most integral functions to doing the business of running a province. Could potentially these endorsements from Hunan and Shanghai, could we be seeing some DeFi projects even at a state level?
Dhaliwal: You know, I’d like to say that anything is possible, and I don’t mean that in a negative way. I mean that in a way that’s actually very exciting. I mean, if you think about it, public permissionless blockchain can be a very controversial subject for the Chinese government. And yet we have had very sort of productive and educational conversations in introducing the merits of decentralization.
So I think there’s a lot of growth that will come in the DeFi space. I think a lot of that growth will be enabled by not just the relationships that Conflux has, but also the initiatives that we’re putting together around incubation. And some of that incubation is actually formalized. For example, our recent endorsement with the Hunan government, we are launching an innovation center that will have an incubation center. Likewise, our Shanghai facility that was funded by the Shanghai state government also has an incubation mandate. So we certainly expect to introduce DeFi projects through those programs.
Lau: That is extraordinary to watch, and I could probably talk to you more at length, but we’ll save it for the next time. Here at Forkast.News, we feel like we sit on the cusp of this innovation story in Asia as we watch China very closely. So it’ll be very interesting to see how this develops. And we will tap you again. We will tap you again. And I hope you do come back on the show and we’ll talk some more.
Dhaliwal: Well, thank you for having me, Angie.
Lau: Absolutely. Eden, thank you for joining us. And thank you, the rest of you watching along for joining us on this latest episode of Word on the Block. I’m Forkast.News Editor-in-Chief Angie Lau. Until the next time.