Article Rewritten:
Author: Liu Honglin, Founder and Director of Shanghai Mancun Law Firm
Source: Mancun Blockchain Legal Services
Last week, Professor Yao Qizhi, Chief Scientist of Conflux and key figure of the ShuTu Research Institute, received a letter that caused a stir among Conflux enthusiasts. On the same day, lawyer Liu Honglin, from Mancun Law Firm, posted a tweet on the X platform, announcing that he would lead a team to visit the ShuTu Research Institute in Shanghai next week to meet with Yuan Jie, and invited everyone to contribute questions. The tweet received enthusiastic responses from netizens.
Based on personal preference for Chinese Web3.0 entrepreneurial projects, lawyer Liu Honglin has always been interested in and researched this well-established Chinese public chain. He has previously written several articles analyzing Conflux from the perspectives of legal compliance and Web3.0 entrepreneurs. Interested friends can take a look.
Therefore, after almost a year, Lawyer Honglin entered Conflux with the attention and questions from netizens and had a conversation with Yuan Jie, one of the co-founders of Conflux, for over two hours. This visit covered various aspects, including the relationship and division of labor between the Conflux ecosystem and the ShuTu Research Institute, hot topics about Conflux on the internet, and changes in the regulatory policies of the mainland China and Hong Kong markets. The conversation was intense and fruitful throughout.
Of course, sharing the joy is better than enjoying it alone (promises made to netizens should be fulfilled, as everyone online is eager for updates). Lawyer Honglin has compiled the transcript of the conversation and is sharing it here.
I need to make a solemn declaration: at the end of the conversation, I voluntarily told Yuan Jie that I would organize the content of the conversation into an article and share it publicly. I asked if there were any parts he didn’t want to disclose or expressed inappropriately, and he said it was unnecessary. I asked what would happen if I leaked their trade secrets, and he said I could choose not to admit it.
Well, that’s acceptable.
Therefore…this article represents only my personal memory and record of the two-hour conversation, and I cannot guarantee its complete accuracy. Any deviations in understanding or incorrect information are my responsibility, not Yuan Jie’s. The content is provided for friends interested in Conflux or Chinese Web3.0 entrepreneurship for communication and discussion purposes only, and does not constitute any official answers or investment advice from Conflux.
About the ShuTu Research Institute and Conflux
Yuan Jie once again explained in detail the relationship between the ShuTu Research Institute in Shanghai and the Conflux Foundation. Currently, the majority of public chain projects in the market operate independently as foundations and development companies. The relationship mechanism between foundations and operating companies may be closely or loosely connected. Taking Ethereum as an example, its governance structure is centered around Vitalik Buterin (V God), with members of the foundation as well, but the relationship is relatively loose. In some cases, the foundation and the project operate as “one team, two brands,” which may be more practical and efficient in the early stages of Web3 projects.
The relationship between the ShuTu Research Institute and Conflux is as follows: Conflux is a non-profit organization registered overseas, while the ShuTu Research Institute is a non-profit private organization supported by the Shanghai municipal government. From a legal perspective, there is no direct affiliation or relationship between the two.
However, the ShuTu Research Institute plays the role of a core contributor of open-source code in the Conflux ecosystem and undertakes related technical development work. In this relationship, the ShuTu Research Institute and the Conflux Foundation are somewhat like the client and the contractor: the domestic research institute is responsible for development work, while the overseas foundation provides compensation through donations or funding.
Additionally, as a research institution supported by the Shanghai municipal government, the ShuTu Research Institute not only supports Conflux-related work but also explores new application scenarios and projects in the Web3 field, including projects led by the Ministry of Industry and Information Technology and ZeroGravity distributed storage. Government-related research projects provide a stable source of income for the research institute, which can cover daily expenses and operational costs.
In summary, the relationship between the ShuTu Research Institute in Shanghai and the Conflux Foundation embodies the typical model of independent operation of foundations and development companies. The ShuTu Research Institute is not only a core technical contributor to the Conflux ecosystem but also receives stable income from participating in government projects.
Yuan Jie also candidly shared that the Conflux Foundation and the co-founders of the ShuTu Research Institute are constantly exploring better governance mechanisms for the foundation to promote the stable development of the Conflux project.
About the Roles of Conflux Co-founders
Because the ShuTu Research Institute and the Conflux Foundation are relatively independent, the division of labor among the co-founders is also clear. In this conversation, Mr. Yuan Jie shared the current specific responsibilities:
Yuan Jie himself mainly focuses on business and operational affairs, closely following the hot tracks and cutting-edge business opportunities in the Web3 market, seizing opportunities, and promoting the project’s development.
Long Fan is mainly responsible for domestic government relations and related work, including communication and coordination with government agencies and departments, ensuring the smooth progress of the project in China, and obtaining necessary policy support and cooperation opportunities.
Wu Ming mainly focuses on exploring cutting-edge technical challenges and the development of related technologies. He is dedicated to solving complex technical problems and promoting innovation and progress in the project’s technical field.
About the Abandoned BTC L2
The BTC L2 project was voluntarily proposed by Yuan Jie to the team during the Mingwen fire at the end of last year, and the ShuTu team actively promoted related attempts. However, according to market feedback, the enthusiasm for this track has gradually faded, and the performance of existing projects is not ideal. Therefore, the team has chosen to temporarily suspend investment in this area. Yuan Jie sees this as a tactical exploration and choice, and he will continue to pay attention to and try out new emerging tracks and opportunities in the industry.
About Institutional Investment and Market Makers
Regarding the discussion on investment institutions and market prices of the Conflux project, Yuan Jie mentioned that the investment institutions of the Conflux Foundation will complete the entire unlocking process in the first half of next year, and the Foundation has recently received strategic investments from other partners (but has not publicly disclosed them). The new funding support has made the foundation’s financial resources relatively abundant, ensuring that the team can continue to focus on project development and promotion. In short, Conflux is not short of money at the moment.
Regarding the performance of Conflux assets in the secondary market that everyone is concerned about, Yuan Jie explained that this is a natural market behavior. Previously, the foundation had cooperated with market makers such as DWF. However, they found that their styles did not match and eventually ended the cooperation. At this stage, the Conflux Foundation is seeking to collaborate with more mainstream market makers, especially those in different countries and regions. These new partners will provide Conflux with longer-term and closer market-making services: not only market services but also participation in on-chain nodes. This deep involvement will help build a healthy Conflux ecosystem and improve the performance of assets in the secondary market. Whether this ideal state can be achieved, of course, no one can guarantee. So, as adults, we should be cautious and make our own judgments.Taking Responsibility for Your Own Judgment
About the Conflux Blockchain Ecology
For the Shanghai Tree Graph Research Institute and the core team of Conflux, entrepreneurship has entered its sixth year. During this time, the team’s mindset has undergone significant changes.
Initially, the Conflux team believed that a public chain should host hackathons in different countries and regions around the world, attracting entrepreneurial teams to develop and engage with the public chain, similar to how shopping districts attract investments. This strategy has been successful for other projects such as the Ethereum Foundation and Solana, which have abundant financial and traffic support (such as TON).
However, the team later discovered that this path may not be suitable for Conflux. Many of the ecological projects developed on Conflux gradually moved to other public chains as the market and capital flowed. For Conflux, this meant that it did not have its own moat advantage. Of course, this cannot be blamed on the developers, as everyone needs to make a living and earn money.
Conflux’s positioning in the Web3.0 public chain track is a long-term strategic path. For Conflux, the Chinese-speaking region provides a key market where it can gain a differentiated competitive advantage and build its own moat. Therefore, while providing a public chain service with excellent performance, low cost, and outstanding user experience, Conflux also integrates with Chinese regulatory policies to ensure the compliance of its network ecology. This provides a natural and ideal encryption platform for many entrepreneurs with Chinese backgrounds who want to enter the Web3.0 field.
Although Conflux cannot always wave the flag of patriotism, China and the entire Chinese-speaking region do need their own public chain projects. Currently, there are only a few public chain projects led by Chinese people, and Conflux, due to its compliance and technical capabilities, is in a good state in terms of current development pace, future planning, and sources of income. It can be expected that in the next 4 to 5 years, Conflux will be able to consistently maintain its position in the global market value rankings and patiently wait for the right time.
Concerning the Hacking of Conflux Ecological Projects
Regarding the issue of assets loss due to the hacking of Conflux ecological projects that everyone is concerned about, Yuanjie has provided detailed responses and explanations.
Since the incident occurred, he has been actively pushing forward related work, including assisting users in reporting to the authorities in China and communicating with the management of two major exchanges every few days. For the stolen losses of users with small amounts lower than 20,000 USDT in this incident, the Conflux Foundation has already compensated them. However, for users with significant assets, cooperation from the relevant exchanges is required.
About the Conflux BSIM Card
Yuanjie shared an introduction to the Conflux research project, the BSIM card. Currently, all the scientific research work of the BSIM card has been completed, and it has been piloted in two cities in China. The cost packages are quite reasonable (Lawyer Mankun also participated in the product testing).
As for the large-scale market release of the BSIM card, it depends more on the progress of cooperation with telecommunications partners. After all, they are government units, and the internal progress of such projects and market expansion is relatively stable. If it can’t be achieved in a timely manner, then everyone can just consider it as boasting.
About Regulatory Policies, the Hong Kong Market, and HKD Stablecoin
Regarding whether there has been any relaxation in China’s mainland regulatory policies and the market situation in Hong Kong, Yuanjie’s views are as follows:
Firstly, it is highly unlikely that China’s mainland will relax its policies on cryptocurrencies in the short term. This is mainly because the current economic situation in China is directly related to the performance of the capital market. If the restrictions on cryptocurrencies were lifted in the short term, it would not have a particularly positive impact on the current economic environment. After all, uncontrolled capital outflows do not comply with current policies.
As part of China, Hong Kong has the opportunity to explore Web3.0 and virtual currency finance with the support of mainland China. However, most of the local financial institutions in Hong Kong are still in a wait-and-see state regarding these new attempts. For example, the trading volume of virtual currency exchanges and the trading of Bitcoin ETFs launched in Hong Kong are not optimistic. This is mainly because the majority of those actively participating in these new ventures are still mainland capital or financial institutions, such as China Asset Management and Southern Fund. In the financial market of Hong Kong, foreign capital or Western financial institutions are the main players in terms of funds and resources. This shows that Western capital markets and financial institutions have not shown a positive attitude towards Hong Kong’s policies and matters concerning virtual currencies.
Secondly, regarding the HKD stablecoin. Yuanjie believes that the main sources of income for stablecoins are twofold: friction costs in the transfer process, such as Tether’s friction cost, which is approximately one-thousandth; and the returns from underlying assets. Tether’s stablecoin currently has a total issuance of over 100 billion, and the passive interest income each year is around 4 to 5 billion US dollars. The team behind Tether’s stablecoin project consists of no more than 80 people, and the revenue they generate is remarkable. From these two perspectives, if the HKD stablecoin is to be launched, it needs to solve not only the settlement issues between traditional funds or financial institutions but also whether it can become a native application tool in the virtual currency market. For example, it can be one of the trading pairs on virtual currency exchanges or a payment settlement tool for a wide range of small and medium-sized businesses. Currently, some domestic companies are already attempting overseas stablecoin businesses, including JD.com’s user settlement business overseas.
In terms of the HKD stablecoin, Conflux’s partners in Hong Kong are preparing for relevant compliant HKD stablecoin matters, and it is expected to be on the first list. However, the government’s progress in promoting this project is slightly lower than expected. Based on the HKD stablecoin, Conflux hopes to explore more financial technology on the blockchain, rather than just being a settlement tool for traditional financial institutions.
About the Web3.0 Industry’s Disdain Hierarchy
Yuanjie admitted that currently, Chinese projects are not always welcomed in the Web3.0 investment circle. Projects with European and American faces have advantages in fundraising and achieving higher valuations, while Chinese projects are relatively disadvantaged. This bias already exists in the industry. In previous years, some domestic investment institutions continued to focus on and invest heavily in emerging opportunities in the Web3.0 field. However, in the past two years, the attention and investment of domestic traditional funds in Web3.0 projects have noticeably decreased. This does not mean that Chinese projects are weaker in terms of development capabilities or technological research and development. Chinese projects still rely on their strength to conduct scientific research and development.
In this market environment, combined with the current regulatory policies in mainland China, for the majority of Chinese Web3.0 entrepreneurs, engaging in native Web3.0 technology development or blockchain projects will face significant limitations. The better approach is to find business intersections, which means using blockchain as an auxiliary technology applied to interdisciplinary or entrepreneurial fields. For example, combining AI and blockchain, using some technologies or elements of blockchain as differentiating highlights in their entrepreneurial projects. This entrepreneurial path is currently a better choice in terms of both recognition in the capital market and the risk of the project itself.
