Research Report on Domestic Compliant Public Chain Conflux (ShuTu Chain)

Author: Web3CN

1. Project Introduction

The Conflux Foundation was established in 2018 and is a blockchain technology company focused on developing underlying technologies for distributed systems, dedicated to creating a world-class general-purpose blockchain platform.

In the early days of Conflux, Turing Award winner and renowned computer scientist Andrew Yao served as the chief scientist. Under his leadership, after two years of dedicated research and development, Conflux Network (Tree-Graph Chain) was launched on October 29, 2020.

Conflux Network is a Layer 1 public chain project and is the only public blockchain in China that complies with regulatory requirements, providing blockchain technology services to enterprises both domestically and internationally. Currently, the on-chain ecological projects are thriving.

2. Project Vision

Conflux's vision is to create a trusted, secure, and borderless ecosystem, allowing information to flow freely within the Conflux network, enabling everyone to experience the changes brought by decentralized systems in their lives, and to build a public chain that will still be in use and useful 20 years from now.

Conflux's mission is to promote the development of public chains in China, hoping to allow Chinese people to participate in the rule-making and ecological construction of the next generation of blockchain.

3. Features and Advantages

Domestic Public Chain

Conflux Network is a publicly recognized, permissionless blockchain project in China, having received a $5 million research grant from the Shanghai municipal government. This fund is supported by the Shanghai Science and Technology Commission and the Changning District government, marking the first investment by the Chinese government in a public permissionless chain within China.

Strong Team

Most core team members come from Tsinghua University's Yao Class, the Massachusetts Institute of Technology, and other prestigious institutions, with several members having won gold medals in the International Olympiad in Informatics. The core technology team consists of senior engineers with years of experience from well-known companies such as Google and Microsoft, as well as technical managers from Wall Street hedge funds and computer science professors from top universities in North America. For more details, please refer to Section 5 of this document.

Ethereum-Compatible Smart Contracts

Conflux public chain is fully compatible with Ethereum's smart contracts, meaning that the code, development skills, and experience accumulated in the Ethereum ecosystem can be migrated with almost zero cost. Many contracts that ultimately aim to be on Ethereum can also be experimented with on Conflux first.

PoW + PoS

The Conflux Hydra hard fork introduces an independently running PoS chain. Consensus participants on the PoS chain will regularly sign the pivot blocks of the tree-graph structure. Pivot blocks with enough signatures should be selected into the pivot chain by all PoW miners. In simple terms, the PoS chain designates a pivot block that all PoW miners should follow.

This means that once the PoS consensus votes for a pivot block, even if a 51% attacker attempts to reverse this block, it will not be recognized by PoW nodes. This not only enhances the speed of processing information data on the chain but also significantly improves security against 51% attackers.

Despite evolving into a PoW + PoS mechanism, Conflux always acknowledges the decentralized nature of PoW and enhances security. Conflux is the only system that elevates the performance of a PoW-based public chain to the same level as a PoS chain.

High-Performance Layer 1 Public Chain

Layer 1 projects have a higher potential for performance scalability and greater development prospects. The tree-graph consensus algorithm innovatively developed by the Tree-Graph Blockchain Research Institute has broken through existing blockchain technology bottlenecks in transaction throughput (TPS) and confirmation time, achieving a high throughput of over 3,000-6,000 TPS while ensuring public, open, and secure conditions.

Unique Public Chain Structure Design

The team has developed the GHAST rule based on a rule called "GHOST" to determine the main chain, establishing block order and transaction order based on the main chain and reference links. When conflicting transactions occur, only the first transaction is retained, and subsequent conflicting transactions are invalidated.

Unlike conventional blockchains like ETH that store information in a linear chain, Conflux uses an efficient tree-graph structure, hence it is also called Tree-Graph Chain.

As shown in the figure, the black pointed arrows represent block ownership relationships, while the yellow arrows represent traceability relationships. Blocks are dispersed in the middle, while the head and tail concentrate information, increasing transaction processing efficiency.

Hong Kong Concept

The popularity of the Hong Kong concept stems from the Hong Kong Monetary Authority and the Securities and Futures Commission frequently releasing favorable policies for Web3.

Conflux participated in the technical discussions on the digital Hong Kong dollar long ago and has technical cooperation with Hong Kong telecommunications operators. Zhang Yuanjie (co-founder of Conflux) also attended the POWER Web3 Innovators Hong Kong Summit during a time when the crypto market was least optimistic about Hong Kong. Conflux has also successfully reached a technical cooperation with China Telecom Hong Kong to promote the practical application of blockchain technology.

Hong Kong is a market that can radiate globally. Conflux has successfully sparked the wave of "Hong Kong concept coins" by leveraging the Web3 trend in Hong Kong.

4. Development History

2018

• Q1: Launched the project and conducted foundational research.
• Q2: Published the paper "Scaling Nakamoto Consensus to Thousands of Transactions per Second," exploring ways for public chain consensus protocols to overcome low throughput technical bottlenecks. Achieved a prototype and launched an internal test network.
• Q4: Completed a $35 million seed round financing, with investors including Sequoia Capital China and several traditional investment institutions and internet companies.

2019

• Q2: Launched the mascot "Kaozi"; launched version 1.0 of the test network; introduced a bounty task wall system called "Bounty."
• Q3: Established the Conflux Hangzhou Application Development and Operations Center.

2020

• Q1: Established the Shanghai Tree-Graph Blockchain Research Institute with the Shanghai municipal government, with Turing Award winner Andrew Yao serving as chief scientist; announced the mainnet release process, which will be released in three phases.
• Q2: Officially launched the first phase of the Conflux network: DEX ecosystem release. The paper "A Decentralized Blockchain with High Throughput and Fast Confirmation" was accepted by the international academic conference USENIX ATC in the field of computer systems. Established the Conflux DAO community technical committee.
• Q3: Launched the ecosystem funding program, planning to reward over 2.4 billion CFX tokens. Released the second phase of the mainnet: PoW mining algorithm launched. Initiated the Conflux Improvement Proposal (CIP) mechanism. The paper "Shrec: Bandwidth-Efficient Transaction Relay in High-Throughput Blockchain Systems," created by the Shanghai Tree-Graph Blockchain Research Institute, was accepted by the international academic conference SoCC2020.
• Q4: Released the economic white paper; released the final phase of the mainnet, fully launching all functions of the mainnet and releasing the economic model in the code. HashKey Hub officially supports the Conflux network.

2021

• Q1: Conflux released the 2021 technical roadmap, including improvements to online DAO governance functions.

2022

• Q1: Conflux welcomed a major upgrade, introducing EVM-compatible space and PoS chain. The Conflux Tree-Graph Blockchain Public Chain System 2.0 was released.
• Q2: The China Youth Daily will launch a digital collectibles issuance platform based on the Conflux chain.
• Q4: Conflux announced the v2.2.0 network hard fork upgrade.

2023

• Q1: China Telecom and Conflux Network collaborated to trial blockchain-supported SIM cards in Hong Kong. Web3 venture capital firm DWF Labs announced a $10 million investment in Conflux.
• Q2: Binance, OK Web3 wallet, and others supported the integration of the Conflux Network (CFX) mainnet.

5. Team Background

The idea of Conflux originated from founder Long Fan's blockchain lecture at Tsinghua University in 2017. The lecture discussed the potential for improvement in the blockchain field, particularly in the public chain sector, and identified the use of tree-graph structures to provide throughput for public chains.

In 2018, the Conflux team began foundational theoretical research and combined a modified version of the Bitcoin core code with the tree-graph algorithm for internal network testing. In May, Long Fan and Professor Andrew Yao published the research results in the paper "Scaling Nakamoto Consensus to Thousands of Transactions per Second," exploring how to free public chain consensus protocols from low throughput technical bottlenecks.

Experiments proved that Conflux's throughput could be expanded to 6,400 transactions per second. A month later, with the support of his mentor Andrew Yao and alumni, the Conflux project was officially established.

In terms of member backgrounds, most core team members come from Tsinghua University's Yao Class, the Massachusetts Institute of Technology, and other prestigious institutions, with several members having won gold medals in the International Olympiad in Informatics. The core technology team consists of senior engineers with years of experience from well-known companies such as Google and Microsoft, as well as technical managers from Wall Street hedge funds and computer science professors from top universities in North America.

Long Fan: Founder of Conflux, professor at the University of Toronto, PhD in computer science from MIT.

Zhang Yuanjie: Co-founder, prior to joining the Conflux team, worked at Wall Street fintech company Novus Partners, the University of North Carolina at Chapel Hill Alumni Foundation, and Huatai Zhaoshang Mother Fund.

Wu Ming: Co-founder and Chief Technology Officer, holds a PhD in computer science from the Chinese Academy of Sciences, previously a senior researcher at Microsoft Research Asia.

Andreas Veneris: Advisor, professor in the Department of Electrical and Computer Engineering and the Department of Computer Science at the University of Toronto, PhD from the University of Illinois at Urbana-Champaign, recipient of the "Ten-Year Impact Paper Award."

Andreas Park: Advisor, professor of finance at the University of Toronto, has published papers in many economics and finance journals.

Other team members also graduated from prestigious overseas universities.

6. Financing Information

On December 5, 2018, less than six months after its establishment, Conflux raised $35 million. The capital sources for this round of financing included Sequoia Capital China, Huobi Capital, IMO Ventures, Baidu, F2Pool, and MetaStable Capital.

On January 12, 2021, Conflux received over $5 million in research funding from the Shanghai Science and Technology Commission and the Changning District government.

On September 16, 2022, Conflux received strategic investment from Web3 venture capital firm DWF Labs, with the specific financing amount undisclosed.

On March 1, 2023, Conflux completed $10 million in financing through token sales, fully invested by DWF Labs. This investment will help Conflux expand its technology and grow its user base.

7. Development Achievements

Project Progress

On September 25, 2019, in the presence of leaders from the Qianjiang Century City Management Committee in Xiaoshan District, Hangzhou, and partners such as Tsinghua Yangtze River Delta Research Institute and Jia Nan Yunzhi, Conflux CTO Dr. Wu Ming announced the official establishment of the Conflux Hangzhou Application Development and Operations Center.

Image Source: Conflux

On January 9, 2020, the Shanghai municipal government held a ceremony for the unveiling of the Shanghai Yao Research Institute and the Shanghai Tree-Graph Blockchain Research Institute.

Image Source: Provided by Shanghai Science and Technology Commission

By the end of February 2022, Conflux welcomed a major upgrade, introducing EVM-compatible space and PoS chain. The upgraded network name changed from Conflux Tethys Network to Conflux Hydra Network, with the version number upgraded to Conflux v2.0.0-fix.

On May 16, 2023, China Telecom and Conflux launched their jointly developed blockchain SIM (BSIM) card at the West Artificial Intelligence Center in Xuhui District, Shanghai. The BSIM card is the world's first mobile user identity card based on blockchain technology. The BSIM card looks almost identical to traditional SIM cards and is fully compatible with mainstream mobile operating systems such as Android and iOS. It also has 10-20 times the storage space and dozens of times the computing power of traditional SIM cards.

Ecological Applications

Currently, there are over 70 ecological products displayed on the official website, including DeFi, wallets, development tools, infrastructure, NFTs, analysis platforms, and more.

Common Development Tools

ConfluxScan: Track network transactions, block heights, hash rates, and tokens through an easy-to-use block explorer.

Fluent Wallet: Fluent is a simple and secure Web3 wallet that can connect and control assets.

Web IDE: A browser-based integrated development environment accessible from any browser.

Conflux Truffle: Offers the same functionality and user experience as the EVM version.

Conflux Studio: A graphical IDE that helps easily deploy smart contracts and dApps on Conflux.

SDKs: Familiar tools in various programming languages help accelerate application development.

Stablecoin

CNHC (CNH Coin) is a stablecoin pegged to the Chinese yuan at a 1:1 ratio, currently issued on both Conflux and Ethereum. The CNHC group's fiat reserves are held by licensed trusts protected by internationally renowned custodial banks, and independent auditing firms regularly review CNHC's offshore RMB reserves. Due to compliance issues, CNHC does not provide services to users in mainland China. In addition to Conflux, CNHC's partners include Circle and KuCoin.

Digital Collectibles

Taopai is a Web3 and metaverse solution platform based on the Conflux public chain, incubated internally by the Shanghai Tree-Graph Blockchain Research Institute, including underlying blockchain technology, NFT issuance and trading platform, Web3 ecological integration, and metaverse virtual technology. On January 11, 2022, the digital collectibles issuance and trading platform Taopai officially launched, releasing the AI-generated avatar series "Kaozi's Friends," which made it to the cover of Xinmin Weekly.

Additionally, digital collectible platforms such as Bohe Mints and Shuangjing also utilize Conflux technology.

Conflux co-founder Zhang Yuanjie has stated that over 8 million digital collectibles have been issued on Conflux, with over 3 million independent users, serving over 300 brand IPs, including well-known domestic brands such as iQIYI, Liberation Daily, and Happy Mahua.

Metaverse Construction Team - Kaozi Construction DAO

The metaverse construction team under Conflux - Kaozi Construction DAO has now become independent and renamed Lantern DAO. Lantern DAO is a service provider for a better life in the metaverse, composed of experienced architects, designers, game developers, and others, with multiple Web3 platform projects already completed.

Beidou Plan

The Beidou Plan is a series of university student entrepreneurship camp activities organized by the Shanghai Tree-Graph Blockchain Research Institute and the Conflux Foundation, open every summer. Since its launch in 2020, it has successfully held activities such as Beidou Plan Tian Shu and Tian Xuan.

The Beidou Plan aims to provide a platform for more outstanding university students to design creative ideas, develop product prototypes, create solutions, and win competition prizes through intensive training and entrepreneurship camps, dedicated to cultivating quality talent for the blockchain industry and discovering and incubating quality university student projects.

8. Economic Model

Conflux's token economy is built around the $CFX token, which holders can use to pay transaction fees, earn $CFX token rewards through staking and renting storage, and participate in network governance. $CFX is also used to reward miners who ensure the secure operation of the network.

The initial issuance of $CFX is 5 billion, distributed as follows:

Image Source: coin98

• Ecological Fund: 40%, paid in installments over 4 years;
• Core Team and Investors: 36%, unlocked over 4 years;
• Private Investors and Reserves: 16%, unlocked over 2 years;
• Community: 8%, paid in installments over 4 years.

The trading price of $CFX was only $0.02 in January 2023, but after Conflux announced its collaboration with China Telecom and other news, the value of $CFX surged significantly.

9. Risks and Opportunities

Risks

Although $CFX has skyrocketed this year, looking at the longer timeline, the historical price of $CFX has fluctuated greatly, and market performance has been unstable. While paying attention to the Conflux project, it is also important to observe the overall market environment, especially regulatory risks.

Opportunities

As a leading domestic public chain, Conflux has a strong team and technical strength behind it. With the aura of Turing Award winner Andrew Yao, Conflux has developed smoothly, but it has also "remained silent" for a long time under the bear market.

With recent continuous news about Conflux, especially the popularity of the Hong Kong concept, Conflux has once again attracted market attention.

On one hand, collaborations with projects like China Telecom and Binance have caused $CFX to rise by several times, igniting the trend of Hong Kong concept coins.

On the other hand, in early March, Conflux received a $10 million investment from DWF Labs, bringing total financing to nearly $50 million. The influx of new funds has brought fresh blood to the project's development.

Hong Kong will issue digital currency financial licenses on June 1, 2023, opening up cryptocurrency trading. As one of the important projects in the Hong Kong concept, Conflux is expected to welcome new growth in the near future.