Post-event summary of the Singapore FinTech Festival: The trend of financial technology moving towards Web3 is irreversible

Author: Meng Yan's Thoughts on Blockchain

From November 15 to 17, the 2023 Singapore FinTech Festival (SFF) was held at the Singapore Expo near Changi Airport. I was invited by the Monetary Authority of Singapore (MAS) to personally participate in this largest global FinTech exhibition for the first time.

It is no exaggeration to say that SFF is the largest FinTech exhibition in the world. This event was first held in 2016 and is organized directly by the MAS, which is Singapore's central bank. By 2019, SFF had become the world's leading FinTech event with an attendance of 60,000 people. This year's SFF is the first after the pandemic has fully ended, and it attracted more than 66,000 participants from over 150 countries and regions, a number that is impressive (see Figure 1), but abstract; being on-site provides a deeper experience. The entire conference integrated exhibition and venue, occupying six huge exhibition halls, each of which could independently host a conference with thousands of attendees. SFF connected these six halls to accommodate over 60,000 people, with dozens of forums and nearly a thousand exhibitors' booths, ensuring that almost every company and international organization related to FinTech was present. Additionally, infrastructure such as dining, meeting points, and service areas was fully equipped, making it resemble a prosperous small town. Even with such a large scale, over three days, the venue was crowded, and this does not account for the dozens of side meetings that took place during SFF, which illustrates its grandeur.

Due to the scale, international nature, and inclusiveness of SFF, it is undoubtedly a great opportunity to gain insight into the current global FinTech landscape and development trends. Many domestic FinTech experts also attended the conference, and it would be beneficial if someone could provide a comprehensive introduction. Unfortunately, I only focused on the blockchain and Web3 fields, so I am unable to provide a panoramic overview and can only discuss some issues of interest within my professional domain. The emphasis is not on introducing the conference situation but on reflecting on some observations and thoughts based on what I saw and heard at the conference. Of course, I also believe, perhaps with some bias, that from the situation at SFF, Web3 is a key trend in current FinTech innovation.

Figure 1. SFF 2023 Report Card

1. The Theme of FinTech Innovation is Comprehensive and In-Depth Digitalization

2023 is the year of artificial intelligence, and SFF inevitably made AI a major topic of this conference. However, upon arriving at the venue and observing the proceedings, it becomes clear that, at least at this moment, AI is more of a buzzword in FinTech, while the true protagonist remains "digitalization."

When it comes to financial digitalization, domestic readers are not only familiar with it but may also have a sense of being "far ahead." In discussions with some domestic FinTech experts at the venue, I learned that the current attitude towards FinTech in China is shifting towards a more conservative stance. I speculate that this is partly due to the long-standing real estate crisis, which has shifted the focus of Chinese finance to "risk prevention," leaving little room for FinTech innovation. On the other hand, it may also stem from a sense of pride and complacency. Throughout the 2010s, China, relying on the rapid development of mobile internet, led the world in digital financial technology with its two major mobile payment systems. Many things that China achieved six or even ten years ago are still unattainable for most countries today, leading to a sense of arrogance among many, thinking, "Just sit back and watch; you can't catch up."

However, from the situation at this SFF, it seems that such arrogance has little capital left. Looking at the agenda of this conference, the discussion among various countries, regions, and multinational organizations on establishing cross-regional digital financial infrastructure is undoubtedly a major theme, particularly represented by the proposals from the conference organizer, MAS.

As Singapore's monetary and financial regulatory authority, MAS proposed the "Five Anchors" of digital financial technology a year ago, which are instant transfers, atomic clearing and settlement, programmable money, asset tokenization, and trustworthy ESG data. This year, MAS built upon these five points and proposed three major goals:

Instant Payments: Efficient and low-cost cross-border payments globally.

Seamless Financial Transactions: Achieving seamless transactions of financial assets across different trading venues through digital currencies, asset digitization, and digital trading networks.

Trustworthy Sustainable Ecosystem: Creating a trustworthy data and disclosure ecosystem to support the sustainable development of financial and environmental ecosystems.

These three major goals this year and last year's five anchors are not mutually exclusive but rather a complete system of strategic goals and means. The means are relatively easy to understand; how do we interpret these three goals?

We can view it this way: if we consider the financial industry as a type of real economy, there are three flows within this industry: logistics, information flow, and money flow. The uniqueness of the financial industry lies in the fact that its logistics primarily involves the transfer of financial assets, which are essentially financial rights and are virtual rather than physical. Therefore, people say finance is a "virtual economy." MAS clearly aims to digitize all three flows in the financial industry as a strategic goal, not only digitizing payments but also digitizing financial assets and the relevant information surrounding financial asset transactions. The five anchors are the key means.

Among these three, the digitization of money flow is relatively easier, and China has already achieved this in its domestic market. However, there are still many issues to resolve regarding the complete digitization of cross-border payment flows. As for asset digitization, it is a vast topic that is still in its early stages. Regarding the digitization of information flow, it may seem like a non-issue at first glance since various documents are already digitized today. However, this strategy captures the key point: the focus is not on the digitization of forms but on "trustworthiness and disclosure." Because information must be authentic and disclosed appropriately within the right scope to support the digitization of assets and transactions. What information must be ensured to be authentic and disclosed? The scope cannot be limitless. Combining the concept of the "Five Anchors," we can recognize that, in addition to descriptive information about the assets themselves and transaction information, ESG data related to business entities is also indispensable.

Although SFF has many participants and diverse themes, MAS's proposals of "payment instantization, asset digitization, and data trustworthiness" are clear in thought and can broadly represent the main consensus of the conference. This "5+3" agenda essentially captures the essence of comprehensive and in-depth digitalization in FinTech, pointing not to a minor domestic industrial upgrade but to a technological revolution aimed at sweeping the entire financial industry.

2. Digital Innovation in FinTech Will Experience "Fission"

Setting an agenda is relatively easy, but implementation is much more challenging. Singapore's issue is that it lacks a large domestic market to rely on; once any strategy is implemented, it must engage in cross-border cooperation. Even with lofty ambitions, negotiations must be conducted one by one, making it incomparable to super-large economies like China and the U.S. However, the financial technology innovation based on this "decentralized collaboration" will also have its unique characteristics.

From this SFF, the cooperation to promote digital financial infrastructure is not merely a unilateral wish but a consensus among many countries and multinational organizations worldwide. Thanks to this conference, not only did MAS lead the signing of a series of cross-border cooperation agreements, but many participating organizations also actively communicated and coordinated with each other, showing a strong intention to collaborate. This indicates that this round of FinTech upgrades is likely to unfold and advance through cooperation among small and medium-sized economies and international organizations, representing a decentralized development model. Although the leaders of the financial sectors from various countries at the SFF spoke eloquently and participants exchanged ideas enthusiastically, I do not wish to exaggerate and say that this round of FinTech transformation will progress rapidly and dramatically. On the contrary, I believe that the decentralized collaborative implementation model will lead to market fragmentation in this round of FinTech innovation, resulting in slower progress and no immediate emergence of a giant winner. However, at the same time, because the market lacks a giant that can quickly unify the landscape through market size and capital scale, the period of free competition will be prolonged, leading to a rich and diverse technological and product ecosystem. A large number of complex derivatives and fissions may become the most geographically widespread, diverse in form, competitive, and innovative FinTech innovation to date.

Driving international technological change through decentralized collaboration has no successful precedents in world history. Previously, whether it was mechanization, electrification, the internet, or mobile networks, the technological and operational systems were first nurtured and incubated in a powerful country’s domestic market and then expanded globally through some international cooperation mechanism, becoming the de facto standard. However, at this moment, the only two major countries capable of leading the next generation of digital financial technology are both taking a passive and ambiguous stance for different reasons. In the U.S., the self-interest in maintaining financial hegemony is too strong, making it difficult to reach conclusions and design systems regarding whether this new FinTech revolution characterized by decentralization, interoperability, trustworthy data, and inclusivity will impact the dollar and its dominant position as the center of the global financial market and global credit rating. Additionally, the PTSD from the FTX incident has not yet healed, leading to a preference for burying their heads in the kaleidoscope of artificial intelligence, pretending that everything is fine. In China, under the overarching goal of mitigating financial risks and prioritizing stability, there is a fresh memory of the issues brought about by the previous rapid advancement of FinTech, leading to a reluctance to incubate new FinTech innovations in the domestic market at the cost of localized turbulence.

In the absence of both major powers, this round of digital financial technology transformation can only be accomplished through multinational decentralized collaboration. For example, in the Project DESFT that I personally participated in, the project was initiated by Singapore's MAS and the Central Bank of Ghana, with the Central Bank of Ghana providing application scenarios and experimental sandboxes, while MAS and the United Nations Development Programme (UNDP) provided the core digital certificate standard UTC, and Solv and zCloak Network jointly designed and developed it. This is a typical example of decentralized collaborative innovation. As far as I know, this model is not an isolated case but a very common form in current FinTech innovation.

Why is this decentralized collaborative innovation feasible? I believe there are four conditions:

First, there is a genuine, concrete, and urgent demand. This demand comes not only from more developed economies like Singapore and Japan but especially from developing economies. Back in June, when I traveled to Rwanda to attend the "Inclusive FinTech Forum," I found that developing countries in Africa, Southeast Asia, and other regions had a sincere and urgent attitude towards this financial technology revolution. My interpretation is that many lagging countries are very dissatisfied with the current global financial order and have long suffered, viewing this round of FinTech revolution as an opportunity for adjustment, hoping to improve the efficiency of their financial systems while also gaining a more favorable position in the future international financial order by taking the lead. This mindset makes them generally more aggressive, less burdened by history, and more willing to experiment with advanced FinTech than developed countries. Although they may lack funds, they are willing to provide a more crucial resource than capital: application scenarios. This creates a fertile ground for innovation.

Second, the large-scale diffusion of FinTech knowledge has laid a new foundation for communication. In recent years, especially with the rise of digital currencies, blockchain, and DeFi, knowledge related to monetary economics and FinTech has spread on an unprecedented scale. Before 2018, even within technical communities and digital currency communities, few people could accurately understand basic concepts like M0, M2, fractional reserves, leverage, netting, atomic settlement, KYC, and AML. At this SFF, people from different countries naturally used advanced terms like DLT, AMM, smart contracts, and tokenization in their discussions. During one of the sessions at the conference, I explained the concept of "semi-fungible tokens" and programmable digital tickets to an audience of over two hundred. Even with such cutting-edge topics, most attendees nodded in understanding, and several approached our booth afterward to discuss the application prospects of the technology. It is on this basis of large-scale knowledge diffusion that people from different countries, regions, and institutional backgrounds can establish mutual trust and jointly promote innovation.

Third, the existence of a Crypto sandbox. The Crypto world, led by Bitcoin and Ethereum ecosystems, is often viewed by many mainstream figures as speculative and a dark gray industry. However, the existence of this space provides an unprecedented, unparalleled, and irreplaceable innovation sandbox for the new generation of FinTech innovation. This innovation sandbox is large, efficient, low-friction, with rapid iteration and timely market feedback, and a closed-loop of technological and economic logic. No government or country can proactively create such a high-quality innovation sandbox, yet today's FinTech innovators have it readily available. Because of this sandbox, many concepts, technologies, ideas, and even products and solutions can be validated in a short time. Nothing can build consensus better than a functioning system. In the development of Project DESFT, we followed this approach, first creating a living, usable demonstration system on a public chain, gaining recognition from both central banks, and then further developing it to support real-world business and innovation.

Fourth, the characteristics of "fat protocols" in the new generation of FinTech and the open-source culture lead to composability and extremely high development efficiency. Many Web3 developers have noticed an interesting phenomenon: systems developed based on the Web3 technology stack are about an order of magnitude more efficient than comparable Web2 systems. It is common for an innovative, complex DeFi protocol to have only a dozen or even just a few core developers behind it. This situation is partly because current Web3 financial systems are still relatively simple and not overly complex, but also because new-generation financial technologies like blockchain, VC/DID, and zero-knowledge proofs have "fat protocol" characteristics, meaning they integrate strong composability and numerous functions at the protocol layer, making application system development easy. Usable systems built with thousands or even hundreds of lines of smart contract code are common. This extremely high development efficiency, combined with the established open-source culture, significantly reduces the costs of innovation in terms of funding and time, accelerates iteration frequency, and greatly increases the cost-effectiveness of innovation.

For the above four reasons, I believe that this decentralized collaborative technological innovation practice, although lacking successful precedents, indeed has the potential for success. Moreover, because innovation unfolds in a decentralized manner, under different themes, scenarios, constraints, and technological ideas, and is combined in complex ways, it will inevitably produce very open and rich fissions, with a large number of new ideas and thoughts emerging, resulting in various unexpected outcomes. While many of these may be fleeting, some will undoubtedly lead to great innovations.

Of course, from a business perspective, decentralized collaboration will inevitably consume a lot of time for communication, negotiation, and coordination. Agreements that have been reached may be revisited multiple times, and the market will be fragmented into many pieces, so progress will not be quick, and there will not be a giant winner emerging swiftly. This is the main drawback of distributed collaborative innovation.

However, sufficient successful examples will help gradually form a large market. In particular, I do not believe that unified large economies like China and the U.S. will remain outside this FinTech innovation for long. As mentioned earlier, the current indifferent attitudes of both countries towards FinTech innovation are largely due to cognitive issues and the pressures of the current domestic situation. As time changes and policy approaches adjust, these two super-large economies with vast unified domestic markets will certainly embrace this technological revolution. In the U.S., due to the flexibility of its institutional system, it may institutionalize the existing innovation sandbox of crypto through legislation like the "Token Safe Harbor," integrating it into its system and thus catching up by picking the low-hanging fruit. In China, however, due to the significant distance between the direction of domestic financial reform and the overall direction of this FinTech revolution, it is challenging to adopt a strategy similar to that of the U.S. What kind of strategy can be adopted is beyond my understanding.

3. "Digital Sovereignty" Drives FinTech Towards Web3

At SFF, FinTech practitioners from various countries and regions fully reflected the diversity of thought; some firmly embraced blockchain, while others believed in strengthening the interoperability of centralized systems. Some thought that digital currencies should be introduced to solve instant payment issues, while others felt that existing payment systems were quite good and did not require major upheaval. Some believed that the tokenization of real-world assets was the only way forward, while others viewed it as an illusion. With various viewpoints clashing, it is difficult to say that a significant consensus on what the future should be can be reached.

However, almost everyone can agree on what they do not want: that is, absolutely not to be controlled or have their sovereignty over FinTech usurped. This consensus will undoubtedly push the entire development of FinTech onto the track of Web3.

At the SFF venue, I communicated with at least dozens of FinTech professionals from different countries, and when discussing their views on the future of FinTech, the vast majority expressed that they absolutely could not accept the next generation of financial infrastructure being hosted by a centralized platform that manages users' identities, accounts, social relationships, assets, and data, just like today.

Please note that this is not a unilateral attitude; for example, while small and medium-sized enterprises have a clear stance, regulatory authorities maintain ambiguity. The reality is that from representatives of small and medium-sized enterprises to traditional financial institutions, from academic experts to regulatory officials, all parties strongly expressed this viewpoint.

Why is this? I believe it is due to the self-destructive nature generated by the success of mainstream FinTech. In other words, the more successful FinTech is in the Web2 era, the more it creates its own grave digger.

The essence of Web2 internet platforms is largely based on centralized technological infrastructure, imposing unreasonable transaction structures under the guise of custodianship, effectively seizing users' identities, accounts, social relationships, content, data, and assets, exercising absolute control over their fortunes and misfortunes.

The original intent of Web2 was for users to create content and data, with platforms merely providing the technological infrastructure. However, twenty years ago, when Web2 first emerged, users sought convenience and speed, lacking the concept of digital sovereignty and having few alternatives. The major platforms took advantage of this situation, seizing numerous key rights and solidifying this power structure, thus transforming users' creativity and productivity into a mine they could exploit at will, continuously extracting resources and value, becoming the overlords of the digital economy.

The paradox is that the more successful these centralized platforms become, the more they educate everyone to oppose themselves. Ten years ago, when the concept of big data began to gain popularity, people gradually realized that data is not only an asset but the most valuable asset. The value of Web2 companies lies entirely in user data. How do Web2 companies boast of their strength? Isn't it by having a large number of users (accounts), a wealth of user data, and a significant amount of user assets? The more they promote this, the more they tell everyone that their strength comes from seizing your value.

This is not merely a psychological feeling but is directly reflected in the real user experience. Increasingly, more people are experiencing the loss of sovereignty firsthand. Although they may feel powerless against the current situation, many are cautious, feeling wronged and resentful. Every manipulation of traffic, every deletion of posts, and every account ban by platforms only serves to tarnish the reputation of Web2.

Thanks to the tireless training in the value of big data by internet giants over the past decade, both governments and enterprises now fully perceive the value of data and are very dissatisfied with the transaction structures established by centralized platforms. Ask the governments of developing countries if anyone can still accept handing over their payment and financial data to foreign internet giants for management? Ask enterprises, especially those with a certain scale and a sense of data sovereignty, if there are any willing to hand over their data to centralized platforms to be at their mercy? Over the past year, I have communicated with government officials and small and medium-sized enterprises from multiple countries and have felt that their demands for autonomous identities, autonomous data, autonomous social relationships, autonomous assets, and autonomous rights have awakened comprehensively. This trend is irreversible and will undoubtedly become a consensus among all types of users within a few years.

People's mindsets have changed, and their concepts have evolved. Once this change begins, there is no turning back. This is the key idea driving this round of FinTech innovation.

The emergence of Web3 provides people with new choices. The only keyword for Web3 is "sovereignty," not anything else. Its connotation includes sovereign identity, sovereign accounts, sovereign social relationships, sovereign content, sovereign data, and sovereign assets. These are not abstract concepts but a completely new structure of rights and transaction structures in the digital economy, representing a new order and process that directly affects how users interact with internet and FinTech products. Driven by this idea, FinTech innovation will undoubtedly orient towards Web3, with no other direction possible. Within a few years, users will first experience the taste of digital sovereignty through some FinTech products, and even if they are whipped, they will not be willing to return to the Web2 world.

(The following part of this article will discuss the position and changes of blockchain in this round of FinTech innovation.)