Xiao Feng's Full Speech: The Fourth Financial Revolution, On-Chain Enters the Explosive Period

Author | Xiao Feng
Editor | Wu Shuo Blockchain

On February 20, Dr. Xiao Feng, Chairman and CEO of HashKey Group, delivered a keynote speech titled "Block Chain: Starting from the Origin" at the Web3 Voyage event hosted by HashKey Chain. Below is the full text of the speech, organized from on-site shorthand, with some edits that do not affect the original meaning.

Hello everyone, first of all, welcome to our on-site meeting today.

On August 28, 2023, we held the launch ceremony for our Hong Kong Stock Exchange HashKey Exchange at the same location—the Hong Kong Maritime Museum. Hong Kong is a harbor city, so we deliberately chose this symbolic place for the opening ceremony. Today marks the second time the group has held an event here.

HashKey Exchange is one wing of HashKey, while HashKey Chain is another wing of HashKey Group.

In today's speech, I will elaborate on why HashKey Chain is so important to us.

Blockchain: New Financial Infrastructure

Starting from the origin of blockchain, from the first principles perspective, we need to examine the highly discussed crypto assets, or virtual assets. All of this is built on blockchain technology. Therefore, we must return to the original intention and explore what blockchain really is.

Three Elements of Human Social Evolution

Before formally starting the speech, I would like to quote the research findings of a Nobel Prize-winning economist. He has long studied the Industrial Revolution and concluded that "the Industrial Revolution had to wait for a financial revolution."

His research covers the first three industrial revolutions, and now we have entered the fourth industrial revolution—the era of intelligence and digitalization. He believes that all industrial revolutions rely on the support of new financial service methods to promote, develop, and strengthen the new industrial revolution. Conversely, without the support of a financial revolution, the industrial revolutions in human society might not succeed.

Many people are reluctant to admit that blockchain is the infrastructure supporting the fourth industrial revolution, which is why we often mention "consortium chains" or "non-token blockchains." However, the practices of the past decade have proven that such attempts mostly do not work. We must bravely acknowledge that blockchain, as a tool for adjusting production relations, has its core entry point in finance. Without financial demand, we do not need blockchain at all. This means that as humanity enters the fourth industrial revolution and innovates in digital and intelligent production relations, a new financial revolution is indispensable. Otherwise, all of this may not happen or may not succeed.

Four "Industrial Revolutions"

This economist further pointed out that each industrial revolution is a combination of energy revolution, industrial revolution, and financial revolution, with the financial revolution often being a prerequisite.

This reminds me of research in physics: social development and technological progress cannot be separated from the conversion of energy, power, and information. This conversion aligns with the energy revolution, industrial revolution, and financial revolution in certain scenarios. Following this framework, let's review the past three industrial revolutions:

The first, marked by the steam engine, occurred in the UK;

The second, represented by electricity and wireless communication, took place in the US;

The third, marked by computers, code, and the internet, also emerged in the US.

Another scientist mentioned that humanity has experienced three cognitive revolutions:

The first was the invention of language, enabling communication between people;

The second was the invention of writing, allowing the recording and transmission of experiences;

The third was the invention of code in the last century. Code, as a new language, has exponentially expanded the scope of communication, coordination, and interaction within human society.

Without code, there would be no AI, blockchain, or internet. Code has created a language between humans and machines, as well as between machines, greatly expanding the space for information and economic activities. This also explains why the market capitalization of listed companies can reach $30 trillion today, while the highest in the industrial economy era was only $600 billion—like ExxonMobil and General Electric. Nowadays, trillion-dollar market cap companies are everywhere, and some even predict that Nvidia may reach a valuation of $5 trillion or $10 trillion.

The Fourth "Industrial Revolution"

The fourth industrial revolution emerged in the early 21st century, represented by blockchain, AI, and cloud computing.

If in January I wouldn't dare to say it was related to China, now I can say that both China and the US are jointly driving this wave. From the internet to AI, the top ten platforms and large model developments are almost concentrated in China and the US, with Europe and Japan hardly in sight. China has boarded this fast train.

However, the fourth industrial revolution must be supported by a financial revolution. The UK relied on credit and bond markets, the US relied on investment banks and capital markets, and the third relied on venture capital (VC) to give rise to Silicon Valley and Chinese internet platforms. Does the fourth industrial revolution not require a new financial model?

The greatest value of AI lies in embodied intelligence and spatial intelligence, which requires a large number of robots. So, what currency will be used for payments between robots and between humans and robots? US dollars or Chinese yuan? Only programmable currency based on smart contracts can fulfill this role. This means that the fourth industrial revolution will inevitably call for a new financial revolution; otherwise, its potential will be greatly diminished.

The Fourth "Financial Revolution"

The fourth industrial revolution is inseparable from blockchain, smart contracts, digital wallets, and programmable currencies. Blockchain is a publicly transparent global public ledger, and human accounting methods have changed only three times in a millennium: single-entry bookkeeping in Sumer, double-entry bookkeeping in Italy around 1300, and distributed ledger introduced by Bitcoin in 2009. Distributed ledger arose due to the cross-time, cross-space, and cross-organization characteristics of digital existence, serving as the financial foundation of the fourth industrial revolution.

Compared to traditional finance, new finance has three major changes:

First, the accounting method has shifted from double-entry bookkeeping to distributed ledger;

Second, accounts have changed from bank accounts to digital wallets;

Third, the unit of accounting has shifted from fiat currency to digital currency. This has given rise to crypto assets—a new asset class based on distributed encryption algorithms and ledgers.

The First Principles of Blockchain

What is the first principle of finance? It is the mismatch of value across time and space, a nature that has remained unchanged for a millennium. But the service methods are changing: from no banks to banks, from no central banks to central banks. Some say the essence of finance remains unchanged, but banks and exchanges are merely tools. Digital activities transcend time and space; payments have become peer-to-peer, distributed, and self-organizing networks, with remittances from Hong Kong to the US arriving in minutes without the need for five institutions to reconcile. Which method aligns better with human nature? Isn't instant arrival and near-zero fees a better choice?

The Essence of Finance

DeFi (Decentralized Finance) on the blockchain offers high yields, ranging from 10%-20%, even 30%-40%. The traditional financial world often claims that returns exceeding 7% may be a scam, accusing DeFi of being a Ponzi scheme. After years of contemplation, my conclusion is that regulated DeFi projects provide risk-free returns, with leverage lower than banks (the capital adequacy ratio of banks is only 12%), yet achieve high yields through over-collateralization.

The core lies in the efficiency of capital turnover—banks typically turn over capital 12 times a year at most, while DeFi can achieve thousands of times, with flash loans even completed in seconds. This improvement in efficiency is the charm of new finance.

From Digital Native to Digital Twin

Let’s discuss a few hot topics, starting with RWA (Real World Assets). Ten years ago, stablecoins (like USDT in 2015) initiated the tokenization of currency, with transaction volumes reaching $16 trillion in 2024, while the scale was only $300 billion, far exceeding the traditional financial transaction volume of $300 trillion.

Starting in 2024, the tokenization of financial assets will rise, with US asset management companies minting fund shares on public chains, surpassing stablecoins in scale.

The third wave is the tokenization of physical assets, which needs to solve the oracle problem to achieve digital twins from offline to on-chain.

Five Types of Tokens

There are various types of tokens, each serving different purposes, which can be divided into five categories: payment tokens (like stablecoins), reserve tokens (like Bitcoin), utility tokens (like Ethereum ETH), security tokens (like ETF shares), and meme coins (like the tokens issued by Trump).

Finally, I want to say that we are about to welcome a new era of "from off-chain to on-chain." By 2025, this trend will sweep in, driven by US legislation and presidential promotion. After the US grants legitimacy and compliance to the crypto industry, other countries will follow suit, with Hong Kong already leading in legislation. Subsequently, global financial institutions will enter the crypto field in large numbers, building new payment and settlement systems based on blockchain or issuing new financial assets based on token economics. "On-chain" will truly enter a period of explosive growth.

That's all I want to share. Thank you, everyone.