Cobo Shenyu: History is your daily experience

Recently, Shenyu, the co-founder and CEO of Cobo, accepted an exclusive interview with DeThings, a new media platform for blockchain in Singapore. In the interview, Shenyu shared his views and underlying thoughts on the current market, the impact of the FTX incident, DeFi innovation, the future of DEX, and other topics from the perspective of an "old leek" who has experienced multiple rounds of cryptocurrency cycles. He also explained why he can always maintain his curiosity about the Crypto industry.

How to view the current bear market cycle

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  Compared with previous bear markets, the 2022 bear market is not desperate enough - it cannot be compared with the previous levels of despair.

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  The industry has been around for more than 10 years, and there has been a lot of accumulation and trial and error. We have almost tried out what the existing blockchain technology can and cannot do.

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  Some early solutions have also begun to emerge around expansion solutions such as modular blockchains and second-layer networks. Although it will take two or three years for them to be implemented, we can already see the dawn of hope.

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  I feel that the confidence in the future of the industry and the future direction of the industry are much clearer than in the previous cycles .

  
  

Shenyu: There were three black swans in 2022. However, compared with the previous bear markets, I personally feel that the degree of despair in this bear market in 2022 is not enough - it cannot be compared with the previous despair.

In the bear market of 2015, the market fluctuated at a very low level for nearly half a year. There was no hot spot in the entire market, and there was basically no narrative logic. The narrative logic at that time was still Bitcoin. At the beginning of 2015, Ethereum had not yet formed a large-scale industry consensus and was still in its early stages - perhaps still in Vitalik's mind. The Ethereum white paper had not yet been released, and there was no hot spot in the entire market. Everyone questioned whether Bitcoin could survive the challenge.

Today, the industry has been around for more than 10 years, with a lot of accumulation and trial and error. We have almost tried out what the existing blockchain technology can and cannot do. The forms of non-coin blockchain and alliance chain that we are familiar with have been tested in the last cycle and found to be unfeasible. What is the current performance boundary of blockchain, which applications can match the current performance, and which forms of applications may be able to run (but most of them cannot run), we have tried them all.

Everyone is very clear about what the industry can and cannot do. In addition, we can also vaguely see that even if we cannot do something now, we can do it in the future - for example, we have already run some demos for applications that rely on large-scale TPS, but we are just talking about how to solve TPS. Since 2015, there have been so many years of arguments about capacity expansion, and now the route is basically clear.

Some early solutions have also begun to emerge around expansion solutions such as modular blockchains and second-layer networks. Although it will take two or three years for them to be implemented, we can already see the dawn of hope. Therefore, in terms of the future of the industry and industry confidence, this round of the market has not made as many people retreat as before.

There were many black swans in this round, and many people lost their personal assets because they were not used to the violent shocks in the industry, or most of their assets were implicated in the FTX incident, which caused a relatively large loss. But I think the confidence in the future of the industry and the future direction of the industry are much clearer than in the previous cycles.

How to view FTX crash

• Sam is a person who cannot sit still - he is a person who wants to maximise the efficiency of capital utilization and dig deep into profits. He does not allow money to remain idle in the account for a long period of time.

• In the early days, we saw Sam transfer some assets from the exchange to make some low-risk investments. Gradually, he became more and more confident in himself, became more and more inflated, felt that his abilities were getting stronger, and began to have a greater appetite for risks.

• Centralized exchanges bear too many responsibilities, including transaction matching, brokerage, and custody. For entrepreneurs and founders, it is difficult to resist the temptation of human nature.

• A large number of similar stories have happened in the past ten years. In essence, they are still problems of human nature. Such problems will always exist, it’s just a matter of scale and whether they are exposed.

Shenyu: We have had a lot of contact with Sam on the chain. After DeFi became popular in 2021, there were a lot of DeFi investment opportunities on the chain. I personally participated in many early DeFi on-chain investments. In the process of investing in DeFi, there are some points that need to be paid attention to. You need to know who are the people who invest in these projects with you, what they are doing, what they think, when they run, whether it will affect liquidity, etc. Therefore, we did a lot of on-chain data analysis and tracked more traceable whale addresses. We often find that some of the addresses we track are related to FTX and Sam, and we also see a variety of operations on many of his chains. Through Sam's investment and transactions in these DeFis, we have some understanding of him.

In essence, it may be related to his personality. Sam is a person who can't sit still. He wants to maximize the utilization of funds and dig deep into profits. He did this in the early arbitrage and also in a large number of DeFi chain investments. He doesn't allow a sum of money to be idle in the account for a long time.

The exchange has a large number of users. In the early days, we saw Sam transfer some assets from the exchange to make some low-risk investments. Gradually, he became more and more confident in himself, felt that his abilities were getting stronger, and began to take more and more risks. This is human nature, but at a certain point, the risk may not be controllable, and finally an extreme situation like FTX appeared.

The crypto industry is still in its early stages, and many infrastructures are not perfect. Coupled with imperfect supervision, centralized exchanges have assumed too many responsibilities, including transaction matching, brokerage, and custody. For entrepreneurs and founders, it is difficult to resist the temptation of human nature. They help users manage large amounts of assets, and in this process, letting these assets flow a little can easily generate good cash flow, especially in the past two or three years of bull market cycles. At the regulatory level, there are no clear rules now. Therefore, these two factors together led to the sudden occurrence of a big thunder like FTX.

Historically, there are many similar stories, such as the early piggy banks in China and the Mt. Gox incident. A large number of similar stories have occurred in the past decade. In essence, it is still a problem of human nature. This kind of problem will always exist, it is just a matter of scale and whether it is exposed.

In the future, similar incidents may be avoided through technical means. The essence of blockchain is to give everyone the freedom to manage their own assets by managing their own private keys. But the industry has not yet developed to that stage, and everyone has made some compromises on the necessity, security, and ease of use of managing their own assets. Many people think that they will lose their private keys sooner or later, so it is better to put them in exchanges. Therefore, a large amount of assets are still deposited in exchanges. However, with the development of technology, the improvement of infrastructure, and the prosperity of on-chain applications, this problem will gradually improve.

About Cobo's Mission

• Since its inception, Cobo has focused on how to securely manage private keys, as well as the security and risk control required to manage private keys.

• In the future, we will productize the experience and internal tools accumulated in DeFi asset management and provide them to everyone for use.

• We don’t want to become a centralized black box. We hope to provide everyone with a more convenient, secure and easy-to-use solution for interacting with the blockchain.

Shenyu: The FTX incident is a great wake-up call for us. Since the beginning of its establishment, Cobo has focused on how to safely manage private keys, as well as the security and risk control required to manage private keys. We have always been restrained and tried to do as little as possible.

In the past five years, we have seen many opportunities to make money, whether it is lending or derivatives, and a large number of customers (such as miners) have come to us. After doing some simple tests, we felt that there were a lot of long-tail risks and uncertainties, so we did not expand the scale to do it.

For a long time, we have been focusing on how to securely store private keys, how to manage the risks of related contract status, and the systems related to the use of private keys.

In the future, we will productize the experience and internal tools we have accumulated in DeFi asset management and provide them to everyone. We don’t want to become a centralized black box. We hope to provide everyone with a more convenient, safe, and easy-to-use solution for interacting with the blockchain - whether it is managing assets on the chain or managing the contract status in DeFi, and later managing more complex and various on-chain applications. Therefore, we will also focus our vision and make long-term iterations.

Is there any more innovation in DeFi?

• The entire underlying financial framework of DeFi is mature, and there may be a large number of composable financial innovations on it.

Shenyu: In the past twenty months, DeFi has brought the basic successful financial products that have been seen in the 200-year history of traditional finance to the blockchain. Currently, DeFi has four major modules.

The first is stablecoins. It is still in its early stages and may have only completed 30 to 40 percent of the progress. The mainstream is the stablecoin model with US dollar collateral, plus the model of DAI with over-collateralization of a single asset or multiple assets. Stablecoins have been explored in the past two years, but because there are a lot of bubbles and Ponzi schemes, there are a lot of failed cases, such as Luna. We are still exploring whether there are some more mature and feasible technical solutions in this area.

The second is DEX exchanges, mainly spot exchanges. The current AMM mechanism solves most of the long-tail needs. For order books and derivatives, higher chain performance is required, which requires the development of the second-layer network in the future. This is basically a 60-70 ratio, and we can basically see the future product form.

The third is lending. DeFi's over-lending and over-collateralized lending are now quite mature, and there have been a large number of security incidents and attacks, especially when liquidity is relatively low recently, there have been a large number of price manipulation incidents targeting the lending market. Everyone has explored the boundary conditions in lending more clearly. We can also basically see the general direction of the future, how to isolate assets, and how to do risk control. This area may have made 70 to 80 percent of the progress.

The fourth is on-chain derivatives and risk management. At present, it is relatively early, and the volume of insurance options is not very large.

The entire underlying financial framework of DeFi is mature, and there may be a large number of composable financial innovations on it, which are not yet mature, and there are only a few attempts. I think that in the future, the core modules of DeFi will degenerate into typical protocols on the chain, and other applications such as NFT and GameFi can directly use these protocols.

There is still room for innovation in more cutting-edge applications and risk balance. I don’t think it has reached a mature stage yet.

The Future of Centralized Exchanges

• Crypto has been a global thing since day one. It should not become a regional thing because of the skin color or birthplace of its founder.

• The FTX incident basically marks the arrival of the twilight of centralized exchanges.

Shenyu: Crypto has been a global thing since day one. It should not become a regional thing because of the skin color or birthplace of the founder. Our behaviors and interactions on the chain have been global since day one, and we can use them even on Mars in the future. We should not add a lot of regional assumptions.

From today’s perspective, the FTX incident basically marks the arrival of the twilight of centralized exchanges. Although the sentiment will not last long and the market cycle will soon be forgotten, this round has made many institutional users, such as traditional family offices and traditional financial institutions that entered after 2017, deeply aware of the problems of this industry.

We also saw that when FTX collapsed, a large amount of assets were transferred from various exchanges of all sizes to on-chain wallets. From this perspective, decentralized exchanges can start to do most of what centralized exchanges can do, and they may do it better. Even if some of them cannot be done, they can use solutions such as MPC to make the entire transaction process not a unilateral and uncontrollable black box.

In the future, there will be some ways to combine decentralization and centralization to avoid these risks. We can even solve some long-tail demands directly in a decentralized way, which may be more efficient.

What else is possible with mining?

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  mine

  
  

  The future of the industry should not be what it is now.

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  The ideal final state of the mining industry is to have a large number of small and medium-sized mines connected to the global power grid, with a part of them coordinating the status of the entire power grid.

  
  

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  There may be another stage where it will be decentralized again, and the income from mining at home will be higher, and it may even be connected to the power grid to help adjust the peak.

  
  

  Bogu, also

  
  

  There will be some additional benefits, not just the money earned from mining.

  
  

Shenyu: Let’s first review the history of the mining industry. At first, it was home miners who mined at home with one CPU and one GPU. ASICs began to appear in 2013, and graphics cards began to transition to ASICs. However, in the bear market of 2015, the market was very cold, and no one could afford the electricity costs. They began to change from small-scale miners to factory-style miners to optimize electricity costs. In 2015, large-scale industrialization, containerization, and modularization began to be used to build mining farms.

At present, the entire crypto mining industry is still concentrated in North America. Especially after the Russian-Ukrainian conflict, the global energy landscape has changed significantly. The energy cost in Europe is very high. The rest may still be mainly based on large-scale natural gas energy and some hydropower energy, mainly in North America, as well as some electricity in Southeast Asia, and some electric energy in a few areas of South America and Africa. Therefore, it is still at the end of the scale.

I think the future of mining should not be what it is now. Now, in order to optimize costs and improve efficiency, a large number of machines are placed in a single mine, which is similar to the IDC in the Internet era and may be a more cost-efficient IDC.

The ideal final state of the mining industry is to have a large number of small and medium-sized mines connected to the global power grid. Some of them will be used to coordinate the status of the entire power grid. Because electricity is difficult to store, a lot of electricity is actually wasted, so we can smooth out the peaks and fill the valleys; some of them will exchange heat energy in the energy source to provide electricity and heating for industry or life; and some large financial institutions will turn mining into traditional fixed-income products and then make some investments.

The trend of decentralization may gradually become more prominent in the future, because at present, the iteration space of the entire mining chip is not that large, and the power consumption is relatively low. Under such circumstances, the life cycle of the mining machine will be very long, and it can play a better role in other aspects.

There is no more mature surplus energy in the world. Except for China, there is not much energy that can be used quickly on a large scale in the world. So it may reach another stage of decentralization. The profit of mining at home is higher, and even connecting to the power grid to help the power grid adjust the peaks and troughs will also bring some additional income, not just the money earned from mining.

New things I tried recently

• This industry is a spiral development with a lot of similar or repetitive things, so it is important to stay curious, observe and think.

Shenyu: I will go and see what is interesting and try it out. For example, I have played with some NFTs in the past year or so. Everyone jokes that I am an NFT contrarian, and whatever I buy will fall. I also tried GameFi a little bit.

I will think about and look forward to the future development direction of the industry, and see how many directions there are in the future and what are the core turning points of these directions. In the early stage, I will try and make mistakes and explore. If I find that the turning point of a subdivided field or subdivided track is mature and its iconic turning point event has occurred, I will spend some time to study it. Study why the turning point has occurred and where it can go in the future. Then invest some time to try and make mistakes again, basically in a state of trying to be at the forefront of the industry.

If I find that this is fun but not suitable for me, or it is interesting now but I haven't found a good opportunity to capture its rapid growth, I might put it aside for now and set a time to observe the next turning point. If the turning point comes, I will spend time to study it again.

There are a lot of trial and error opportunities in every bear market. For example, the story of DeFi happened during the bear market in 2018, when EOS had already developed on the chain and everyone played with it. Soon in 2020 and 2021, DeFi iterated on those things again and launched them successfully.

This industry is a spiral development with a lot of similar or repetitive things, so it is important to stay curious, observe and think.

When will you retire?

• If you read history and look at what happened in the past 200 years of financial history, it is difficult to empathize. However, in this industry, history is what happens and experiences you every day.

Shenyu: The year I graduated from school, I set a goal to retire at the age of 30, and now I have exceeded it. The Crypto industry is quite interesting, and the iteration speed is very fast. As we mentioned earlier, it has a strong cyclicality, and the bubble bursts very quickly. There are a lot of innovations and various interesting and fun things, which force you to learn and grow. This is also what attracts me to this industry.

I have been able to invest a lot of time in learning in the relatively early stages of this industry, or in cutting-edge fields, because these things are very interesting. If you read history and look at what happened in the past 200 years of financial history, it is difficult to empathize. However, in this industry, history is what happens and experiences you every day. Then think about it, learn it, grow quickly, it is also very interesting, and the secretion of dopamine is also very strong. Therefore, I think it is difficult to leave this industry. If you really understand this industry, it is difficult to retire after investing.