Next article | Global Blockchain Industry Panorama and Trends Annual Report (2018-2019)

Editor's note: This article is from Huobi Blockchain Research Institute (ID: HuobiChina) , author Yuan Yuming, Zhu Yibang, Xiao Xiao, Chi Wenting, Liu Yang, Ding Zhaofei, Li Hui, Hu Zhiwei, Ma Tianyuan, Ding Yuan, Lei Chengsan;

5. Annual Review and Future Trend Outlook

5.1 Summary of the top ten influential events in 2018

In 2018, the much-anticipated blockchain industry experienced a transformation from enthusiasm to rationality, with ups and downs and a series of major events. Huobi Blockchain Research Institute has selected the top ten events that we believe have the most impact, and reviewed and commented on them. They are as follows:

1. EOS.IO sets off a wave of super node elections, and the DPOS mechanism is popular

2. The rise and fall of the “transaction-as-mining” model

3. EOS Ram revealed the prototype of human-machine trading/IBO, but IBO did not explode as expected

4. Fomo3D triggers thinking about Dapp games

5. Traditional giants begin to deploy in the blockchain field

6. Blockchain companies embrace traditional capital markets

7. USDT faces a crisis of trust, compliant stablecoins emerge, while algorithmic stablecoins fail

8. Supervision is no longer limited to paper, and implementation has begun, with the United States as a typical example

9. Who are the true believers? Looking at public chain governance from the perspective of BCH fork

10. Security and hacking incidents are frequent, and blockchain security opportunities are emerging

(1) EOS.IO sets off a wave of super node elections, and the DPOS mechanism is popular

EOS.IO is considered to be the representative of blockchain 3.0, and is committed to providing underlying infrastructure for commercial-grade distributed applications. It mainly uses the "DPOS" consensus mechanism to improve the scalability and throughput of the blockchain platform, and has swept the entire market with its unique "super node" model, attracting a lot of funds: there are 21 block producers (commonly known as super nodes) in total, who are selected from all candidates through voting and can share part of the 5% EOS tokens issued by the EOS.IO network each year (currently 0.25% is equally shared by 21 nodes, and 0.75% is equally shared by all candidates), but in exchange, the nodes need to provide computing power for the entire network, invest in sufficient server hardware, and assume the functions of collecting and verifying network transaction information and keeping and maintaining the ledger.

The core feature of this mechanism is that it uses indirect democracy such as "representative system" to reach a consensus in a small range through 21 agents. It achieves relatively higher efficiency at the expense of a certain degree of decentralization. After EOS, public chain projects including Tron, Cybermiles and Ontology have begun to imitate and launch their own node election plans. At the same time, in order to encourage more participation, the election threshold has been more or less lowered. For a time, DPOS, a compromise equilibrium model of "efficiency-decentralization", has been sought after by the market. However, we must also see that the DPOS mechanism itself is not necessarily perfect:

• Ÿ“Tragedy of the Commons”

For most token holders, their interests are not necessarily consistent with the real community, or many proposals that are beneficial to the community cannot really motivate token holders to vote, the voting participation rate is low, and the "tragedy of the commons" occurs. Most of those who are really willing to vote are the participating nodes themselves, because they can obtain block revenue by becoming accounting nodes, which is not motivating for ordinary token holders. In this case, the effectiveness of the vote will be discounted to a certain extent, and the selected accounting nodes may not be the best.

• Potential alliances and agglomeration effects

Since the 21 nodes take turns to record accounts and obtain block revenue, over time, the nodes will actually tend to become more and more fixed and tend to form relatively stable alliances. On the one hand, the newly added tokens will be allocated to these accounting nodes, making them more and more advantageous in voting. On the other hand, the one-vote-multiple-vote mechanism makes the nodes more inclined to cooperate and form alliances. If one-vote-one-vote is adopted, although alliances can be avoided to a certain extent, it may fail due to low voting rates and the magnification of the voting weight of large households.

In general, the design of the public chain governance mechanism is always a hotly debated topic. Even with a more decentralized PoW mechanism, the decision-making power and the dominant power will tend to be controlled by miners and mine owners. At most, there is only a trade-off between the pros and cons.

(2) The rise and fall of the “transaction-as-mining” model

"Trading is Mining" regards the user's trading behavior on the platform as a "mining" behavior, and issues platform tokens based on this. Specifically, part or all of the fees generated by users' transactions on the platform are returned to users in the form of equivalent platform tokens, which is essentially similar to the user's continuous subscription of platform tokens and 0-cost "free transaction" activities through fees. For exchanges that adopt the "trading mining" model, the main value of their platform tokens lies in the ability to obtain a share of the platform fee income. Users obtain a share according to the proportion of platform tokens held in their accounts to the circulating platform tokens (mined or unlocked).

The "transaction mining" model originated from DragonEX, a digital asset exchange in Singapore. It issued the platform token Dragon Token in November 2017, but it was really popular when Fcoin Exchange came out in June 2018. In just half a month, it became the exchange with the largest trading volume in the world and brought a large number of imitators, mainly including exchanges that have transformed into transaction mining and newly established mining exchanges:

However, after a period of time, the "transaction is mining" model became unsustainable, and a large number of mining exchanges experienced a death spiral with both transaction volume and platform token prices falling. In essence, under the "transaction mining" + "handling fee sharing" model, the token has a similar equity nature, and its value mainly comes from the discount of the expected handling fee sharing that can be obtained. According to the formula "asset value = liability value + equity value":

• “Asset value” refers to the discounted value of the platform’s overall expected transaction fees

• “Equity value” refers to the total market value of the token, which is the portion of the transaction fee that the token holder can obtain.

• “Liability value” refers to the portion of the fee that is given to other token holders (team, operation and maintenance, etc.)

In the "transaction mining" model, under the premise of continuous issuance of platform tokens, the value of the left-end assets must continue to increase, and at least faster than the issuance rate of platform tokens, in order to support the value of the unit token. The value of the left-end assets depends on the product of the platform transaction volume and the handling fee ratio, which is endogenous and easily interacts with the token price. When the token price rises, mining becomes attractive, and the transaction volume increases, which further pushes up the unit token value. When the price falls, the mining attractiveness weakens, and the transaction volume decreases, which further lowers the unit token value and enters a death spiral. It can be said that transaction mining is more suitable for a short-term cold start or marketing, and if it continues to operate, there will be great uncertainty and risk in the mechanism in the long run.

(3) EOS Ram revelation, the prototype of human-machine trading/IBO, but it did not explode as expected

RAM stands for Random Access Memory, which can be commonly referred to as "memory". EOS RAM is one of the basic resources in EOS.IO. In EOS.IO, RAM is mainly used to store data such as account information and smart contract execution information, which needs to be obtained through transactions and purchases. Unlike traditional transactions between people, RAM transactions are set to human-machine mode, and the design principle refers to the Bancor algorithm. In simple terms, the less RAM remaining, the higher the price of RAM. The price of RAM is calculated strictly according to the formula, which ensures the immediacy and depth of transactions and provides the market with nearly unlimited liquidity. Once this plan came out, the market had great expectations for such a fair, transparent, and self-marketing human-machine trading model. It is believed that RAM has essentially laid the prototype of human-machine transactions, and even derived a model called "IBO" that requires staking assets to issue new assets.

However, in fact, human-machine transactions led by RAM did not continue after the initial boom. RAM is essentially a resource within the system, representing more usage needs, and its initial boom was more a result of market funds seeing the hype space in the absence of expansion. When RAM continued to expand, the hype space was no longer there, and it returned to normal, linked to the ecological development of Dapp itself. The specific RAM price change diagram is as follows (the highest is close to 1RAM=1EOS, currently 1RAM=0.06EOS):

However, as of now, there are no more human-machine trading cases similar to RAM in the market. We believe that the main reason is that the tokens suitable for human-machine trading using the Bancor algorithm must meet the following requirements: the price of the token must be calculable by a formula, the reserve in the system account cannot be transferred, and cross-chain is not required. However, there are relatively few tokens that meet the above conditions, and they must be derivative tokens or anchor tokens:

• ŸDerivative Tokens: RAM itself is a resource within the EOS system and does not require additional fundraising. It is a derivative token. The issuer first designs the price exchange curve between the derivative token and the main token, then sets up the system account and smart contract, and then can issue derivative tokens that can be freely converted with the main token. Derivative tokens do not have liquidity problems, but derivative tokens need to be purchased with the main token, which will promote the market demand for the main token, and a large number of main tokens in the system account will reduce the circulation of the main token.

• ŸAnchored token: Tokens that are anchored to the main token can also be traded using the human-machine trading model of EOS RAM. For example, the Bitcoin Cash community once proposed a wormhole protocol to solve the smart contract problem on the main chain and issued the Token WHC. WHC is anchored to BCH with a conversion ratio of 100:1. If an anchored token is designed through the Bancor algorithm, it can break through the original fixed ratio limit and can be freely exchanged and transferred.

In addition, "IBO", as a token issuance scheme using the Bancor algorithm, has not been widely recognized by the market. We believe that there are the following reasons:

• ŸIt is difficult for the project to obtain all or at least part of the funds, and the financing function is not smooth. In theory, the team that uses the Bancor model to issue tokens cannot obtain any funds, because all the funds used by investors to purchase tokens are in the system account (for example, all EOS used to purchase RAM are in the eosio.ram account). However, the project can indeed achieve partial fundraising by adjusting the Bancor curve, but the overall financing function is not smooth.

• ŸIt only solves the problems of liquidity and depth, but does not solve the problems of endorsement and compliance. The Bancor model solves the problems of insufficient liquidity and market making in the early stages of entrepreneurial projects. However, "IBO" cannot solve the compliance issues involved in asset issuance, nor can it add endorsement to the quality of the project. With the trend of strengthening supervision of digital asset issuance, "IBO" cannot remain immune.

(4) Fomo3D triggers thinking about Dapp games

In July, an Ethereum-based Dapp, "Fomo3D", became popular on the Internet. From its official launch on July 4 to its peak activity on July 21, Fomo3D achieved a peak of more than 10,000 daily active users and more than 40,000 Ethereum daily turnover (nearly 19 million US dollars at the price of Ethereum at the time), and triggered a wave of Dapp craze and discussion, all of which were due to its four innovative game mechanisms of "gambling", "dividends", "recommendation rewards" and "lottery", as well as its continuous induction and stimulation of human nature through infinite repetition. The four major game mechanisms correspond to the following gameplay in its game, and have become the objects of imitation by Dapps afterwards:

• Gaming: A new gaming lottery with rigid redemption is created through smart contracts. The last game token buyer before the time is up (24 hours) will receive all the prizes. The prize pool is completely transparent and comes from part of the Ethereum spent on purchasing game tokens before, so as to achieve a small investment for a big gain;

• Dividends: Users can receive a certain percentage of dividends from the Ethereum spent on purchasing game tokens based on the proportion of the number of game tokens they hold to the total number of game tokens, so that those who participate in the game will not return empty-handed;

• Referral Rewards: Users can get a referral link by spending a small amount of ether. Any new user who joins through the referral link will have part of the ether spent on purchasing game tokens allocated to the referral;

• Lottery: A certain percentage of the Ethereum spent by users to purchase game tokens will enter the airdrop prize pool. When users purchase game tokens, there is a certain probability that they will receive the Ethereum in the prize pool.

The rise of EOS and later TRON has brought new blood to Dapp and blockchain games, and also created new ways of playing. In addition to the four major game mechanisms mentioned above, most Dapps have also added a "mining mechanism", that is, players can obtain Dapp tokens in the game, and holding tokens can get a share of Dapp revenue. This is an important means of cold starting and stimulating players. The Dapp ecosystem on EOS and TRON has also prospered rapidly:

According to Spider Store data, there are currently 348 Dapps in the EOS ecosystem, 599 smart contracts deployed, about 70,000 daily active users, and a 24-hour transaction volume of more than 7 million EOS. Among them, there are contributions from the dominant guessing Dapps, as well as typical chain game Dapps such as EOS Knight. Although the gameplay is simple and the operability is not strong, EOS Knight has firmly occupied the top three Dapps in the EOS ecosystem with its stable daily active users of about 5,500 and daily transaction volume of about 3,000 to 5,000 EOS.

The TRON ecosystem currently has 172 Dapps, 318 deployed smart contracts, about 40,000 daily active users, and a 24-hour transaction volume of 300 million TRX. Among them, the Epic Dragon blockchain game Dapp, which was launched in mid-January, has gained more than 6,000 daily active users and a daily transaction volume of more than 300,000 TRX, ranking first.

However, we should also see that due to the small number of digital asset users, the development cost and threshold of Dapp are still high, which has led most developers to choose a path that tends to recover costs quickly, and most Dapps still have a strong capital game nature. Homogeneity, plagiarism and skinning among various Dapps are also serious. If it is not possible to truly lower the user entry threshold, solve the "legal currency-digital asset" payment channel problem, introduce more potential users, or further simplify the cost of blockchain transformation of high-quality games, Dapp will still only be a small circle with slow development on both the supply and demand sides, and it will be difficult to be independent of the current digital asset market investment, speculation-driven ecological environment, and walk out of its own path. Let us wait and see what variables there will be in the future.

(5) Traditional giants begin to deploy in the fields of blockchain and digital assets

In 2018, perhaps the most significant indicator for the entire digital asset and blockchain field is the recognition of traditional fields and the accelerated layout of giants, which is reflected in: 1) Traditional financial institutions accelerate the layout of exchanges, custody and other fields; 2) Traditional technology companies explore the application of blockchain.

As traditional financial institutions accelerate their layout in areas such as exchanges and custody, in addition to the Bakkt exchange initiated by ICE Group, the parent company of the New York Stock Exchange, and the ErisX exchange invested by Nasdaq, which are accelerating their layout in digital assets, there are also Goldman Sachs, Bank of New York Mellon, and Nomura Holdings announcing that they will provide digital asset custody services in due course. The above-mentioned companies will inject different blood and driving force into this market with their advantages in customer resources, financial risk control, and capital strength, and accelerate the compliance and institutionalization of the investment market.

In terms of traditional technology companies exploring the application of blockchain, we can see that Internet social networking companies like Facebook have adjusted their organizational structure, set up new blockchain departments, and actively explored the combination of blockchain technology and Facebook in social, data, privacy, etc. In December, Bloomberg reported that they are working on developing stablecoins that can be used for remittances in the Indian market. In addition, NetEase has introduced "Fuxi Tongbao" in its three games "Ni Shui Han", "Liuxing Hudie Jian" and "New Ghost Story". "Fuxi Tongbao" is a valuable asset generated based on blockchain technology and can be produced through mining mechanisms. Huawei also officially announced the cloud blockchain service platform in March, released the "Huawei Blockchain White Paper", and hopes to empower it with 5G technology. In addition, Microsoft also released its Azure blockchain market in May, providing developers with toolkits and other services, and in October acquired Github, an open source code hosting library that stores a large number of blockchain project codes, for US$7.5 billion. If the above-mentioned companies can gradually contact and participate in blockchain and digital assets through their huge user groups, it is expected to greatly accelerate the expansion of the blockchain market and enable blockchain to truly integrate deeply with applications.

(6) Blockchain companies embrace traditional capital markets and traditional financial instruments

The integration of blockchain, digital asset and traditional fields is not only reflected in the accelerated layout of traditional giants, but also in the fact that blockchain companies are embracing the traditional capital market, including: 1) blockchain companies seeking to go public; 2) acquiring listed companies for capital operations; 3) acquiring high-quality upstream and downstream assets in the industrial chain.

In 2018, we saw three major mining machine manufacturers—Bitmain, Canaan Creative and Ebang International—attempt IPOs, digital asset investment company Galaxy Digital landed on the Toronto Stock Exchange Venture Board in Canada, and the U.S. digital asset exchange Coinbase was also eager to go public. Unlike direct listings, some blockchain companies have embraced the traditional financial market by acquiring listed companies. The most typical example is that the blockchain company Penta Global Blockchain Foundation first used its issued token PNT to acquire 28 million shares of Australian Internet of Things listed company CCP Technologies Limited at a price of AUD 0.02 per share, which was recognized by the Australian Stock Exchange. In addition, Huobi Group acquired the control of Tongcheng Holdings at an average price of HKD 2.27 per share, a total cost of HKD 600 million, and OK Group acquired Hong Kong listed company Qianjin Holdings. In addition, cases of blockchain companies acquiring high-quality assets in the industrial chain through mergers and acquisitions have also begun to appear. In July 2018, the Tron Foundation acquired BitTorrent for US$140 million.

(7) USDT faces a crisis of trust, compliant stablecoins emerge, while algorithmic stablecoins fail

Stablecoins originated from Tether USD (USDT), a stablecoin issued by Tether. Its value is anchored at $1. It was launched in February 2015 and began to grow rapidly in the second half of 2017, becoming a core trading pair of major mainstream exchanges and a top 10 digital asset by market value. However, along the way, due to its certain weaknesses in transparency and regulatory endorsement, it has faced a lot of controversy and distrust. On November 15, 2018, the price of USDT fluctuated and fell sharply, and once caused the price of BTC/USDT on major trading platforms to rise sharply. Redemption is essentially the core value of fiat-collateralized stablecoins like USDT. In other words, the fiat-collateralized USD stablecoin is essentially the dollar on the chain, and its value is guaranteed by redemption. Without a smooth purchase and redemption system to support it, it is difficult to gain trust.

The improved versions of USDT, PAX, GUSD, TUSD and USDC, have gained development space in this environment. Rather than being optimized in terms of compliance, transparency and the security of US dollar reserves, it is better to say that the relatively smooth purchase and redemption system of the above-mentioned currencies, especially redeemability, has won market recognition. Part of USDT's market share is being gradually acquired by the above-mentioned improved versions of fiat currency-collateralized stablecoins.

In addition to fiat-collateralized stablecoins, stablecoins that are committed to achieving value stability through other models have also emerged this year. Among them, algorithmically regulated stablecoins have become the most watched category due to their complete independence and lack of reliance on external credit. Basis, Carbon, Terra, uFragments, and Reserve are all rising stars in this wave of stablecoins. However, on December 13, the earlier Basis project announced to the community that it was terminating the project. The algorithmic stablecoin was not successful. The deep-seated reason behind this is that it is closely related to the "bond coin" and "equity coin" in its mechanism design: due to the premium repurchase attribute of "bond coin" and the dividend attribute of "equity coin", it will be identified as a security by most regulatory agencies, led by the United States. If it involves securities, it can only be circulated among qualified investors, and there will be a 12-month restricted sale period. Once implemented, it will greatly reduce market participation. The stability of the Basis system is very dependent on the existence of the above two currencies, especially when the price of Basis is lower than 1 US dollar, and the funds for the system to repurchase Basis come from the funds brought by the sale of "bond coins". The qualitative nature of securities will seriously affect the performance of its stabilization mechanism. In the future, as a geek attempt like Bitcoin, where will the algorithmic stablecoin go? There are still some unknowns.

(8) Supervision is no longer limited to paper, and implementation has begun, with the United States as a typical example

Since 2018, in addition to the continuous improvement of digital asset and blockchain regulatory systems in various countries and regions, another very important change is that supervision is no longer limited to paper, but has begun to be implemented on the ground, which is reflected in the fact that regulatory agencies in some countries and regions have begun to trace, investigate and deal with illegal projects, with the US SEC as a typical example. In this round of enforcement, the SEC has also shifted from punishing fraudulent violations to punishing non-fraudulent violations, with an attitude of "disposal + rectification" in parallel. The strengthening of the US regulatory attitude can be clearly felt, and more projects are expected to be affected in the future:

Ÿ<1> Illegal issuance and sales of digital assets, such as the penalty decision on Paragon Coin and CarrierEQ (also known as Airfox) on November 16, the SEC determined that the issuance of the above digital assets was a securities issuance and believed that it did not meet the conditions for exemption from securities registration. The disposal decision included a fine, requiring re-registration of securities and subsequent continuous information disclosure to the SEC, and granting investors the right to return the original amount in legal currency with interest.

Ÿ<2> Illegal digital asset trading and circulation behaviors, such as the penalty decision on the centralized trading platform Etherdelta on November 8, the SEC determined that the platform had not registered as a "national securities trading platform" or obtained corresponding exemptions, and arbitrarily provided some ERC20 token matching transactions that have been identified as securities to US citizens, including US citizens. The disposal decision included a fine on its founder.

Ÿ<3> Illegal digital asset investment and consulting activities, such as the penalty decision on the Bitcoin broker 1Broker on September 27. The SEC determined that the platform was not registered as a securities broker and arbitrarily recruited customers from all over the world, including American users, to its platform to purchase securities swap derivatives with Bitcoin. The disposal decision included permanent closure, confiscation of all illegal gains and fines.

On November 16, the SEC issued a "Statement on the Issuance and Trading of Digital Asset Securities", which was the SEC's reaffirmation of its attitude towards digital asset regulation following the famous investigation report "DAO Report" on July 27, 2017. That is, the SEC's regulation of digital assets still refers to the traditional federal securities law system. As long as digital assets meet the definition of "securities" under federal law, they will be included in comprehensive supervision. In addition to judging whether they are "securities", there are three important principles for determining whether they will be included in the regulation, all of which are derived from the "DAO Report": First, as long as it involves the sale of securities or the provision of related services to U.S. citizens, it is subject to supervision; second, decentralized organizations can also become securities issuers or related service entities and be subject to supervision; third, the sale of securities or the provision of related services in the form of legal currency or digital assets does not affect the effectiveness of supervision.

(9) Who are the true believers? Looking at public chain governance from the perspective of BCH fork

In 2018, one of the most well-known development teams in the BCH community, "Bitcoin ABC", proposed a "hard fork" client upgrade on November 15. Originally a routine upgrade of BCH, it fell into uncertainty due to another proposal put forward by another well-known development team in the BCH community, "NChain" (i.e. Bitcoin SV). The difference between the two lies in the formulation of block size, several new Opcodes, and the attitude towards smart contracts. This disagreement directly led to the subsequent fork of BCH.

However, the difference between this fork and previous hard forks is that the two chains cannot "coexist" in the short term: since the client has no replay attack protection, the blockchain is at risk of replay attacks. Transactions on the ABC version chain can also be rebroadcast and packaged on the SV version chain, and some holders may have their tokens deliberately taken away. This means that the relationship between the two chains will tend to be fiercely competitive rather than independent, until one side adds a new replay attack protection mechanism. Therefore, this hard fork will trigger a "computing power war", and BCH mining pools, miners, and Bitcoin computing power holders and renters can all be participants.

From the results, both sides have suffered losses to varying degrees. BCH-SV was born from the fork, but it still has a long way to go to realize its vision. Most importantly, because of the fork, BCH actually split the condensed consensus and computing power, which makes us think deeply about the governance of the public chain:

Ÿ<1>For public chains that use the PoW consensus mechanism, miners bear the heavy responsibility of maintaining consensus and trust in the digital society, and their computing power represents the right to speak; the technical team promotes the development of public chain technology and controls the code; and users represent supporters, use digital assets, and vote with their feet to protect their rights. If a set of mechanisms maintains a balance between the three, then on-chain governance is successful.

Ÿ<2> In the case of BCH, BCH-ABC focuses on the code rights of the technical team, while BCH-SV regards the computing power rights of miners as the criterion. The large miners have strong control over the computing power, and the interests and demands of users and ordinary miners have no good way to express in this ecosystem, which has led to the subsequent situation. The emergence of the computing power war itself is also a manifestation of the large miners' strong control over the ecosystem. How to have a perfect solution to balance the computing power rights, code rights and user rights is worthy of deep consideration by public chain system developers.

(10) Security and hacking incidents are frequent, and blockchain security opportunities are emerging

In 2018, blockchain security incidents have become more frequent since the first half of the year as the digital asset market fluctuates. Huobi Blockchain Research Institute summarizes some major security incidents in 2018 as follows:

It can be seen that blockchain and encrypted digital assets, which use cryptography as the underlying logic, experienced major attacks in multiple dimensions in 2018, including exchanges, public chain underlying platforms, contracts/DApps, wallets, mining pools, etc., which in turn caused many people to worry about blockchain.

However, while the blockchain ecosystem is exposed to huge security risks, 2018 also revealed huge opportunities in security protection. Many technical experts and white hats with rich experience in information security have established blockchain security companies and started to engage in blockchain security audits. In particular, smart contract audit services have basically become the standard for blockchain security companies. In the first half of 2018, companies focusing on blockchain security, such as SlowMist, PeckShield, Lian'an, and Dimension Reduction Technology, were established and developed rapidly, creating a new industry vertical track in the field of information security.

At the same time, some security companies with certain scale have also begun to develop blockchain security business after sensing the huge business opportunities of blockchain security. The most typical example is 360, which announced its entry into the blockchain security field after discovering the EOS vulnerability in May 2018, focusing on blockchain security and open platforms. Other companies that currently provide blockchain security services include Cheetah Blockchain Security, Changting Technology, and Knowsec, etc.

5.2 Top Ten Important Predictions for 2019

We are still full of confidence in the future of blockchain. The future is bright, but the road is always tortuous. If 2018 was a year of returning from enthusiasm to rationality for blockchain, then 2019 is a year of learning from the pain and accumulating strength again. Huobi Blockchain Research Institute has made ten predictions for 2019, which we would like to share with you (some of the predictions are based on the results of the course discussion of Huobi University GBLP Genesis Class in December 2018):

1. Lack of wealth creation effect, financing projects are cleared, and the market will fluctuate widely after finding the bottom in 2019

2. ETFs will not be smooth sailing, but personalized derivatives will continue to emerge

3. Public chain improvements are gradual, but performance is no longer a pain point, effective scenarios are

4. One-stop blockchain deployment may become a new favorite, and cross-chain interoperability will give rise to the diversity of blockchain implementation

5. With the arrival of Web 3.0, 5G and distributed storage based on IPFS have become important driving forces

6. The financialization of the mining industry has led to a reshuffle, with those who change their ways taking the lead and those who cling to the old ways leaving the market

7. Traditional applications are launching a wave of Dappization, and a brand new traffic world will emerge

8. Asset tokenization cases are emerging, and token anchoring rights are gradually enriched, but there are still obstacles to scale-up

9. Stablecoins shift from transactions to applications and payments, and a "PayPal" based on stablecoins will emerge

10. Supervision in mainstream countries continues to be optimized, and the demonstration effect has led to many countries following suit. Licenses and sandboxes will become popular.

(1) Lack of wealth creation effect, clearing of financing projects, the market will fluctuate widely after finding the bottom in 2019

From a historical perspective, after the bull market in 2013, it took more than a year to reach the bottom in January 2015, and then experienced repeated fluctuations in 2015, and only began to get rid of the bottom wide fluctuation area in November 2015, and the period of fluctuation consolidation lasted for 10 months. If we refer to history, then in theory, 2019 should also be the year of true bottoming out, and it will also fluctuate at a low level for a long period of time until it gradually rises again.

However, we believe that unlike the previous bear market, which found its bottom in early 2015, the bottom of this bear market has not yet been truly reached, and it is difficult for the first quarter of 2019 to have the conditions for an upward trend:

Ÿ<1> The financing project has not been completed and the funds are still being diverted

The existence of various public chain projects and countless application-layer financing projects has slowed down the clearing speed of this round of "bull-bear" cycle. There were only hundreds of projects in the last bull-bear market, and most of them were replicas of Bitcoin. This round of bull-bear market involves thousands of projects, which will take some time to digest. These uncleared projects continue to divert funds from the existing market, making it difficult to form a clustering effect.

Ÿ<2> The failure and falsification of blockchain projects will also be transmitted to institutional investors, resulting in greater selling pressure

In 2017 and 2018, a large number of blockchain and digital asset funds were established, focusing on finding and investing in high-quality assets in this field. However, the blockchain field itself is still in its early stages, with a relatively high potential failure rate. The failure and falsification of a large number of projects will be transmitted to a large number of institutional investors in this field, and will bring a very large negative impact (especially when there are a large number of institutional investors in this field who are clustered in the same project, this transmission effect will be more obvious), which will cause institutional investors to liquidate under the pressure of LPs, which will further bring greater selling pressure to the already fragile digital asset market, dragging down the market's upward trend.

Ÿ<3>The US-Japan tax season is coming, and its impact on the market cannot be underestimated. It is difficult for the first quarter to have the conditions for a significant upward trend.

According to the digital asset policies of mainstream countries, especially the United States and Japan, March and April of each year are important tax season windows. The deadline for Japan is March 15, and the deadline for the United States is April 15. Although the digital asset market experienced a sharp drop in 2018, the selling pressure caused by the "capital gains-tax" effect will be much smaller than in April 2018, but there are also opportunities for volatility in the bear market, and some investors have earned a lot of income through short selling, which also needs to pay taxes, and the impact on the market cannot be underestimated. This also makes us believe that the market is unlikely to have the conditions for an upward trend in the first quarter, but it is a very likely time window for bottoming out.

We believe that the end of each bear market and the start of a bull market cycle are mostly accompanied by three stages: "value discovery" - "wealth-creating effect" - "capital effect": "value discovery" is the premise, and only when the "wealth-creating effect" brings about a large amount of capital inflow and produces a "capital effect" can a bull market be built. The bull market in 2017 was driven by the global "wealth-creating effect" brought about by Ethereum and related digital asset crowdfunding. At present, it is obvious that in the short term, or even for a period of time, we cannot find a theme that can truly drive the overall situation, and naturally we cannot gather the above conditions.

Of course, we do not deny the role of Litecoin production cuts in August in driving the market. In fact, Litecoin production cuts may be the most important market window from May to mid-year 2019. Unfortunately, production cuts are more of a trigger related to the above-mentioned "value discovery". It can bring market hotspots and trigger phased market conditions, becoming an important driving factor for wide fluctuations after bottoming out, but it cannot really bring about a bull market. Just as the bull market in the past was not caused solely by production cuts, only by constantly exploring the scenarios of blockchain and digital assets, expanding their intrinsic value, and forming a healthy cycle can this market get rid of the short-term characteristics of ups and downs and truly usher in the "golden decade" belonging to the digital asset market and blockchain industry.

(2) ETFs will not be smooth sailing, but various financial derivatives such as trusts and futures will continue to emerge.

Since the launch of Bitcoin futures of CBOE and CBOT at the end of 2017, the voices of Bitcoin ETFs coming to pass have been heard one after another, and the market's expectations for traditional financial markets to intervene in the digital asset market have remained high. However, things have not been done as expected. In 2018, the Bitcoin ETF applications of Proshares and Direxion, the Bitcoin ETF applications submitted by the brothers Winklevoss, the founder of Gemini Exchange, and the Bitcoin EFT applications submitted by SolidX and VanEck, which are considered the most promising, all returned in a miserable manner.

However, unlike what many people think that Bitcoin ETFs will break the ice soon, we expect that they will not be smooth in 2019, and the current market foundation is not enough to support the existence of ETFs:

Ÿ<1>The essence of ETFs is to provide investors with a more convenient trading method. Participants can obtain risk exposure to the corresponding underlying assets by subscribing and holding this type of fund. It represents an investment product introduced after a market enters a mature stage in order to meet the asset allocation needs of more over-the-counter investors. It is different from futures financial products that solve speculative and professional risk management needs, or over-the-counter trust products with certain thresholds, which means that it is more difficult to pass. At present, the maturity of the entire digital asset market has not yet reached the state required by the positioning of ETFs, and its immaturity is reflected in the following aspects:

Ÿ<2>The market liquidity is scattered, the depth is insufficient, and the price is easily affected by funds. The digital asset market is small in size, and there are not many participants. A consensus has not yet been formed. At present, the transactions of digital assets are scattered in various digital asset exchanges, resulting in deep dispersion. The prices of a single exchange are easily affected by funds and irrational fluctuations. There are risks in anchoring prices of ETFs.

Ÿ<3> Regulators lack control over market transactions, clearing and settlement behaviors, and customer identity. As for the United States, its financial supervision implements a shared regulatory agreement, and all parties to the agreement, including regulators, have the right to obtain the above information. At present, the relevant behavioral information of most market participants is actually not well known by regulators, and the exchange where the Bitcoin ETF anchors the price occurs, even a regulated exchange that signs a shared regulatory agreement may not be large in size and cannot represent the overall market.

However, even if Bitcoin ETF is approved one day, its influence may not be as strong as we expect now. By then, the coverage and maturity of the entire market itself will be far more than at present. Launching ETFs is just a natural thing. Bitcoin ETFs represent more symbolic meaning, symbolizing Bitcoin’s real entry into the mainstream market and the recognition of digital assets by traditional markets. If only this is the case, the launch of various over-the-counter trust products and futures products will represent the gradual normalization of this market. We have no doubt that in 2019, various personalized digital asset products of compliant trust and futures finance will continue to emerge, bringing new blood and strength to this market. The entry of traditional financial mainstream has become an irreversible trend.

(3) Public chain improvement is progressive step by step, but performance is no longer a pain point, and the effective scenario is

In 2018, for public chains, the overall cooling and hasteness is not achieved, which indirectly drags down the implementation progress of application projects. In 2019, if nothing unexpected happens, we can see that public chain improvement solutions like Ethereum 2.0 are gradually progressing. However, it is still difficult to achieve major technological breakthroughs, and it is likely to be extended to the existing system, involving cross-chain, DAG, sharding, distributed storage, VRF (Verifiable Random Function) POS and other existing technologies. This can be seen from the public chain projects that are expected to be launched in 2019, as shown in the figure below. At the same time, public chain improvement will also involve repairing some issues in 2018, such as blockchain security issues. We expect standard security audit processes, standard security sandbox testing, and peer code security audits.

However, at present, the performance of public chains is no longer a real pain point. Whether there are real scenarios and needs is the key to determining the life and death of this industry. In fact, the performance problems faced by most applications deployed on blockchain can be compensated by non-blockchain methods. What blockchain needs to solve is to confirm the most valuable and trustworthy data that needs the most. Finding these scenarios that are truly facing pain points, introducing them into blockchain, allowing demand to reverse the development of technology, and allowing truly valuable data to be put on the chain may be the real right path. Too much attention to technology implementation or breakthroughs, and thinking that the underlying imperfection has limited the development of applications and blockchain on a large scale is actually unfair.

In 2019, perhaps it is an important time window for the market to rethink these core issues and reflect on the design of the public chain system. We need to get rid of the current vicious circle of creating demand and turn to service demand. This is the change that the entire market needs to face.

(4) One-stop blockchain deployment may become a new favorite, and cross-chain interoperability will create diversity in blockchain implementation

Blockchain 2.0 represented by Ethereum smart contract allows Dapp applications to easily deploy smart contracts on the chain and issue exclusive tokens. However, applications on this type of chain are difficult to implement complex logic and functions, and cannot customize the data storage, consensus mechanism, block production strategies, etc. of the underlying blockchain. Afterwards, a model of Dapp development based on side chains and sub-chains emerged. Side chains and sub-chains are usually strongly associated with the main chain in terms of data structure or consensus. The main chain mainly assumes security responsibilities. The side chain or sub-chains are responsible for the processing of their respective application data, so as to isolate and customize data and calculations. However, the interoperability between side chains and side chains, or between sub-chains and sub-chains, is not the primary consideration, and the implementation is not simple; and the model is not very scalable, and the number of side chains and sub-chains installed on a main chain is limited, and future development is limited.

In 2019, represented by the Substrate development framework released by Parity, the rapid deployment of a public chain through modular development will be a new trend in future Dapp development, and the reason is:

Ÿ<1>Modular development, the development threshold has been lowered. Substrate is a blockchain development framework developed by the Parity team. It can quickly develop a public chain based on Substrate. Polkadot is also developed based on Substrate. Any chain developed based on Substrate can be interconnected with Polkadot. This means that in the past, only one Dapp could be quickly developed, but now it can quickly develop a public chain based on Substrate. Not only can customize the data structure and consensus algorithm, but also customize various interfaces, which greatly reduces the threshold for public chain development, so that everyone can quickly publish a public chain. Laying the foundation for the prosperity of the application layer Dapp.

Ÿ<2>It can be customized and supports high-complexity applications. Unlike the modular development of smart contracts, side chains or sub-chains, the development of modular public chains can more flexibly design the underlying logic and architecture, such as block ledger data structures, block production rules, consensus algorithms, external interfaces and data storage methods. This one-click chain issuance model can support more complex application scenarios and meet diversified needs.

Ÿ<3>Includes cross-chain genes and increases application diversity. For public chains developed in accordance with a unified framework, their consistency in the underlying architecture gives them a natural cross-chain interoperability gene, and the ability to cross-chain interoperability will bring breakthrough space to the diversity of applications. For example, cross-chain asset circulation, cross-chain data services, cross-chain asset financial services, etc., cross-chain information interaction and value circulation will open up more diverse application scenarios and give birth to implementation diversity.

In short, 2019 is the first year of the real implementation of the cross-chain platform. The one-stop blockchain deployment and cross-chain interoperability brought by it will bring us more imagination space and application scenarios.

(5) With the arrival of Web 3.0, 5G and IPFS-based distributed storage have become important driving forces

Web 1.0 solves the user's need to read information, and the information can be obtained through active queries; Web 2.0 solves the user's interaction needs. In addition to queries, users can also interact, but all data is still stored and recorded through the server of oligopolistic enterprises, and there is a privacy leakage problem; while Web 3.0 provides a flatter information reading and interaction method. All data exchanges will be based on a distributed network and stored in the network in an encrypted form. Users have absolute ownership and control over their identity and behavioral data. At the same time, the application is also distributed and there is no centralized server. All this is inseparable from the improvement of distributed storage, network communication capabilities and the underlying technology of blockchain.

We believe that 2019 should be the year when Web 3.0 begins, based on:

Ÿ<1>5G helps the development of Web3.0 mobile terminals and improves network communication capabilities. With the popularization of mobile smart terminals, the status of mobile terminal applications has occupied a very important position. The popularity and rise of Web3.0 will also develop with mobile terminal applications, and mobile terminals will also become a key node group in decentralized networks. Therefore, communication and transmission between mobile nodes has become the core difficulty at present, and the construction of 5G network is just the sharp edge to solve this problem. 5G network is about to emerge, and small-scale experiments have begun. 2019 will also be a critical year of the experimental period. Although there is still a gap between large-scale opening, the supporting experimental applications will also be carried out simultaneously.

Ÿ<2>The maturity of IPFS technology stack has become an important driving force. IPFS is the only distributed storage system that has gradually improved from the underlying network protocol. It can realize index search function and has great advantages over other distributed storage solutions that only provide storage or proof functions. We believe that the maturity of IPFS technology system will help build the foundation for Web3.0 data storage. If Filecoin, the long-awaited IPFS application layer project in 2019, can be implemented as scheduled, it will be truly the first time that token incentives are linked to distributed storage, allowing distributed storage to achieve the original intention of "people's participation", which can not only broaden the outside world's understanding of Web3.0, but also provide a technical foundation for the implementation of Web3.0.

Ÿ<3>The improvement of the underlying technology of public chains is an important foundation. Web3.0 advocates data equality, emphasizes user data ownership, and emphasizes privacy and security. All of this cannot be separated from the development of underlying blockchain technology to achieve data rights confirmation, data security and equality. After the competition among major public chain platforms in 2017 and 2018, some public chain platforms with technical strength will further consolidate the foundation and improve stability in 2019, and provide reliable blockchain underlying technology support for the application construction of Web3.0.

With the implementation of distributed storage based on IPFS, the gradual arrival of the 5G network era, and the maturity of public chains, the underlying core technology ecosystem of Web3.0 has gradually improved, providing a technical and ecological foundation for the launch of Web3.0.

(6) The financialization of mining industry promotes reshuffle. Those who change their courses will take the lead, and those who hold on to the incompleteness will leave the market.

Since the decade of Bitcoin, three major development paths represented by chains, mines and coins have gradually formed. Mining is a unique industry formed by Bitcoin, which undertakes the most important task in the digital world: maintaining consensus and trust. From the ideal of single-CPU competition accounting mining at the beginning, to the clear division of labor composed of miners, mines and mining pools, mining has been developing towards refinement and specialization. We believe that this development trend will continue and will be deeply reshuffled in this round of bear market. Unlike the past, the market structure was further concentrated and the elimination of backward production capacity was that in 2019, we will see that mining has gradually gradually entered the "financial industry" from "manufacturing" to the clear and self-satisfied participants may leave, while players who change their courses and innovate will usher in new development opportunities:

Ÿ<1>Miners move towards the era of professional investment. Miners are a special group. They participate in the competition to record books and obtain Bitcoin mining rewards and handling fees. For ten years, the characteristics of participants have been changing, from geeks to individual speculation/investors, but the overall logic is basically holding coins and storing coins, and selling coins when necessary. In the future, it will be the era of professional investors/institutions. As a special means of investment in digital assets, mining will gradually become professional. The important reason for this trend is the emergence of derivatives such as futures contracts. When the currency price fluctuates violently, the traditional "storing coins" miners will face cost pressure when Bitcoin fluctuates. If there are professional hedging methods, it will reduce losses. The entire industry will operate more and more various financial means to manage risks, truly bid farewell to extensive management, and become the standard configuration of the industry.

Ÿ<2>Mining pools align with the Internet and finance. The logic of mining pools comes from "alignment of risks" and "distribution by work". When the difficulty of mining continues to soar, a single miner's expectation of Bitcoin mining decreased. In order to equalize the risk, a mining pool was formed. Everyone mining together. The Bitcoins they mine were distributed uniformly according to the amount of the contribution of the computing power, which seemed to be costless, but they must maintain the lifeline of 3-5% of the entire network computing power, otherwise their expected mining income fluctuates too much, which will cause miners to lose. Therefore, attracting new users (miners) has become the top priority of mining pools. It can be speculated that in the bear market, the mining pool may learn how to play the Internet and engage in a "subsidy war", and use sufficient funds to continuously increase the proportion of their own entire network computing power in order to obtain greater returns when the market breaks in the future. In addition to subsidies, mining pools may also develop towards mining financial institutions and gradually launch a large number of financial derivatives. In the future, as the value of mining investment is gradually recognized, many investors will no longer buy machines and select mines, and can directly purchase various derivatives from mining pools to obtain mining investment returns in a simpler way, such as tokenization of computing power.

(7) Traditional applications set off a wave of Dapp transformation, and a new world of traffic will surface

: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :

Ÿ<1>Development costs are constantly decreasing. Various modular components that deploy games to blockchain for traditional game developers are constantly maturing. There are Loom SDK and Enjin SDK based on the Ethereum network, as well as modular components launched by traditional game engine service providers Cocos, Laya and Egretia, which can realize "one-click conversion" of traditional games into blockchain games, which will gradually mature in 2019;

Ÿ<2>The cost of blockchain deployment and operation and maintenance is reduced. For EOS.IO, developers need various resources to deploy and continue to operate a Dapp, and the cost cannot be said to be low. In 2019, with the gradual emergence of multiple EOS.IO side chains, the cost of this part will be greatly reduced, and it will greatly reduce the threshold for traditional applications to transfer to blockchain.

Ÿ<3>The inspiration of developers by novel RPG games led by EOS Knights. With the development of Dapp, more and more real games have appeared on the blockchain. As the first RPG game on the EOS main network, EOS Knights has weakened the sense of operation in RPG games, focused on hero numerical cultivation and prop synthesis transactions, and numericalizes the game with the help of blockchain, and obtained 5,000+ DAU and 3,000-5,000EOS daily turnover. The success of this type of low-cost game will greatly inspire and inspire traditional game developers to enter the market.

Ÿ<4>The wallets and custodial solutions with lower thresholds will help traditional users enter. At present, a large part of the threshold for Dapp comes from the user's private key management and the conversion of "legal currency-digital assets". The emergence of custodial solutions and wallets with lower thresholds, such as wallets that can be directly logged in through user's mobile phone number and other information, will greatly reduce the user threshold for this area.

For traditional application Dapping, it realizes four major functions: account system blockchainization; application core logic dataization and uplinking; application economic model tokenization; application asset tokenization, which are also four important stages:

ŸStage 1: Blockchainization of account system and payment system

At this stage, the logic of the project itself is not on the chain, but it still runs on a centralized server, but it will be carried out with blockchain users and supports blockchain users to make payments in cryptocurrency.

ŸStage 2: Application of core logic digitization and chaining

That is, the most critical logic in the application, such as probabilistic events, strong execution events, etc., will be executed through smart contracts, ensuring the fairness and immutability of the project. However, the non-core logic continues to operate on the centralized server. First, to reduce operating costs, and second, the current blockchain storage technology is not yet perfect.

ŸThe third stage, the application of economic model tokenization transformation

At this stage, the applied business logic will be completely changed. From a traditional closed economic model (that is, resources within the project cannot be exchanged freely with resources outside the project) to a token economy with better liquidity. Once the tokenization transformation of the project economic model is completed, the project will have several times the explosive power than before, because all the resources within the project can be quickly and efficiently monetized, greatly enhancing the user's motivation to use.

ŸThe fourth stage, in-app asset tokenization

This stage is an upgrade of the previous stage and is also part of tokenization. The most core assets need to be anchored with a set of tailor-made tokens, which can enable the assets in the project to truly "unique" and obtain value outside the project (such as collection value).

For users, Dapp brings the characteristics of asset cultivation and circulation, which can monetize the in-game resources obtained by the time or money they invest, and communicate with other games through transactions. The implementation and development of all this is inseparable from the progress of decentralized transactions. The resonance of Dapp's decentralized transactions will truly make Dapp a new world of traffic.

(8) Cases of asset tokenization emerge, and the rights to token anchoring are gradually enriched, but there are still obstacles to scale.

Stable coins led by USDT are a typical case of asset tokenization. In 2018, the market saw more of the tokenization of underlying assets such as the US dollar and gold. In 2019, we will be expected to see the increasing diversification of the underlying assets of tokens. In addition to ownership, the rights granted by tokens may also have independent income rights, debt rights and even related derivative rights. The popularization of the concept of securities tokens, as well as the maturity of relevant regulatory frameworks and ecology, will become a catalyst for promoting diversified equity tokenization and asset chaining. However, despite this, we still believe that the current large-scale development of asset tokenization is still quite difficult:

: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :

Ÿ<2> Most countries have not yet clarified their policies for digital asset financing, or are still in the sandbox testing stage. The premise of tokenization of various types of assets is that regulators affirm the legitimacy of such assets and have clear regulatory methods. At present, except for the United States, most countries are still in the exploration stage in this sector, and even the United States, operating a whole securities token issuance requires a lot of time and energy, making it difficult for them to explode as quickly as the original digital asset crowdfunding.

(9) Stablecoins shift from transactions to applications and payments, and "PayPal" based on stablecoins will appear

In the year of 2018, many compliant fiat-collateralized stablecoins have emerged, and a number of stablecoins dedicated to improving USDT, and a number of stablecoins projects dedicated to achieving value stability through other models. However, at present, most stablecoins still exist as a medium of trading, and expand their scale through cooperation with exchanges, OTC wholesalers, and institutional traders. From the perspective of blockchain addresses, most stablecoins are stored in the hot and cold wallet addresses of the exchanges, which is a good example.

In 2019, we believe that this phenomenon is expected to be gradually changed. Stablecoins will shift from transactions to applications and payments. In the blockchain era, "PayPal" and stablecoin-based payment solution providers will also gradually emerge, and this is based on the following reasons:

: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :

Ÿ<2>Requirements for the change of the model of digital asset payment service providers. At present, the business model of most digital asset payment service providers is to achieve stability through a series of risk hedging means and tools. For example, users remit legal currency, the service provider will exchange it into digital assets after collecting legal currency, and sign a contract of value (similar to Swap) with brokers and other entities in the market, and then send money to the payee's address and assist the payee to convert the digital assets into legal currency. Through the form of a contract of value, when the price rises, the service provider pays the difference, and when the price falls, the service provider collects the difference to ensure the stability of value. This method is relatively complex, has high requirements, and depends on the funds of the counterparty of the CFD in the market. If the stablecoin is directly passed, the above steps will be eliminated, and the business model is simpler, stable and more effective.

(10) Mainstream countries' supervision continues to be optimized, the demonstration effect is emulated by many countries, and licenses and sandboxes will be popularized

2018 is the first year of compliance of the digital asset market, and the global market officially entered the compliance stage. Although mainstream countries and regions including the United States, Singapore, Japan, Hong Kong, etc. have stipulated and restricted the nature of digital assets, issuance and sales, circulation and transactions, objectively speaking, many regulatory regulations are still in the exploration and primary stage, and their accuracy has not yet been verified by time and market. We believe that if 2018 is the first year of compliance in the digital asset market, then 2019 is the year of gradual verification, optimization and implementation of regulatory rules during implementation, and it will truly begin to trigger the flow of resources and funds to countries that are more mature, perfect and friendly to the regulatory system. This demonstration effect will prompt many countries to actively follow suit and even start competition at the regulatory level:

Ÿ<1> "License + Sandbox" will become an important feature of the continuous optimization of regulatory rules. At present, the digital asset market is still in its early stages and changes rapidly. Therefore, the supervision of digital assets itself should be a dynamic process, and requires the joint efforts of the entire industry and regulatory agencies. Simple centralized supervision is often lagging behind and difficult to meet the development needs of the industry. Adopting the regulatory model of "license + Sandbox" combination, issuing licenses for most digital asset businesses with relatively fixed basic and business models, and then adopting sandbox supervision for emerging and innovative digital asset businesses can not only ensure compliance, but also not restrict innovation, and truly realize the verification, optimization and implementation of the regulatory system during implementation.

Ÿ<2>The flow of resources and funds to the regulatory system to a more mature, perfect and friendly country through the regulatory system is a core reason that prompts many countries to actively follow suit and even compete at the regulatory level. We expect that in 2019, the impact of blockchain and digital assets by different countries and regions on regional markets and industries will become increasingly greater. Based on our observations, the supervision in 2018 is more about qualitative "compliance or not" and punishing non-compliant behaviors and related businesses. In 2019, we expect that it will truly tend to make high-quality companies stand out, treat compliant and non-compliant companies and behaviors differently, which will drain, which will lead to the flow of resources and funds. Most companies, projects and entrepreneurs will tend to concentrate on countries with more mature, perfect and friendly regulatory systems. In order to attract high-quality blockchain companies and develop the blockchain industry, some countries that are behind will join this regulatory process and will even form national competition in the regulatory system to encourage excellent talents and resources to settle in. This clue has been shown by some small countries such as Malta.