Editor's note: Under the global economic changes, the integration of virtual assets and traditional finance has become a hot topic. In this episode of DDN Business Insider, Lu Keheng, the person in charge of HashKey Chain, pointed out that the key breakthroughs in the integration of the two include compliance and friendliness, technology modularization, etc., and emphasized that the establishment of trust, the improvement of the regulatory framework, and the optimization of the technological infrastructure are the core elements to promote the development of the industry.
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. Today, we are honored to have Ms. Lu Keheng, the head of HashKey Chain, as our guest. She will share insights on the development trends of virtual assets amid the shifts in the global economy.
In early April, Financial Secretary Paul Chan mentioned that the second virtual asset policy declaration would soon be released, focusing on integrating the advantages of traditional finance with the technological innovations of virtual assets. As a leading representative in the virtual asset space in the region, what do you think will be the key breakthrough point for this integration?
【Lu】We believe that the combination of traditional finance and the crypto space often needs to find a balance between stability and speed. First, we need to ensure compliance and transparency because the foundation of finance is trust. To encourage traditional financial funds and institutions to go on-chain, we must provide a transparent, auditable, and clear regulatory environment; otherwise, people will hesitate to invest their funds. Secondly, we need modularized technology architecture. The traditional financial system has nearly a thousand years of development behind it, with every component and structure being very mature, stable, and complex. We cannot expect to migrate such a large and stable financial system directly to the blockchain in a single step. Instead, we need to deconstruct the demands and see which needs can gradually be tested on-chain.
By making small-scale breakthroughs, we can find a relatively good balance between efficiency and stability. The last issue is performance and cost because reality can be harsh. I believe no one, especially financial institutions, would be willing to sacrifice their inherent security and compliance for the sake of so-called innovation. Therefore, we have optimized the underlying architecture to ensure that the business can operate quickly and securely.
【Anchor】You just mentioned that the foundation of finance lies in trust. How do you perceive the current level of trust in virtual assets?
【Lu】I believe that after more than a decade of development, trust in this industry has gradually increased. Initially, cryptocurrencies were seen as a niche pursuit, primarily of interest to computer enthusiasts or those intrigued by emerging trends. Over the years, the industry has gone through several cycles, starting with the birth of Bitcoin, followed by Ethereum, and later many other tokens, including the DeFi summer and various new forms emerging. The industry is still very new, sparking much exploration and curiosity, which also means there are many opportunities and possibilities. Ordinary investors have seen support from regulatory bodies, and with policies being issued across the U.S., they feel their assets are recognized by these authorities. What we need to do now is to make the system more complete, mature, and capable of protecting everyone's interests. This trust-building process is indeed bidirectional.
【Anchor】Looking at the current situation, the integration of traditional finance and virtual assets is becoming an unstoppable trend. How would you assess the current level of this integration?
【Lu】In the real world, we have many assets that can achieve better liquidity through blockchain, overcoming geographical and temporal limitations and enabling real-time settlements via blockchain technology. In this context, many financial institutions, including two leading firms—China Pacific Insurance in Hong Kong and a certain fund—have issued on-chain financial products such as money market funds (MMFs) and ETFs. Many other financial institutions are also in discussions, and I believe we will soon hear about more innovative forms emerging. This milestone indicates that our on-chain financial infrastructure—both technically and in terms of security and compliance—has gained preliminary acceptance from traditional financial institutions. Moreover, these issuances are practical; they are executable and have received acknowledgment from regulatory bodies in Hong Kong. We are witnessing the convergence of Web2 and Web3, marking their first true integration. However, we must admit that at this stage, much of it is still exploratory and innovative. There is still a long way to go before we see large-scale asset tokenization and the onboarding of all asset categories. We hope to see more collaborations with other blockchain ecosystem partners and institutions, as well as various Web3 applications. The three parties – supply chains, institutions, and Web3 applications – can coalesce into a cohesive ecosystem, allowing Web3, as a technological layer, to serve the development of real human society rather than being confined to a small circle or merely focused on price fluctuations. We aim to empower the development of the real economy from the perspectives of infrastructure and on-chain financialization.
【Anchor】As you mentioned, this process is indeed a long journey. We also know that developing anything new will inevitably face many challenges. What challenges do you think exist in this development process?
【Lu】That's a great question and one we've been continually reflecting on during our discussions. The first challenge is indeed the issue of trust—not just between institutions, but also among investors. The acceptance of a new entity takes time; it is a process of emergence, growth, and maturation. Right now, we have a good start with recognition from many mainstream regulatory bodies, and various clear regulatory frameworks are being introduced. However, this is far from sufficient, as the crypto market has become vast and complex. We may have many frameworks regarding RWA stablecoins and trading processes, but we still lack a solid pathway for how the on-chain ecosystem model should be guided.
Another challenge is that the infrastructure of Web3 has not yet truly met the requirements of traditional finance. While our technology offers inherent advantages like low costs and high efficiency, along with data transparency, traditional financial institutions have to consider many more issues, such as how to handle asset custody and rights confirmation. Previously, we relied on regulatory bodies or banks to provide trust. However, in the blockchain world, we are accustomed to decentralized trust. Yet, it turns out this decentralized trust does not meet the needs of traditional institutions. I believe this represents a new kind of centralization. The development of Web3 has evolved from initial centralization to the decentralized model that Web3 advocates, and now it has become a new form of centralization. This new centralization is not determined by a single country or institution; it requires the entire industry to establish a new set of rules and consensus to effectively integrate traditional finance with Web3 innovation.
【Anchor】We know that the traditional finance industry has many segmented areas. Which industries or companies do you think are likely to take the lead in establishing an on-chain presence?
【Lu】This is a question we've been asked frequently lately. We understand that real-world assets encompass a vast range, and in terms of prioritization and suitability, we believe that industries or companies related to capital, with data and information flows, are more appropriate to transition to the blockchain. These companies inherently have a requirement for tracking data and funds, and their products tend to be more structured, aligning well with the traceability and transparency offered by blockchain technology. For example, areas like cross-border payments, financial products such as MMFs, stocks, bonds, and blockchain ecosystem finance are well-suited for innovative expansion on-chain. Additionally, many companies already have a strong embrace of change and a compelling motivation for digital transformation. Such companies will likely identify opportunities in this industry earlier and undergo digital transformations sooner, adjusting their organizational structures, personnel, and business processes to respond to these new trends.
【Anchor】As you mentioned, some companies may actively embrace change, while others may be more traditional. What do you think are the core drivers for traditional financial institutions to push for on-chain deployment?
【Lu】This is a great opportunity to address this question, as we have recently seen successful on-chain deployments. In our discussions, we found that the first driver is the technological advantage. Blockchain offers 24/7 uninterrupted service, overcoming geographical and temporal limitations, and providing efficient capital flow, which enhances the basic efficiency and liquidity of products for traditional financial companies.
The second driver is market demand. The recent introduction of crypto policies around the world has sparked interest among high-net-worth individuals, leading them to explore opportunities and configurations in this industry. Financial institutions are responding to this market demand by innovating in product and business models within this new framework.
The third driver is policy support. We see that the major financial hubs like Hong Kong, Singapore, the EU, and the U.S. are all increasingly focusing on this industry due to policy support. It's mainly a question of who moves first, but overall, it's an unstoppable trend. These three factors are pushing everyone towards early adoption: those who innovate and deploy actively will gain more advantages and influence in the future development of this industry.
【Anchor】Regulatory compliance is always an important part of financial innovation. How do you think the evolution of regulatory policies will impact the on-chain deployment of traditional institutions?
【Lu】This is an unavoidable topic for institutions. I believe that regulation is not a burden but a safeguard, especially for financial institutions. The absence of regulation can be quite frightening. For traditional finance to truly go on-chain, there must be clear regulatory mechanisms in place, such as how to implement KYC (Know Your Customer) and AML (Anti-Money Laundering) on-chain, how to audit contracts, and how to ensure data flow transparency. However, as a Web3 practitioner, I am considering a direction where on-chain regulation doesn't necessarily have to be governed by a centralized entity. Instead, we can leverage smart contracts for automated audits and information disclosures, allowing data and transaction flows to be public, enabling everyone to participate in the oversight rather than relying on a single regulatory body.
First, we need to establish a consensus standard within the industry. Second, based on this standard, we should create supporting infrastructure for on-chain activities to enhance the transparency of transaction data. Once this data transparency is achieved, it can meet the regulatory requirements that regulatory bodies are currently considering. Often, the motivation for regulation is to protect general investors and users through their expertise and authority, which I believe is the original intent of regulation. If we can integrate blockchain to enable faster, more transparent, and more efficient regulation, that is a direction we can all strive for.
【Anchor】Looking to the future, in which areas do you think the fusion of traditional finance and virtual assets will first take off?
【Lu】The integration of traditional and innovative finance is an inevitable path and a major trend; it's just a matter of timing. We believe that more institutions will recognize that many products are inherently suited to exist on-chain because on-chain products are naturally more efficient, convenient, and transparent. From a scenario perspective, we will primarily see developments in RWA (Real-World Assets), stablecoins, and payments, with many use cases being realized on-chain. Technologically, I am very optimistic about a blended architecture, where we help traditional finance gradually move some of its functions on-chain, achieving a real integration between on-chain and off-chain, whether it's technology, capital, or user flows.
【Anchor】Now, AI has also been a hot topic in the tech field. How do you see the interaction between traditional finance, virtual assets, and AI? Will there be any sparks?
【Lu】Yes, AI is definitely a topic we've all been focusing on recently. From a general user perspective, I think AI is becoming more adaptive and interactive. For example, when using ChatGPT, I often see it as a consulting partner that provides suggestions. If I ask about a certain stock or company, it gives me advice, but I still have to manually place my trades through my phone. The true potential of AI, however, is that I could simply express my needs, and it could handle the entire process—from opening the trading app to selecting stocks, placing orders, and settling the transactions—until the funds arrive in my account.
This is the expectation we have for AI. It can also apply to travel planning, recipe suggestions, or even emotional consulting. However, we need to remember that AI is a productivity tool driven by data and machines. The language interaction between machines requires an economic system that they can understand. I envision that the new productivity brought by AI will be expressed through digital currencies. I won't need to relate the productivity of AI to real-world currencies like USD or HKD; instead, transactions can occur directly on-chain between machines. My AI could pay your AI with virtual currency, and the transaction would be completed between them. This is how I envision a productive integration of virtual assets and AI.
【Anchor】Thank you, Ms. Lu, for bringing us a new perspective on virtual assets and traditional finance today. That's all for this episode. Thanks for watching and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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