Author: Beichen, Harsh Whistle

The previous article "Financial History, Legal System and Technology Cycle: RWA's Trillion-Dollar Narrative Does Not Stand Up to Scrutiny" received a good response. Many friends read this article on different platforms and then contacted me in various ways to exchange views on RWA and the future of the industry.

Regarding RWA, there are both consensus and disagreement, but no matter what, the "Shrill Whistle" sent out a shrill whistle (rather than a balanced repeater broadcast that no one can find fault with and does not offend anyone), and attracted equally sharp responses. In this way, our views were constantly corrected and became more accurate during the discussion.

This article is a summary and reflection of exchanges (or debates) with two of my friends.

About Securitization and Tokenization

This friend comes from the traditional financial industry and has worked on derivatives design, pricing and trading on Wall Street for many years. He can be said to be an insider who is well versed in the mysteries of derivatives (including securitization).

We have known each other for more than two years. He often criticizes my shallowness in finance, and the heartbreaking thing is that he is often right. This time we talked for more than 40 minutes. He is a non-interested person in RWA, but he objected to the concept of "securitization" in my article and had a completely different judgment on RWA.

Finally, I am convinced by his explanation of the concept of "securitization", but I have reservations about the future direction of RWA.

The point he made about "securitization" is that the "securitization" discussed in that article is a narrow concept and is not suitable for discussion on the scale of "securitization in financial history" because real securitization actually appeared in the Netherlands in the 16th century, that is, stocks and bonds. These are securitization, but everyone directly calls them stocks, bonds, options, etc.

Later, non-standard assets were also securitized, which is what I discussed in the article. For example, MBS (mortgage-backed securities) for mortgage debt, ABS (asset-backed securities) for various accounts receivable other than real estate, and CDO (collateralized debt obligations).

So the securitization I am discussing refers to the new financial instruments that emerged later, which is securitization in a narrow sense. Now let me correct the statement - the trillion-dollar RWA market advocated today is actually mostly the ABS market. When they brag about it, they seem to have forgotten the existence of ABS.

This friend not only supplemented the definition of "securitization", but also expressed his expectations for "tokenization".

He believes that securitization can only be used for transactions, while tokenization means that other functions can be added, which leaves a lot of room for imagination.

He felt that my criticism of RWA (mainly STO, security token issuance) was too harsh. Although tokens at this stage are largely just cryptocurrencies, they still have the potential to evolve into tokens with stronger descriptive capabilities in the future, rather than just currencies.

I completely agree with his views on the future of tokenization. In fact, I cited Solv Protocol as an example in that article because they proposed ERC-3525 and invented SFT, which is between FT and NFT (one more thing, FT and NFT are just mappings of existing asset forms in reality). Another friend sent me their EIP-7797 proposal.

So our only point of disagreement is about our judgment of the future.

I think most of the current RWA projects have no hope, because their innate genes are not crypto native enough, and the acquired environment is not optimistic, so I put my hope on the still weak RWA projects that are building application layer protocols with crypto native logic.

He believes that we should put aside the debate about which came first, the chicken or the egg, and just start doing it first. Now that some people are willing to run an RWA exchange, assets suitable for RWA will naturally emerge in the future. We cannot deny that the RWA exchange will have no value in the future just because there are no suitable assets now.

The reason why I retain my opinion is that I think the impact of RWA exchanges on the crypto market is not as great as that of spot ETFs (although it also has little impact at present). At least in a bull market, hot money will really flow into the crypto industry through ETFs, but the money invested in RWA enters the real world from traditional finance and has nothing to do with the crypto industry. The only one who makes money is the exchange itself.

Now there are many projects advocating RWA, and even want to let crypto money enter the real world. The whole logic is completely reversed (how big is the crypto market?!).

About policy and technology

Another friend is Bruce Zeng, CEO of Billionaire Capital & 42teach. He wrote an article titled "Refuting the RWA Trillion-Dollar Narrative Bubble Theory". Although we have diametrically opposed views, in a small group of mutual friends, we praised each other in business when we first met and agreed to have a formal debate in Space. This article is just "Refuting the RWA Trillion-Dollar Narrative Bubble Theory".

Chicken and Egg

Our first disagreement was the same as the previous friend, which was the debate about which came first, the chicken or the egg. They both supported "exchange first, then assets", but I had reservations.

Bruce proposed in the article that cars should be put on the road first, and then iterated to achieve mass production. In his opinion, I am a conservative who mocks the newly invented car for being worse than a donkey cart by cooling down RWA.

But in fact, I am not mocking the automotive industry for having no future, but pointing out that the newly invented car cannot be regarded as the future.

The history of the automobile is often traced back to Mercedes-Benz in 1885, but the French built a three-wheeled car powered by a steam engine in 1769. If people at that time took this three-wheeled car as a classic style to lay out the future of the automobile industry, it would be a big mistake.

Back to RWA from the automobile, I am very optimistic about the future of RWA, but I don’t think the winners belong to those who are doing RWA now. The reason is that as mentioned earlier, most RWA projects are not crypto native by nature, and the acquired environment is not optimistic (mainly involving the adjustment of the entire legal system), so I am more optimistic about those RWA projects that build application layer protocols with crypto native logic, although they are still very weak now.

Web3 and Hong Kong

The second point of disagreement is the strength of policy support. Bruce believes that Hong Kong needs Web3, not Web3 needs Hong Kong.

This is indeed the case from a God's perspective, but you have to stand in the shoes of the specific actors to understand their logic so that you can make correct inferences.

I have fully mentioned (but not elaborated) the difficulty of making RWA compatible in the previous article. The reason is that legislation is already difficult, let alone legislation about the financial system, which is much more complicated than traffic laws for donkey carts or cars on the road.

My point of view can be summarized in one sentence. If the Hong Kong government has the courage to reconstruct the legal system in the financial field, then please reactivate the basic foundation as an Asian financial center first. In fact, in terms of liquidity, the Hong Kong stock market has become a swamp. This matter has a much higher priority than the new concept of RWA.

Technology is enough

The third point of disagreement lies in the judgment of the technology cycle.

Bruce believes that as far as the current STO/RWA is concerned, Ethereum + Layer2 is basically enough to achieve tokenization, but I think the existing underlying infrastructure is far from enough.

To be frank, the existing Layer2 is a cheap version of Ethereum. It has not undergone any technical paradigm upgrades. Of course, ZK, cross-chain and other directions are indeed making continuous progress.

Moreover, even if RWA is implemented on the existing underlying infrastructure, there should be innovations at the protocol layer to support customized tokens. FT and NFT are just simulating asset forms that already exist in reality.

Most of the discussions about RWA now are like people discussing the newly emerging handheld computers in the 1990s. It was indeed cool, but it and the various applications developed based on it disappeared long ago. It was not until the launch of the paradigm-changing iPhone in 2007 that the future was truly opened up.

So my point of view in a nutshell is either to focus on developing protocols based on existing operating systems, or to focus on iterating new operating systems.

Summarize

The differences between me and the two friends mentioned above seem very obvious, but if we look at the consensus again, we will find that these differences are just minor differences - we are all very optimistic about the future of crypto.

Although AI is now in the limelight and has broken through the technical critical point, I am still firmly optimistic about crypto. In fact, many friends in the industry have expressed concerns about the future this year, because there is indeed no major technological iteration, coupled with the risks on the policy and financial sides, it is very likely that this industry will be like many technological outlets in history, which are short-lived and gone.

But I still think that there is nothing wrong with the direction of Web3/Metaverse/DWeb. It is only a matter of time before it comes. It’s just that it is still unknown who will dominate on the technical path. So crypto still has a chance to conquer it!

It’s just that the extremely optimistic Bruce has already joined the revolution, while the cautiously optimistic me watches them become meaningless cannon fodder and continues to look for a more suitable path.

Of course, there are other friends’ exchanges and feedback, which I will not share one by one in this article.

It has been more than three months since the first article "Who are we about Whistle?" was published. The most feedback we received was that our voice was really different. We were even mistaken for a short-selling institution from traditional finance. After all, there were too many critical voices...

All this shows that our interim goal has been achieved - "Whistle will start with self-media and use a quarter to let the industry hear our voice." Whistle will continue to send a clear or even harsh voice to the market, and will also release more constructive content, such as about the implementation path of ZK and cross-chain.

We firmly believe that the secondary market is now bottoming out (but not yet at the bottom) and the primary market is brewing a new narrative at a critical moment. Welcome friends who are moving forward in different fields, whether you agree or refute, you are very welcome to communicate with us~

As the philosophy of "Whistle" since its establishment:

Every bull market has a new narrative, and underneath the narrative is the evolution of different factors such as technology, market, and policy. In the rapidly iterating crypto industry, those who can have insights into the underlying logic and trends of these factors are often researchers and project owners who have been deeply involved in the niche track for several years (rather than those who have just come into contact with these new concepts). They play different roles in the industry, and have formed their own unique insights through long-term tracking, research, and practice, but their real voices cannot be heard by the market and are drowned in the noise.

I believe that these opinions from different perspectives will be closer to the truth when they collide. For example, the two friends mentioned in this article, their experience and thinking are obtained by personally participating in the game, which is very valuable for reference.