The direction of Web3/Metaverse/DWeb is unquestionable, and its arrival is just a matter of time.

Author | Beichen

The previous article "Financial History, Legal System, and Technological Cycle: The Trillion-dollar Narrative of RWA Cannot Withstand Scrutiny" received a good response. Many friends read the article on different platforms and contacted me in various ways to exchange views on RWA and the future of the industry.

Regarding RWA, there are both consensus and dissenting opinions. However, regardless, the "jarring whistle" has sounded (rather than a safe and uncontroversial repetition), attracting equally sharp responses. Our views are constantly being refined through discussion.

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

About Securitization and Tokenization

One of these friends comes from the traditional financial industry and has worked for many years on derivative design, pricing, and trading on Wall Street. He is an expert in derivatives (including securitization).

We have known each other for over two years, and he often criticizes my shallow understanding of finance, and unfortunately, he is often right. This time, we talked for about forty minutes. He is not directly involved in RWA, but he raised objections to my concept of "securitization" in the article and has a completely different judgment on RWA.

In the end, I fully accepted his correction of the concept of "securitization." He pointed out that the "securitization" discussed in the article is a narrow concept and is not suitable for discussing "securitization in financial history" on a broad scale because true securitization actually appeared in the 16th century in the Netherlands, which includes stocks and bonds. These are securitization, but everyone directly refers to them as stocks, bonds, options, and the like.

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

So, the securitization I discussed refers to the new financial instruments that emerged later, which is a narrow form of securitization. Now, I will revise the statement—the vast majority of the touted trillion-dollar market for RWA today is actually the market for ABS. When they boast, it seems as if they have forgotten about ABS.

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

He believes that securitization can only achieve trading, while tokenization implies the ability to add other functions, which is very imaginative.

He thinks that my criticism of RWA (mainly STO, security token offerings) is too harsh. Although tokens at the current stage are largely just cryptocurrencies, there is still potential for them to evolve into tokens with stronger descriptive capabilities, not just currency.

I completely agree with his view of the future of tokenization. In fact, I mentioned Solv Protocol in that article because they proposed ERC-3525 and invented SFT (a side note, FT and NFT are just mappings of existing asset forms). Another friend sent their EIP-7797 proposal.

So, our only disagreement is about the future judgment.

I believe that most RWA projects are not promising at the moment because their inherent genes are not sufficiently crypto-native, and the future environment is not optimistic. Therefore, I place hope in RWA projects that are still weakly building application layer protocols with crypto-native logic.

He believes that we should set aside the debate about which came first, the chicken or the egg, and just get started. There are already people willing to trade RWA, and suitable assets for RWA will naturally emerge. We should not deny the future value of RWA exchanges just because there are no suitable assets at the moment.

I maintain my viewpoint because I believe that the impact of RWA exchanges on the crypto market is not as significant as spot ETFs (although they currently have little impact as well). At least during a bull market, hot money will indeed flow into the crypto industry through ETFs. However, investing in RWA brings traditional financial money into the real world, which has nothing to do with the crypto industry, and the only ones making money are the exchanges themselves.

Many projects that advocate for RWA, even those aiming to bring crypto money into the real world, have completely reversed the logic (how big is the crypto market?!).

About Policy and Technology

The other friend is Bruce Zeng, CEO of Beilei Capital & 42teach, who wrote a piece "Refuting the 'Trillion-dollar Narrative Bubble of RWA'." Although we have opposing views, in a small group of mutual friends, we initially praised each other's businesses and agreed to have a formal debate, and this article is just a "Refutation of the 'Refutation of the 'Trillion-dollar Narrative Bubble of RWA''."

The Chicken and the Egg

Our first point of disagreement, like the previous friend, is the debate about which came first, the chicken or the egg. They both support "first the exchange, then the assets," while I remain reserved.

In the article, Bruce suggested that we should get the car on the road first and then iterate to achieve mass production. In his view, my cooling of RWA is akin to a conservative mocking of the newly invented car compared to a donkey cart.

In reality, I am not mocking the lack of a future in the automotive industry but pointing out that the newly invented car cannot be considered the future.

The history of the car often traces back to the Mercedes in 1885, but the French made a steam-powered tricycle in 1769. If people at that time had positioned this tricycle as a classic style for the future automotive industry, it would have been a big mistake.

Returning from cars to RWA, I am very optimistic about the future of RWA, but I do not believe that the winners belong to those currently involved in RWA. The reason is that, as mentioned earlier, most RWA projects have inherent genes that are not sufficiently crypto-native, and the future environment is not optimistic (mainly involving adjustments to the entire legal system). Therefore, I still favor RWA projects that are building application layer protocols with crypto-native logic, even though they are still weak at the moment.

Web3 and Hong Kong

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

From a god's-eye view, this is indeed the case, but you have to understand the logic of specific actors from their standpoint in order to make the correct deductions.

I have fully mentioned (but not elaborated on) the difficulty of matching RWA with the legislation in the previous article. The reason is that legislation is already difficult, let alone legislation related to the financial system, which is far more complex than getting donkey carts or cars on the road.

To summarize my viewpoint in one sentence, it is that if the Hong Kong government has the courage to reconstruct the legal system in the financial sector, then please reactivate the basic foundation as the Asian financial center first. In fact, in terms of liquidity, the Hong Kong stock market has already become a swamp, and this matter is far more urgent and important than the still new concept of RWA.

Adequacy of Technology

The third point of disagreement is the judgment on the technological cycle.

Bruce believes that, for the current STO/RWA, Ethereum + Layer2 is already sufficient for tokenization, while I believe that the existing underlying infrastructure is far from sufficient.

It's painful to say, but the existing Layer2 is a cheap version of Ethereum, and it has not undergone a technological paradigm upgrade. Of course, directions such as ZK and cross-chain are indeed making continuous progress.

Even if RWA is done on the existing underlying infrastructure, there should be protocol layer innovations to support customized tokens. FT and NFT are just simulating the existing asset forms in the real world.

Most discussions about RWA now are like people in the 90s discussing the newly emerging handheld computer. It is indeed cool, but it and the various applications developed based on it have long disappeared, and it wasn't until the paradigm-shifting iPhone appeared in 2007 that the future truly began.

So, to sum up my viewpoint, either focus on developing protocols based on existing operating systems, or focus on iterating new operating systems.

Conclusion

The differences between me and the two friends mentioned above seem very apparent, but if we look at the consensus, we will find that these differences are just minor details—we all have great confidence in the future of crypto.

Although AI is currently in the spotlight and has surpassed the technological threshold, I still firmly believe in the future of crypto. In fact, many industry friends have expressed concerns about the future this year, citing the lack of major technological iterations and the risks on the policy and financial fronts. It is very likely that this industry will be short-lived, just like many technological trends in history.

However, I still believe that the direction of Web3/Metaverse/DWeb is unquestionable, and its arrival is just a matter of time. It's just that the dominance in the technological path is still unknown, so there is still a chance for crypto to conquer it!

The extremely optimistic Bruce has already joined the revolution, while I, cautiously optimistic, watch them become cannon fodder and continue to seek a more suitable path.

Of course, there have been other exchanges and feedback from friends, which I will not share in this article. It has been over three months since "The Jarring Whistle" released the first article "Who Are We?" and the most common feedback we received is that our voice is truly different. We have even been mistaken for a traditional financial short-selling institution, as there are too many critical voices being heard…

All of this indicates that our interim goal has been achieved— "The Jarring Whistle will continue to send out clear and even jarring voices to the market, and will also publish more constructive content, such as the implementation path for ZK and cross-chain, and so on.

We firmly believe that the secondary market is currently bottoming out (but has not reached the bottom yet) and the primary market is at a critical moment in brewing a new narrative. We welcome friends from different fields, whether in agreement or disagreement, to exchange ideas together~

Just as "The Jarring Whistle" was founded on the idea:

Every bull market brings a new narrative, and beneath the narrative are the evolution of different factors such as technology, market, and policy. In the rapidly iterating crypto industry, those who have insights into the underlying logic and trends of these factors are often researchers and project teams who have been deeply involved in the industry for several years (rather than those who have just encountered these new concepts).

They play different roles in the industry, and their long-term tracking, research, and practice have formed their unique insights, but their real voices are not being heard by the market and are being drowned out by the noise.

I believe that these viewpoints from different perspectives will get closer to the truth through collision. For example, the experiences and thoughts of the two friends mentioned in this article were gained from joining the industry and are very valuable for reference.

Anything that resonates, whether in agreement or disagreement, is on the same frequency.

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