Roundtable Forum: The Web3 Revolution and Opportunities in China

Author: Jinse Finance

The first AMA of the event "Calling for Web3 at the Center of the World" hosted by Jinse Finance was held, with the theme "Web3 Revolution and Opportunities in China." The guests included Luo Jinhai, founder of Quantum Selection, initiator of 2140, Iris, a senior legal expert in the digital economy, and Yuanjie, the招商 master of Conflux.

Host: Today's title is "Web3 Revolution and Opportunities in China." Since 2021, U.S. lawmakers have publicly stated that they want to ensure the Web3 revolution happens in the U.S. first. Whether China will take measures regarding the Web3 revolution has become a topic of great concern, including differing opinions from our guests today. We have KOL Teacher Luo, frontline developer Teacher Yuanjie, and lawyer Liu, who often interacts with regulatory agencies. Let's first invite the guests to introduce themselves.

Luo Jinhai: I am the CEO of Quantum School and also the initiator of 2140, holding both identities.

Yuanjie: Hello everyone, I am Yuanjie. I currently work at the Conflux public chain, where my role can be understood as the招商 director. I mainly attract entrepreneurs to the ecosystem and actively communicate with investors and regulators, hoping to create a space for entrepreneurs. That's basically my role.

Iris: I am Iris, a lawyer on Liu's team. Our lawyer team is based in Shanghai, and our main business direction is civil and criminal cases in the crypto field and compliance analysis for projects. Our team has been deeply engaged in this field for quite some time, handling over 200 cases and writing two related legal books. We continuously track industry practices, including legal and regulatory dynamics, and I'm very glad to be here to exchange ideas with everyone today.

Host: Alright, let's officially start the AMA. First, I would like to invite each of the teachers to express their views on whether the Web3 revolution will be unrelated to China, and the reasons for your beliefs.

Luo Jinhai: It's not just a Web3 issue; if we trace back to blockchain and early cryptocurrencies, I may have started working on e-commerce platforms related to cryptocurrencies and third-party payments as early as 2013. From the historical development perspective, compared to the U.S. policies, China's early financial management policies were relatively mild.

Professional financial officials represented by Zhou Xiaochuan were relatively mild towards Bitcoin and the subsequent blockchain industry. However, after 2017, especially in recent years, it feels like a complete cut-off.

If I were to express my viewpoint, it mainly depends on how we define Web3. In my view, Web3 still belongs to the underlying technology and is merely an extension of cryptographic technology. If we define Web3 as an extension of cryptographic technology, it may have a higher probability of development abroad. If we define Web3 as more related to the metaverse and explicit applications, there is still significant development space domestically; it just depends on how we define Web3.

Iris: Personally, I believe Web3 is definitely related to China for several reasons. First, those who think it is unrelated generally cite regulation as a reason. As lawyers, we understand the logic of regulation very well. I believe that future regulation may actually be relaxed.

Second, there are talents focusing on Web3 applications, and there is a consumer market. Recently, large capitals like CICC and Guosheng, as well as many traditional Web2 capitals in China, are pouring in. Therefore, the Web3 ecosystem has significant potential value waiting to be explored. Once regulation is relaxed, building the ecosystem will be relatively easy.

Third, at the policy level, many issues have arisen, and there are no other solutions; we can only pursue stability with a one-size-fits-all approach. In the future, when the U.S. and U.K. countries explore good paths, we can consider joining and appropriately relaxing regulations without much delay, as we already have the infrastructure, talent, and technology.

Yuanjie: Given the current national situation, Web3 is a relatively broad track. In terms of digital assets related to digital currencies, China is clearly not encouraging this in the short term, so this part of development should not see significant progress. However, digital assets are far broader than the concept of digital currencies.

Some new categories that have emerged from digital assets, such as NFTs, can include crypto art, PHP avatars, virtual land in virtual worlds, virtual clothing for characters, and membership cards. The digital assets and digital collectibles that can be represented are numerous, and these are encouraged for development. Although there are currently no clear secondary market guidelines, major internet companies are actively engaging in primary issuance, and even many party media and official media are involved in issuance.

I believe that a significant part of the development of Web3 digital assets is related to content, such as what we see with Mirror and Poap. Additionally, the marketing methods related to the bored apes launched by Yugalabs are all new entrepreneurial directions and attempts in the entire Web3 space.

Many people question me, saying that if there is no token economics, how can you do Web3? In response to such doubts, I have a few points:

First, currency is not allowed in China, but that does not mean tokens or assets are not allowed. The ERC1155 standard for issuing digital collectibles is popular in our country; it can have secondary market pricing to some extent while expressing its economic logic through an image or membership card. Its price can also fluctuate, driving its token economic model. Therefore, saying that economic models cannot be created is overly one-sided and arbitrary.

Second, many aspects of token economics have a clear Ponzi scheme logic. If not managed well, it can lead to significant crashes, harming many users. While it is undeniable that many early users have certainly tasted great benefits, new users will face harm. Token economics is not omnipotent; it has flexible space in China but should not be overused.

I believe there is significant space for Web3 in China; you just need to be very clear about where the red lines are domestically and avoid crossing them. Otherwise, you can target the international market, right? Just don't aim at Chinese users.

Host: People are concerned about Web3 and China because they still have high hopes for this land. Today, people refer to Web3 as a revolution, even comparable to the great maritime expeditions and geographical discoveries of the past. So I want to ask the guests, what are the significant differences between Web3 and the previous Web1 dot-com and Web2 mobile internet?

Luo Jinhai: Let me first respond to the previous topic. Our regulatory issues are not just targeted at Web3; too many industries are under regulation, and this regulation is completely boundary-less and even lacks legal oversight. This is something we need to consider. When normal industries are subjected to such strong regulation, what level of regulation does Web3 face?

For example, a friend just mentioned digital products. We have a project that directly cooperates with Tencent, which is somewhat similar to Huanhe. Its underlying code is actually open and can be traded again, but no project dares to engage in secondary development or underlying transactions. There is no problem with regulating digital collectibles, but no one dares to engage in secondary development. What does this indicate?

If we define Web3 as a database owned by individuals that is readable and writable based on Web1.0 and 2.0, then Web3 is about blockchain, and behind blockchain must be tokens or cryptocurrencies as a form of value-bearing, not merely currency. The core of Web3 is the digital equipment and economic system; those VR, virtual spaces, and AR are just the surface.

Web3 is widely recognized because many tech and financial elites understand that blockchain provides the technical support, and behind it is a wealth system that supports belief. Without wealth, would anyone care about the concept of the metaverse? In 2015, everyone was already shocked by VR. Therefore, these things will inevitably exist; they may not be called tokens, but they are a form of value-bearing.

Many people are particularly eager to turn a good thing into a scam, but this is a matter of the public. From a legal and regulatory perspective, there must be very clear regulatory boundaries. A one-size-fits-all approach will only scare those who are genuinely doing things, not those who are scamming. I have a project called 2140, which we have been working on for 4 to 5 years, but we dare not touch token economics; we can only make it an ordinary game.

This is the situation. When we launched a digital product with the postal service, China Post was extremely worried and said we couldn't do this together. We shouldn't think that the officials understand everything; they are actually confused.

Regarding the second question posed by the host about Web3.0 being a revolution, it is defined as a revolutionary technology because we see the tremendous changes brought by Web2.0.

From a technical perspective, Web2.0 is not remarkable; it merely transforms immovable things into portable mobile devices. The revolution lies in the combination of mobile terminals and lifestyle.

In my opinion, Web3.0 is still an extension of technology. If Web3 is revolutionary, it is in the sense that all my data behaviors online can be transformed into personal wealth. This is the most direct and obvious change, and it also represents a change in lifestyle, which must be integrated with lifestyle.

Yuanjie: Digital assets, in my view, are most intuitively about owning data, and the next capability is to trade it, to sell it.

Today, an author can create an image or a video, turn it into an NFT, and sell the ownership of that NFT. Previously, these artists could only go to businesses; for example, videos were published on video websites and still relied on platforms. Now they can go directly to consumers. This may be the first business model that has been explored.

Host: Yuanjie, please respond to Teacher Luo's comments on the regulatory issues in China.

Yuanjie: Our country is not a financial powerhouse; we are still a manufacturing giant. Accepting a financialized system will bring significant shocks. But I am not in power, and I cannot predict the far-reaching impacts.

I think starting with Hong Kong and Macau to try openness and embrace for Web3 might be a good approach.

Host: The unclear regulation is indeed a problem. Web2 has been so strictly regulated, let alone Web3. What does Iris think about the Web3 revolution?

Iris: I would like to say a few words from a legal perspective. Moving from readable and writable to ownership, entering the era of token economics has a significant impact on our current laws.

Take NFTs as an example. Originally, owning the copyright of an image requires addressing intellectual property issues, but it also gives rise to more infringement issues. What exactly does buying such an NFT entail? Is it acquiring the copyright of a digital work, or does it include the copyright of a physical work? It seems not.

Including civil and commercial law and financial law, the entire system may need to develop. We cannot simply apply the original property, debt, and property rights frameworks to these tokens and NFTs. They may encompass property rights, debt rights, and intellectual property rights, making them very comprehensive.

Host: We just talked about regulation. There is an old saying: "One regulation kills all; one relaxation leads to chaos." I want to ask each guest, in the complex regulatory and public opinion environment in China, what should regulatory agencies, industry practitioners, and ordinary users do to balance regulation and chaos, including the relationship between regulation and innovation?

Luo Jinhai: I believe there is no way to solve this because it involves human nature and cultural issues. We have developed a money-centric value system, yet we need to calm down and create, which is a natural contradiction.

First, this is a systemic and structural issue that extends to our social security system and cultural values. If there is no basic guarantee, asking you to conduct technical research and long-term planning is very difficult. This is not an individual problem; it is a comprehensive social issue.

Second, our evolution as humans cannot keep pace with technological advancement. We are not suited for technologies like Web3.0, and pursuing it is actually unnecessary.

Web1 brought us overall progress, allowing social elites to gather and absorb global intelligence, ultimately promoting global progress. However, in Web2, we found that technological progress did not bring overall social progress; instead, populism and anti-globalization trends emerged, which are difficult to reverse.

What Web3 brings could be even scarier. When everything becomes financialized, can we hold it together?

One regulation kills all, and no regulation leads to chaos. This is a structural issue in society and a problem of human nature. Moreover, because our country has not established a basic social security system, it is impossible to make longer-term plans.

Iris: Teacher Luo has a very macro perspective. Combining my background in financial law, I would like to discuss how to balance regulation and innovation.

First, regulation is essential for innovation. Law is the infrastructure for a healthy and orderly industry and defines the boundaries of innovation. Laws need to be continuously updated and iterated. Good legal regulation can guide innovation and prevent the emergence of bad money driving out good money in the market. Although short-term regulation may cause pain in the industry, in the long run, it can encourage practitioners to explore value continuously.

Second, as of now, it is still very difficult to find a balance in the regulation of the Web3 field. Currently, there are three regulatory approaches to financial innovation in our country. The first is sandbox regulation, which means doing pilot projects, but the effectiveness of sandbox regulation is not very good. The second is selective regulation, where innovation can be allowed initially, but regulation intervenes after issues arise. However, this approach is unfair to many innovators and entrepreneurs. The third is rule-expanding regulation, which is typical in the securities market, where regulatory authorities expand the interpretation of legal provisions. I believe your essence is a securities business, so I will include you in the regulatory scope.

In the crypto industry, our domestic regulation is a one-size-fits-all approach. To put it bluntly, it means that no one knows who is in charge and how to regulate. The development of our country's financial market and financial legal system follows the methods of Western countries.

In the U.S., most tokens on the market can be regulated by the SEC using the Howey Test, which states that if you are not a utility token, you are a security token. Issuing tokens is equivalent to issuing unregistered securities, leading to fines and confiscation. However, the SEC cannot keep up with regulation. The U.S. may introduce new legislation next year to modify the Howey Test, relaxing previously strict regulatory policies.

Third, despite the strong regulatory stance towards the Web3 industry in our country, many investment banks, consulting firms, and VC companies are still researching this field.

Top scholars from prestigious universities are paying attention to this area, studying legal issues related to NFTs and considering how the financial judiciary can respond to cross-border disputes in the crypto industry. The establishment of the Beijing Financial Court aims to expand the internationalization of financial justice, addressing financial innovations that lack legal basis through judicial expansion and interpretation. This is a path that countries with a civil law system can take.

Host: To summarize the views of the guests, one point is that regulation needs to be professional to minimize loopholes, and there should be good interaction with society and the public. The next question is, where are the main opportunities for Chinese people in the Web3 field as large funds flood in?

Luo Jinhai: After I wrote the article "Web3 is Unrelated to China," many people privately messaged me to discuss this matter.

Regarding the underlying technology related to Web3 or blockchain, it is still not in the country. Whether it is public chains, wallets, or some high-quality smart contracts, it is difficult to do well domestically. If we talk about entrepreneurial possibilities, I think it may still lie in the area of chain games, but this requires persistence because many of our games are just about cutting leeks.

Combining games with Web3 technology, including identity involvement and economic system integration, is possible, but many interactive technologies are still Web2. In summary, gaming is our strong suit and our strength at the application level.

Iris: Personally, I see two promising tracks. One is GameFi, which is still in a very early stage. Most of it is just a scheme, and the playability of the games is very poor. If it cannot make money, people will quickly abandon it. Stephen has taken a step forward, allowing this virtual and real combination, making games a real part of users' lives.

The second is crypto art. Currently, crypto art is mostly generative art, transferring the traditional gallery model to the blockchain and providing artists with a new marketing approach to promote our excellent traditional culture.

The third is content creation platforms. The experience of Mirror is not very good, but in the future, there may be unicorn companies similar to this that can enhance user experience, and I believe such applications have potential.

Yuanjie: We are working on infrastructure, and perhaps we still have some probability. Ethereum has its limitations, and its costs are real issues. We are also working on infrastructure, not because our technical capabilities are lacking, but because it is constrained by the overall development of the ecosystem. I believe there are still opportunities at the infrastructure level.

At the application level, this is something we, as Chinese people, excel at.

In our ecosystem, there is a digital wallet that only displays digital collectibles, which is compliant within China. It already has 500,000 registered users, and it complies with Chinese regulations. If it goes to the international market, everyone can really unleash their potential.

Xiao Gao: Hello everyone, I am Xiao Gao, focusing on the application of NFT in digital product rights confirmation and Web3 education. Teacher Luo mentioned the definition of the Web3 concept at the beginning, and I would like to discuss this with everyone.

Gavin Wood defines Web3 as the ownership of an asset, whether online or offline, assuming it can be combined with blockchain applications. If I can confirm ownership of these assets on the blockchain and independently create and manage everything in a clear and transparent manner, then that is Web3.

This morning, a friend sent me a message saying that public chains cannot be developed in China due to regulatory restrictions. However, I believe Conflux is like the city of Shenzhen, where reform and opening-up began as a pilot. Trying and experimenting here is very valuable, so I cherish it and am now working hard to promote Conflux and its corresponding ecological applications.

These two years will indeed be a bear market. Since it is a bear market, it is a good time for us to accumulate capabilities in our infrastructure, do our basic work well, and build a good ecosystem.

Host: I feel that the two are not contradictory. Although there is regulatory uncertainty, there are also attempts at reform and innovation in the country. Yesterday, Zhou Hang from Yidao published an article saying that our Chinese entrepreneurs must embark on the great maritime era. Our excellent entrepreneurs should go overseas, which may be parallel and not contradictory.

Now let's ask how ordinary users can avoid risks and seize opportunities in Web3.

Iris: More programmers and technical personnel are flooding into Web3. I believe that if more people from other backgrounds enter this industry ecosystem, it will become increasingly prosperous and better.

Seizing opportunities depends on your level of participation. The deeper you participate, the more benefits you will gain, and there are many ways to participate.

I think whether it's participating in the domestic digital collectibles ecosystem, buying some interesting PHP avatar projects, or engaging in the purchase of crypto art on crypto art platforms, you can use a small amount of money to experience it. You can engage in DeFi and GameFi content, spending your spare time doing something, and you will enjoy the benefits.

I have gone through the last bull and bear cycle. I am a financial enthusiast. Back in 2018 and 2019, when DAI was still a new thing, while others were trading coins on exchanges, I dared to bring coins onto the chain, using MetaMask to try Uniswap and Compound. I received UNI tokens, but I wasn't doing it for airdrops; I was driven by curiosity.

I believe that if you approach this with passion and interest, rather than purely for wealth, wealth will naturally reward you. When the next bull market arrives, all your accumulated behaviors in the Web3 world will pay off.

Many people are airdrop hunters, and I don't actually encourage that because it goes against human nature. They spend a lot of time doing repetitive actions and ultimately end up reporting each other.

If you want to discuss and share some Web3 experiences or knowledge with me, I strongly encourage everyone to document their learning and experiences on Twitter. Record what you learn and experience every day, and organize it systematically. When you want to write something down, you can't just ramble; you need to logically organize it. This will force you to think, learn, and practice. Writing meaningless things won't help, and I have personally practiced this. In this process, you may gain followers, knowledge, and the benefits of being in the Web3 industry.

Host: Thank you, Teacher Yuanjie, for your wonderful speech. Someone once said that writing is a highly rewarding activity; it helps you organize your thoughts very well. In Web3, new products are emerging endlessly, and curiosity is essential.

Thank you very much to all the guests for their wonderful speeches today. I learned a lot this afternoon. Thanks to the media partners of this AMA: DeFi Dao, Foresight News, Chain Catcher, MarsBit News, Planet Daily, Panews, Deep Tide, and the 0x499 community.