Editor's Note: On March 23, 2019, EthFans held a “Dream” campaign with the theme of “DeFi” in Shenzhen. The following is the speech of the founder of Kaibo Technology, Li Kailong, "Digital Unbounded: Trust Economy and Smart Assets." Kailong’s understanding of decentralized finance is based on his understanding of trust, organization, finance and other things.
Digital Unbounded: Trust Economy and Smart Assets
Text / Li Kailong
Distribution and consensus
Before we elaborate on the model, we need to explain a key concept—distribution and consensus. We refer to the individual's interest appeal as distribution, and the corresponding group's decision is consensus. Distribution and consensus are always difficult to balance, and different stages can only be more biased towards one side. For example, if a few good friends watch a movie, it is often difficult to form a consensus if you want all the interests of the individual to be expressed, because often everyone does not like to watch the same movie. And if one or two people have the final say, they will replace the people to make decisions, and there will always be people who can't see the movies they want to watch. At this time, the individual interests are damaged. The biggest problem in human society is how to coordinate the interests of individuals and groups, thus promoting people to collaborate.
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Because making decisions in social and economic activities requires a lot of information, the only method we have taken in the past is to hand over decision-making power to a centralized organization. For example, you will let the travel website help you collect information about nearby hotels, and then make reservations according to its guidelines, but this institution may hurt your interests. Sometimes the website will recommend it to get more rebates, but the accommodation is generally The hotel is for you, and you know that it may do something like this, so you don't trust it completely. If it is a blockchain travel website, the above information is uploaded by various stakeholders such as hotel service providers and users, and there is no centralized auditing organization. This data will be available to everyone because it is open and transparent and cannot be tampered with. The trust, the decision can be achieved. And because the individual will provide the corresponding incentives after providing real and valuable data, and there are privacy considerations, it will attract more people to participate in this system. In the end, we saw that in the environment of the blockchain, each individual interest was expressed, and finally the whole system was able to do more than the original, thus unifying the contradiction between distribution and consensus.
Social development is the process of mobilizing individual enthusiasm, and at the same time, it can continue to reach the consensus of the group. Since each individual's interest appeals are different, the whole society's operating mechanism starts from the game between the underlying individuals and continuously reaches the consensus of the group. When the consensus is added to a certain degree, the most essential part will be formed. A variety of systems. The same situation is the same in biological genes. For example, we usually see that the human hair in the cold zone will be more lush. This is the phenotype, and the corresponding is the consensus. This phenotype is generated under the trigger of the environment. The weather began to get colder, and some people's bodies slowly grew a lot of body hair in order to resist the cold. It is not that all people will grow more body hair, which is the result of a game with nature, with an evolutionary probability in between. In addition, some people who do not have more lush body hair will be slowly eliminated by the environment. The characteristics of the multi-body hair of those who have not been eliminated will gradually be written into the gene, which is the system we are talking about. Finally, the characteristics are passed to the genetic law. The next generation. In the past, due to the opposition between individuals and groups, we faced a lot of wear and tear in the development process. Since the blockchain can unify the contradiction between individuals and groups, if the blockchain technology is applied to the physical world by means of numbers in the future, It is possible to change the process of the entire social evolution from the bottom, and ultimately to the foundation of a series of institutions and theories that we have formed.
The economic system is also based on the three-layer operation mechanism of game-consensus-institution. Through the summary of the game between economic individuals, Adam Smith puts forward the theory of invisible hand and advocates the role of market autolocation. More biased distribution; Keynes published the "General Theory of Employment, Interest, and Money" after the Great Depression of 1936, in which he threw out the state's view of regulating the economy and believed that the state should actively intervene in the economy. These theories pay more attention to consensus. The decision is reached. We can't say which system is better. In fact, since the birth of economics at the end of the 18th century, the whole theoretical world has been accompanied by different realities, and it has been constantly changing between the economics represented by Smith and Keynes, although there are There are references to each other, but in general, there has never been a real convergence.
We often say a word, "Confidence is more important than gold." This is the case in the recent round of the block market in the blockchain market. We say that humans always have no way to achieve a long-term cooperation mechanism, and the most fundamental thing is because of the lack of trust between each other. The blockchain starts from the game and consensus. Starting from the technical end, the biggest change that can be brought to the whole economic system is trust. The core point is to achieve trust economy. I think all industries in the future will apply blockchain technology. Will follow a U-shaped path to develop, I call it "U-type trust economy curve."
We illustrate this "U-shaped" curve with an example of a network car that everyone is familiar with. In this figure, the initial value of the consensus A is assumed to be 5 or any non-zero constant. At this time, because there is no participant, there is no distribution of interest expression, so the distribution is 0. Lower cost of trust, greater market size, and more individual benefits are the goals we hope to achieve through blockchain technology, but this goal is not achieved overnight, so we see the left side of the curve along with The number of passengers and drivers has increased, and the consensus has declined. This is very understandable, because the system wants to coordinate the interests of the participants one by one, it will take time, such as technical, model-run, etc., passengers and drivers have to get used to and integrate into the new system, also need a process . We are now in a down cycle like this, so we often hear a variety of panic voices, which is similar to the 2000 Internet bubble, the 2008 financial crisis, so the choice of robbery at this time Admission, because we think this is the best time to do things. This decline will reach a minimum point of C, which is the position of 6 passengers and 3 drivers. It is assumed that the consensus has dropped to 2 at this time. In view of the fact that all aspects of the industry are not mature enough, we think that the market is still very difficult in the future. The core is that the infrastructure of the underlying technology is not so fast, although it does not rule out some trading opportunities.
However, we must see that due to the application of the blockchain, the process of these games will not be lost in the past, will be clearly recorded, the system will be more and more perfect, and participants will be able to understand the various links. Rules, power is always accumulating, so once the bottom is touched, the curve will move to the upper right. Here, as the distribution increases, the consensus also begins to increase, so the two truly reach a unified state. Until we see 12 passengers and the driver's D point of 6, the position can be more distributed, and the interests of all parties can be coordinated to make decisions, and the consensus is back to 5. Although the consensus is still 5, it is worthwhile to spend so much time, because on the one hand, more individuals can participate, and on the other hand, the whole mechanism is completely smoothed out, and then participants will continue to increase. The consensus is that the boundaries of interest across the system will go beyond the non-blockchain environment. So after breaking through this D point, the blockchain will enter a period of exponential growth, the distribution and consensus will be improved quickly, the cost of trust will be very low, and the collaboration will be very smooth. At that time, the blockchain will be real. Play a huge power.
Organizational governance structure
In the process of this “U-shaped” curve movement, stories of various wealth and bubbles will be staged. The big difference between the blockchain and the Internet is that they will bring money to play at the beginning, so the industry is easy to experience short-term surges. There have been several rounds of this situation in the past, and I personally think that the future will continue. What should we do in such an era? Our robbery team has colleagues from Tencent, Huawei, Microsoft, Baidu, Ping An and Citi. At this point we have a consensus that the future will fully focus on the long-term value brought by the blockchain.
After talking about the economy, let's take a look at the changes in the blockchain for the organization. In the economic development and social life, in order to solve the problem of consensus efficiency, human beings have formed one organization after another, from the classmates to the industry committees. To companies, industry associations, international organizations, etc. The creation of the organization promotes human progress, but there are also deep-rooted contradictions between individuals and individuals. In the development process of the “U-shaped” trust economy, our entire organization will become very different, because the distribution and consensus can be unified, and trust can be achieved efficiently and at low cost, so the company will disappear and there will be new organizations. Born. Today we mainly discuss the issue of business organization. In this new context, its nature will be between the current profit organizations and public organizations.
We know that the essence of the company's existence is that its internal collaboration costs are lower than the outside. According to Coase's summary, there are three major costs: first, information search, followed by internal organization management, and external contracting costs. After the distributed ledger makes the information transparent and transparent, the cost of information search will drop drastically, and the introduction of non-tampering, incentive and encryption mechanisms will lead to the elimination of the internal and external collaboration gap. The internal management, external contracting, and agency commissioning systems of commercial organizations will be completely subverted, and the existing corporate system will gradually die out. Along with this, the design of capital structure such as corporate governance and even the entire company's claims and equity will change accordingly.
Anyone who has worked in the company should have felt this way, or the decision of this company is very vertical and concentrated, and does not consider the ideas of more front-line employees, so it is easy to detour, and because of the distribution of benefits can not be with individuals The contribution is precisely linked, the employee may be absent, or have an idea and are not willing to fully express it. In another case, there is no problem in horizontal information transmission. Some daily decisions are also generated in various small units, but at the same time, resources are also wasted. When it is time to fight, it is found that power cannot be concentrated. . The Internet has made the organization a big upgrade, and many decisions that need to be adapted to the situation have been dispersed. The overall situation is better able to generate consensus. So we have seen that the organization represented by Internet companies has become less hierarchical in the past decade. Product and strategy iterations are also more efficient. I have done a lot of research in this field at Tencent Research Institute, which is also the core secret of the rise of Internet companies.
In the era of blockchain, in addition to information transfer, the transfer of value within the organization is further superimposed. More importantly, the close relationship and trust between horizontal distribution and vertical decision-making are achieved through the game, and they can be well coordinated. Interests. And with the retreat of the company's wall, the internal and external will be connected, and the collaboration will be more effective. I will call it the "autonomous distribution + collaborative consensus" grid organization. Because this process is just beginning, I didn't draw anything on this map. Human beings are at the entrance to a higher-dimensional digital world, and the vision of the robbery is "to be the value transmitter of the digital world." We hope to be able to connect this box one by one with you and fill in the color, which is also the core of our work for many years to come.
Since information and assets will come together, we propose a concept called smart assets. How to understand this definition? We all know the idea of digital assets, that is, to digitize assets, but there is actually a logic that we often overlook, that is, these assets are actually one node in the entire business process. In addition to the digitization of assets, the digitization of business and business processes can ensure the transparency and security of assets. We can cite examples of common supply chains. For example, we digitize the warehouse receipts of a small and medium-sized enterprise. This process is called the winding in the blockchain. But how to confirm this authenticity, in fact, we need to do it in the whole upstream and downstream process, where is the goods coming from, who is the upstream supplier, who ordered the goods below, etc. Wait.
Only when the entire business flow is informatized and the real is confirmed, can this digital asset truly meet the requirements of the trust economy . Therefore, the asset is our entry point. It is a point that needs to be used to drive the digitization of the business flow. At this time, the asset must surpass the original financial property. He needs to be able to drive the entire business flow. To drive the digitization of the entire ecology, we call this asset a smart asset, and it will also be the gateway to the entire digital world in the future. It is essentially a configuration machine for risk states that better matches the risks and benefits of the world we live in, connecting the physical world and the digital world.
At one end, it can call the entire digital world of technology, the public chain, the chain of confirmation system, and the incentive currency; and on the other hand, it connects the various information processes in the physical world, allowing them to digitally scene. In the end, an intelligent asset system can be formed. The valuation of such assets will be more reasonable, the circulation will be more transparent, and the transaction will be stronger.
In the current digital world, it will start with stable coins and form a complete set of financial systems for bonds, stocks, insurance and even derivatives. These financial assets then drive the intelligence of the entire system. But this process of generation will be the opposite of the existing world, like a mirror world. That is to say, Mr. becomes a digital asset, and then becomes a smart asset, and then the entire intelligent decision-making and service system.
Through such changes, the entire economy will be transformed into a trust economy, the ecology will be more diversified, the connections will be smoother, the distribution of interests of individuals and groups will be coordinated, and business processes and circulation will be more efficient. The intelligent ecology promoted by blockchain technology will reduce the friction of many links, and ultimately will also enhance the economic efficiency of the entire physical industry.
Defi, decentralized finance, we believe that it does not appear to automate financial functions, thus moving away from the intermediary system. The intermediary system generated by the division of labor plays a very important role in social development. We can see that even if everyone can buy and sell stocks very freely, the fund companies are still developing at a high speed .
We believe that decentralized finance is realized to meet financial needs. From land, machinery to motorhomes, to personal credit loans, financial institutions are expanding the boundaries of productization that they can achieve, but they are still far from enough . For example, the encryption cat, although the price has been speculated at the time, it is clear that no financial institution is willing to finance the encryption cat. For example, agricultural products, the "free chicken" that eats insects and sun on the grass is obviously higher than the chicken taste, nutrient content and market price in the cage, but financial institutions obviously do not have the time and energy to carry out these two products. Differentiated pricing. In short, nowadays, whether it is a product category that requires financial needs or a fine distinction between the same category, the current financial institutions are far from being in place. The so-called "innovation starts from the edge", we believe that Defi will continue to work in these two areas to meet and create a larger demand market.
We also have some classifications of Defi:
1) Decentralized digital assets, such as encrypted cats, such as the digital currency itself;
2) Decentralized implementation of basic financial functions, such as decentralized transaction protocols like 0x, kyber, such as providing financing functions like makerdao, or trying to solve some of the foundations of decentralized investment digital asset derivatives like dydx protocol;
3) There are a series of digital assets with subdivided information. These digital assets contain the original entity digitization, but they can be further divided. In addition, some of them belong to the process, for example, I will take me one hour tomorrow. The time is digitally asseted. Before everyone's time can't be called an asset, but now, as long as there is demand, it is ok. Assets with information actually define the processes and information behind the assets, which we call smart assets.
These three categories are very important components of Defi's development. Decentralized basic financial functions can be realized so that assets will not be defined by a few people, and the demand matching parties can be found through the market. The emergence of smart assets will make decentralized financial functions really useful.
(Source: Ethereum fans)