Report Extract | CICC Research: Blockchain has entered the 3.0 era

On October 22, CICC released a securities research report on the topic of blockchain research: the encryption asset supervision policy became clear and the technology development entered the 3.0 era. CICC is a well-known equity investment bank in China. This time, CICC released a research report on the blockchain industry, saying that it has entered the 3.0 era, which proves to some extent that the blockchain is receiving attention from the domestic capital market. CICC pointed out in the report that since 2019, the crypto-asset market has begun to pick up. The policy of the past year has become clearer, and there has been a breakthrough in technology. By understanding the development of crypto-asset technology and regulation, Libra and Libra are well-versed. The possible future direction and impact of the central bank's digital currency.

The following is an excerpt from the report:

CICC believes that the release of Bitcoin has opened the blockchain 1.0 era. The birth of Ethereum means that the blockchain has entered the 2.0 era. At the end of 2017, the emergence of the DeFi project MakerDAO marked the center of the mortgage. Financial finance began to rise, coupled with the popularity of stable currencies, the blockchain entered the 3.0 era. As the application of blockchain technology enters a new phase, the policy tends to be clear. At the moment, CICC reports that the investment proposal is to focus on the development of crypto-asset technology and regulation, and to grasp the future direction and impact of the central bank's digital currency and Libra.

Four reasons are mentioned in the report:

• Getting started with blockchain | How many people hold or use cryptocurrencies?
• Babbitt column | Tencent blockchains are strong, what is the opportunity for the public chain?
• Huawei has disclosed four blockchain related patents this month.

First, countries' regulatory policies on encryption assets such as Bitcoin have become clearer. In the past year, no matter what attitude it has toward cryptocurrencies, several countries have introduced specific regulations and policies, and the definition of legal status and regulatory orientation of cryptographic assets have become clearer.

In light of the actions of countries or regions on cryptographic assets, CICC pointed out that major countries currently generally recognize the property rights of crypto assets, but there are differences on whether it is securities (issuing, trading) and investors' qualifications suitable for investment in crypto assets. In major countries, Japan currently recognizes that crypto assets have the same status as currency, that is, to recognize the payment rights of crypto assets. All countries currently do not recognize that crypto assets have the same status as fiat currencies.

(Source: CICC's "Blockchain Research: Encrypted Assets Supervision Policy Gradually Clear, Technology Development Enters 3.0 Era" Theme Report)

Second, bitcoin's “virtual gold” status has been increasingly consolidated, and the replacement of bitcoin by stable currency has become the most important means of trading. On the one hand, the trend of bitcoin market share in the market ratio reflects its “virtual gold” status. On the other hand, the stable three-day average trading volume of USDT has exceeded Bitcoin.

In the past two years, the price of major crypto assets has fluctuated drastically. Since 2019, the market has recovered. As of September 30, 2019, the total market value of major crypto assets has increased by 85% to $186.4 billion. Among them, since 2019, the market value of bitcoin has also increased from 51.7% at the beginning of the year to 66.9% on October 13, 2019.

At the same time, the problem of excessive volatility in the price of ordinary cryptocurrencies is still plaguing investors. To solve this problem, various forms of stable digital currency have entered the market one after another. Stabilizing coins can partially solve the problems caused by large fluctuations in bitcoin prices, and can also connect legal currency and other encrypted assets. Since the end of 2018, the market value and trading volume of the stable currency represented by USDT have risen rapidly, and the average daily trading volume of USDT has exceeded Bitcoin. CICC believes that on the one hand, this is because stable currency is a good safe-haven asset. On the other hand, because of regulatory requirements, stable currency has become a good intermediate medium for better legal currency-cryptocurrency exchange and different cryptocurrency exchange. In addition, because the Libra currency that Facebook intends to launch also adopts a stable currency scheme, the stable currency has gained considerable attention.

(Source: CICC's "Blockchain Research: Encrypted Assets Supervision Policy Gradually Clear, Technology Development Enters 3.0 Era" Theme Report)

Third, ICO basically lost its financing ability, and the crypto-equity lending business began to rise. The ICO market, which was born out of Ethereum, has now shrunk rapidly. The decentralized financial projects represented by smart contract-based mortgages are on the line. CICC believes it represents a new technology trend.

At present, ICO, especially the Utility Token without asset endorsement, has problems such as fraud, and there is a trend toward STO (Security Token Offering). As of December 31, 2018, successful ICO projects such as ETH and EOS brought 38,240% and 158% high returns to investors. However, investors who participate in projects such as TTU, DRG, and SRN are almost in vain. There are three reasons: the ICO process cannot guarantee the accuracy of the asset chaining; the early ICO was mainly used as a financing for start-up projects, and the probability of failure was high; the fraudulent air currency project eroded investor confidence.

(Source: CICC's "Blockchain Research: Encrypted Assets Supervision Policy Gradually Clear, Technology Development Enters 3.0 Era" Theme Report)

A new trend in the blockchain industry is the rise of lending business based on crypto assets. DeFi (Decentralized Finance) uses blockchain technology to achieve equal, efficient, transparent, and credible financial services based on certified assets. Thanks to the application of smart contracts, DeFi's contracts are automatically executed and therefore highly equal and credible. At the same time, DeFi has significantly reduced the intermediate links, with higher efficiency and lower fees. DeFi projects include stable currency, lending, derivatives, payments, decentralized exchanges, and KYC/AML. Typical projects include: stable currency Dai, borrowing/derivatives dYdX platform, payment xDAI, decentralized exchange Loopring , KYC/AMLBloom.

(Source: CICC's "Blockchain Research: Encrypted Assets Supervision Policy Gradually Clear, Technology Development Enters 3.0 Era" Theme Report)

Fourth, the ecological chain of encryption assets has developed in the ups and downs. The issuance and trading of Bitcoin has spawned different formats such as mining machines, exchanges, and asset management. In the entire ecological chain of encrypted assets, some businesses have explored more mature business models.

The report pointed out that the mining machine industry has entered the 7nm era, and the computing power in the network has rebounded, and the concentration of the mining pool is stable. Virtual currency has become one of the important needs of the global semiconductor industry. The mining machine is characterized by parallel computing using a large number of dedicated mining chips, which is far superior to the energy consumption ratio of traditional general-purpose chips such as CPU/GPU and the cost performance of computing equipment. At present, the computing power in the network continues to rise, and it is expected to drive the demand of the relevant semiconductor industry chain. In addition, in the past year, 94% of Bitcoin was dug up from the address of the mining pool. The concentration of the calculation of the mining pool was relatively stable, and the CR6 remained at 70%.

(Source: CICC's "Blockchain Research: Encrypted Assets Supervision Policy Gradually Clear, Technology Development Enters 3.0 Era" Theme Report)

On the exchange side, the provision of derivatives trading services has become a trend, and the authenticity of trading volume is yet to be verified. Encrypted assets have become a new alternative investment asset. Currently, the cryptocurrency management scale (AUM) has grown steadily. As of July 2019, the cryptocurrency fund AUM has reached US$18.32 billion. The Chicago Mercantile Exchange and other start-up bitcoin futures products, according to CryptoCompare data, more than 90% of the global bitcoin futures trading is done on BitMEX. From the historical data, the trading volume of Bitcoin futures is greatly affected by the cryptocurrency market, and the historical trading volume is relatively volatile. 2019/9, BitMEX's bitcoin futures trading volume reached $78 billion.

(Source: CICC's "Blockchain Research: Encrypted Assets Supervision Policy Gradually Clear, Technology Development Enters 3.0 Era" Theme Report)

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