TOKEN2049 Xiao Feng in conversation with Vitalik: Low-risk DeFi is maturing, ZKID may give rise to new financing models

The Global On-chain Asset Summit, hosted by HashKey Group, was held today in Singapore. During the event, Ethereum founder Vitalik Buterin and HashKey Group Chairman and CEO Dr. Xiao Feng engaged in a fireside chat to discuss Ethereum applications and the future direction of blockchain development.

The following is the content of their conversation:

Xiao Feng: Today, here in Singapore, we are discussing a topic about how Ethereum faces or drives applications on Ethereum. In my view, although there are thousands of blockchains, they can basically be divided into two categories. One type does not support third-party applications at all, such as Bitcoin, which has already been very successful and represents a killer application of blockchain, having been accepted globally after 15 years. The other type is represented by Ethereum, which was created to attract and drive developers and users. My first question is: What is your basic view on applications on Ethereum or on blockchain in general? Do you think the moment for applications has arrived? Which direction will it go?

Vitalik Buterin: I think there are basically two directions for applications now. The first is low-risk DeFi financial applications, which I wrote about in an article two weeks ago. Low-risk DeFi refers to applications that have existed on the Ethereum chain for a long time, and we already know they are safe and what they are. You can hold tokens, trade, lend, and swap—these are actually quite simple. They already exist in traditional finance, but the advantage of blockchain is globalization and openness, so they have value. For example, Morpho and some stablecoins provide users with 3% or 4% interest in fiat currencies like USD or EUR. For most people without good bank accounts, this is very important. Three years ago, low-risk DeFi did not exist; at that time, vulnerabilities and hacking risks were high. But if you look at 2019, the amount stolen was 5% of DeFi TVL, but this year it has dropped to 0.02%, which is very low. This shows that the ecosystem needs time to mature, and now it has reached a relatively successful stage.

The second category is more creative applications, such as decentralized prediction markets, ENS, ZKID, and so on. We don't know which of these will succeed, but one might suddenly explode. For example, last year Polymarket—previously, people thought prediction markets were just something economists discussed, but starting in 2024, mainstream media and a large number of users have been sharing its prediction screenshots. This shows that these small innovative applications can also grow rapidly. So Ethereum has these two directions, and both are very important.

Xiao Feng: You just mentioned prediction markets. I remember very clearly that in 2015 you introduced them to us, and we also invested at that time—it was Algo.

Vitalik Buterin: I still have 50,000 of their tokens.

Xiao Feng: Since then, I have been following prediction markets, but after 2017, there was less discussion. Unexpectedly, in 2024, Polymarket suddenly became popular, even accurately predicting Trump's election. My first reaction was—what Vitalik said about prediction markets has finally arrived, finally matured and useful. It really takes a long wait; the explosion of non-financial applications is slower than imagined. So far, besides prediction markets, do you see any other non-financial applications that have already succeeded, or, like you said about Algo in 2015, have the potential to become the right direction?

Vitalik Buterin: Recently, I often mention ZKID. Why? Because identity and privacy are very important issues in today's society. Centralized databases will inevitably be hacked, and data will inevitably be leaked—we have seen this many times. The value of ZKID is that you can prove certain key information without disclosing all your data. For example, in under-collateralized loans, the hardest part is determining who can repay and who cannot. The combination of ZK and AI can provide this kind of proof, allowing people globally to get loan support. This is an example of the combination of financial and non-financial applications, which I find very interesting. In the future, many applications will have both financial and non-financial components. Decentralized social is similar—it started as non-financial, but now many platforms are experimenting with financial features. Although 90% will fail within five years, the remaining 10% could be very interesting.

Xiao Feng: This reminds me of an economic observation. The British Industrial Revolution relied on banks and bonds, the Information Revolution relied on VC. Every industrial revolution is accompanied by a financial revolution. Now, AI and Crypto are considered the fourth industrial revolution, so there should also be new financial service models. In the past, VC was not successful in the crypto industry; in the future, there may be entirely new financing methods. For example, entrepreneurs could use ZK identity proofs and token mechanisms to raise $100,000 in seed funding globally. This approach might replace traditional VC and become the new financial revolution in the digital age.

Vitalik Buterin: Yes, I also believe that the combination of financial and non-financial will drive this wave of innovation.

Xiao Feng: Let me ask another question that developers often encounter. In Web2, people ask whether to go ToB or ToC. Do you think this distinction still exists in the blockchain industry? Is Ethereum ToB, ToC, or a third way?

Vitalik Buterin: In blockchain, the boundary between ToB and ToC is much smaller than before. For example, if you issue an ERC-20 token, individual users can hold it, and institutions can also hold it. Institutions and individuals are equal on-chain; the only difference is that institutions have more funds and higher security requirements, so they use multi-signature wallets. But essentially, they are just addresses. The relationship between L1 and L2 is also not a simple ToB/ToC distinction, but rather about the suitability of applications.

Xiao Feng: Users at the application layer also encounter another confusion, which is the boundary of decentralization. For example, stablecoins—at least you can't say they are 100% decentralized; there is always a centralized issuer like Circle. What do you think?

Vitalik Buterin: This is a complex issue. Many applications do require some degree of centralization and trust. For example, under-collateralized loans are essentially about trusting certain people. But if you completely ignore decentralization at the application layer, problems will arise. Email is an example: it is theoretically a decentralized protocol, but in reality, it is monopolized by large platforms. Blockchain is different: even if L2 is semi-centralized, users can still withdraw assets independently through L1 contracts, which is the guarantee of decentralization.

Xiao Feng: One last question. In recent days, Google and EF have been promoting the Agent-to-Agent Payment standard. What do you think about the trend of AI payments?

Vitalik Buterin: In the next five to ten years, AI will participate in many payments. But large payments are too risky to be fully entrusted to AI. Small payments are possible, and AI can also serve as a risk control tool to help humans judge whether a payment is risky. So we will gradually find the right combination point, and this process will have both mistakes and successes.

Xiao Feng: Okay, thank you very much, Vitalik, for your sharing. Today, from the perspective of Ethereum's founder, you have answered many of our questions.

Vitalik Buterin: Thank you.