Web3 is moving towards Compliance! Are we on the wrong path in our efforts to popularize encryption?

Recently, there has been a lot of discussion in the industry about Ethereum FUD. Some time ago, Jian Ge, Teacher Haotian, and Teacher NingNing launched a three-hour Space discussion on 'What's wrong with Ethereum'. The entire community participated and heard many exciting perspectives. From the game relationship between Ethereum and Layer 2, to the perspective of ideology, organizational structure, and historical lessons, we comprehensively learned about the current difficulties facing Ethereum and the industry, and felt everyone's deep love and responsibility towards Ethereum.

During the Space, I actually had some ideas brewing in my mind, but I was hesitant because I knew that my views were significantly different from those of most Web3 Natives. I was afraid of being criticized (knowing how toxic the industry can be), so I didn't speak up during the entire event. However, afterwards, I decided to come forward and share my perspective, attempting to provide a new angle to observe the challenges faced by Ethereum and the entire industry from the commonly discussed application layer. Although this perspective may not be mainstream, I believe that only through rational and honest discussions can we drive the industry towards a healthier direction.

This article is not about fear, uncertainty and doubt in Ethereum and the industry. It is not meant to provoke any opposition, but simply to provide a different perspective for criticism and reflection. If you don't agree with my point of view, just smile and don't spray, thank you! The article is long, so Spinach has summarized an AI conclusion for those who don't want to read long articles.

Image source: PANews

Background

Before discussing opinions, let me introduce the current work background of Gate.io. Many followers of Gate.io may have noticed that the output frequency of Gate.io has dropped significantly for a long time in the past, and there have been few opinions published on the industry.

This is because over the past year, Spinach, as a founding member of the Singaporean FinTech company Ample FinTech, participated in project collaborations with three Central Banks from different countries on securitization and cross-border payments. This experience has broadened my thinking and attention beyond the pure Web3 circle, focusing on the strategic trends of global Central Banks and traditional Financial Institutions.

During this time, I began to spend a lot of time researching the blockchain and tokenization-related research reports and papers from traditional forces, understanding their projects, while also keeping up with industry trends on Twitter and exchanging views with friends to understand the development trends of the Web3 industry. By simultaneously following the application development context of the Web3 community and the TradFi system, I was able to establish a more comprehensive cognitive framework between the two dimensions, which also gave me a different perspective on the understanding of the industry's future.

Fractured Parallel Worlds

It is precisely this dual perspective of being in two different worlds at the same time that makes me more aware of the atmosphere and development paths of the two industries. In the Web3 world, the current situation that everyone is complaining about is: more and more technical infrastructure is emerging, more and more new concepts and terms are emerging, deliberately creating complexity and increasing the understanding threshold, and the ultimate goal is mostly to target Vitalik and exchanges. After the TGE, it almost becomes a 'ghost town', and who really cares about whether it has real value?

Recently, the focus of discussion has also turned to questioning Vitalik and the Ethereum Foundation. More and more voices are complaining: Vitalik and the foundation seem to be too immersed in 'technical discussions' and 'ideal pursuits', investing a lot of energy in studying technical details, but showing little interest in the practical needs of users and commercial exploration. This tendency has caused widespread concern within the industry.

And in this Space, Teacher Meng Yan @myanTokenGeek, drawing on the historical experience of Internet development, bluntly pointed out: This development path of detaching from the market with long wick candle is difficult to sustain. If Ethereum continues to maintain this 'technology-first' development orientation, then everyone's concerns are not unreasonable.

However, when we look beyond the Crypto circle, we find a completely different picture: TradFi forces and governments around the world are undergoing significant changes in their attitudes towards Web3 technology. They not only see blockchain and tokenization as an important upgrade opportunity for the existing payment and financial system, but also actively explore the path of transformation. This transformation is not only driven by the recognition of new technology, but perhaps more fundamentally by the impact and threat that Web3 technology poses to the existing landscape.

And in 2024, a milestone turning point emerged when the bank for international settlements (BIS), known as the 'Central Bank of Central Banks', formally proposed the concept of 'Finternet' (Financial Internet).

This move is of great significance - it positions tokenization and blockchain technology as the next generation paradigm of the human financial system, instantly causing a huge wave in the traditional financial world, becoming one of the most followed topics.

This is not only a new concept, but also an important endorsement of the traditional financial industry for blockchain and tokenization technology. Its impact is rapidly spreading: major Financial Institutions and Central Banks worldwide are speeding up their pace, embarking on unprecedented active exploration in tokenization infrastructure construction, asset digitization, and payment application implementation.

Behind this series of major initiatives, it is not a hasty decision made by the Bank for International Settlements, but a strategic choice based on years of in-depth research. Gate.io spent a lot of time tracing and studying the decision-making trajectory of the Bank for International Settlements, and found a gradual development context: as early as 2018, the institution began to systematically study Web3 technology and published dozens of highly professional research papers on Depth.

In 2019, the bank for international settlements took a crucial step forward by establishing the bank for international settlements Innovation Center, systematically launching Blockchain and tokenization-related experimental projects. This series of in-depth research and practice ultimately led them to recognize an important fact: behind the innovation of Blockchain technology and tokenization lies enormous potential to reshape the global financial landscape.

Among the many experimental projects at the bank for international settlements, the most iconic one is undoubtedly mBridge - the CBDC cross-border payment bridge initiated jointly by the bank for international settlements Hong Kong Innovation Center, the Central Bank of China, the Hong Kong Monetary Authority, the Central Bank of Thailand, and the Central Bank of the United Arab Emirates in 2019. From a technical architecture perspective, mBridge is essentially a public permissioned chain based on EVM, operated by the Central Bank of each participating country as a Node, supporting direct on-chain cross-border Settlement of each country's Central Bank digital currency (CBDC).

However, history is always full of dramatic twists and turns. In the current complex geopolitical landscape, especially after the outbreak of the Russia-Ukraine conflict, this project, originally aimed at improving cross-border payment efficiency, has unexpectedly become an important tool for BRICS countries to circumvent SWIFT international sanctions.

The emergence of this situation forced the bank for international settlements to withdraw from the mBridge project at this stage. Recently, Russia has officially launched the BRICS Pay international payment Settlement system based on blockchain technology on this basis, pushing blockchain technology to the forefront of geopolitical games.

Another major initiative of the bank for international settlements is the launch of the largest public-private partnership project in the history of the Block chain - Project Agora. This project has brought together an unprecedented lineup of participants: seven major Central Banks (the Federal Reserve, the Central Bank of France representing the European Union, the Central Bank of Japan, the Central Bank of Korea, the Central Bank of Mexico, the Central Bank of Switzerland, and the Central Bank of England), as well as more than 40 global financial giants including SWIFT, VISA, MasterCard, and HSBC.

Such a large-scale cross-border collaboration has a surprisingly clear goal: to build a globally unified ledger system using Blockchain technology and smart contracts, while maintaining the existing financial order, in order to optimize the existing financial and monetary system. This initiative itself is a strong signal: the development momentum of Blockchain technology is unstoppable, and the TradFi forces have shifted from watching to embracing and actively promoting its application in practical scenarios.

On the contrary, while the Web3 industry is constantly chanting the slogan of Mass Adoption, it is actually keen on speculating on meme coins and indulging in short-term attention economy. This striking contrast cannot help but make people think: When traditional Financial Institutions are actively promoting the scaled application of blockchain technology with practical actions, should the Web3 industry also reconsider its development direction?

Mass adoption: Casino or application?

In this fragmented development trend, we have to consider a fundamental question: 'What is the true meaning of Mass Adoption?' Although this term frequently appears in the discussions of the Web3 industry, it seems that everyone has significantly different understandings of it.

Looking back at the so-called 'hot projects' in the Web3 industry over the past few years, an interesting pattern has emerged: projects claiming to achieve 'Mass Adoption' are essentially speculative games disguised as innovation. Whether it's the endless stream of meme coins, the 'Play-to-Earn' model touted under the banner of GameFi (such as the popular sneaker project), or the promotion of social innovation in SocialFi (like http:// Friend.tech), on closer inspection, they are nothing more than carefully packaged 'digital casinos'. Although these projects have attracted a large number of users in the short term, they do not truly address the practical needs and pain points of the users.

If allowing more and more people to participate in speculation and pushing up the price of coins is considered Mass Adoption, then this type of 'Adoption' is just a zero-sum game of wealth concentration among a few, and its unsustainability is evident.

Spinach has witnessed too many cases of fren entering the crypto world from outside the circle and losing everything, making it extremely rare to truly profit. This phenomenon has also been confirmed in recent data: a recent on-chain data analyst's study showed that on the http:// pump.fun platform, only 3% of users made profits exceeding $1,000. Behind this cold digital reality, it reflects that Cryptocurrency Speculation is a game for very few people to profit.

What is even more worrisome is that the entire industry has become a hotbed of hacking, phishing, and fraud, and from time to time, you can see information on Twitter about a Whale suffering heavy losses from fishing permits. Not to mention ordinary retail investors, according to the latest FBI report, in just 2023, the American people suffered over $5.6 billion in fraud losses in the cryptocurrency industry, with victims over the age of 60 accounting for 50% of the total number. The interests of many ordinary investors cannot be guaranteed in this 'dark forest'.

Speculation and increasingly serious hacker behavior have made the industry environment worse, which makes us wonder: Are we pursuing the wrong direction of "Mass Adoption"? In the frenzy of speculation, are we overlooking the true sustainable value creation?

It needs to be clear that I am not trying to completely deny the speculative nature of Web3. After all, the vast majority of participants enter this industry with the intention of obtaining investment returns, and this profit-driven motive is understandable. The speculative nature will continue to exist. However, Web3 should not and cannot simply stop at being a global casino. It needs to develop truly sustainable and practical application scenarios with real value.

And undoubtedly, payment and finance are the most potentially applicable industries of Web3 technology. This has been the Consensus from the TradFi forces, national governments, and market levels: we see the TradFi forces exploring various innovative applications on a large scale, including payment system innovation, tokenization of real-world assets (RWA), the integration of Decentralized Finance and TradFi, as well as the emerging concept of PayFi. These proactive explorations and practices clearly point to the most urgent needs in the current market.

In my personal opinion, the core issue for Ethereum or the industry may not lie in whether the technical direction is correct, but rather whether we truly understand what valuable applications are. When we overly focus on technological innovation and overlook market demand; when we are enthusiastic about creating concepts but far from real scenarios, is this development direction really correct?

This kind of thinking has triggered a deeper concern: if we continue to develop in this way, will the TradFi system or SWIFT network that we once aspired to subvert become the driving force for the widespread adoption of Block chain, instead of becoming the Market Maker army? Furthermore, will there be a situation where TradFi forces and government-led public permission Block chain systems dominate the vast majority of practical application scenarios, while public chains may be marginalized as a niche 'speculative paradise'?

While the focus of the Web3 industry is still on Ethereum's 'challengers' like Solana, it seems that no one has followed the TradFi forces that have already sounded the horn of invasion. Faced with this seismic shift, what we need to consider for Ethereum or the entire industry is not only the current development strategy, but also how to find our own position and value proposition in the wave of gradual compliance in the future. This may be the real test facing the industry.

After observing these trends, I have the following thoughts on the truly healthy and sustainable path to Mass Adoption in the industry:

The primary focus is to solve practical problems:

Whether it is infrastructure or applications, we should be based on real needs and focus on solving real pain points, such as many ordinary people and small and micro enterprises around the world still have difficulty accessing Financial Service; for example, the privacy issues of enterprises using blockchain, and so on. The value of technological innovation ultimately needs to be reflected through solving practical problems.

Next is the drop usage threshold:

The ultimate goal of technology is to serve users, not to create obstacles. The endless terms and complex concepts in the current Web3 world have, to some extent, hindered true popularization. We need to make technology more accessible, for example, using Chain Abstraction technology to solve user experience problems.

The third is to create sustainable value:

The sustainable development of the industry must be built on a sustainable business model, rather than excessive speculation. Only projects that truly create value can survive in the market in the long run, such as Web3 payments, PayFi, and RWA, etc.

The importance of technological innovation is beyond doubt, but we must also recognize that application is the primary productive force. Without practical application as the foundation, no matter how much infrastructure or advanced technology, it is ultimately just a castle in the air.

Web3 application Mass Adoption turning point has come

Throughout history, the integration of Blockchains with the real world has never ceased, but often failed to materialize due to factors such as timing, regulatory restrictions, or technical bottlenecks. However, the current situation presents an unprecedented turning point: the technical infrastructure is becoming increasingly mature, and TradFi forces are actively embracing innovation and exploring practical applications. At the same time, regulatory frameworks around the world are gradually improving. These signs all indicate that the next few years may be a key turning point for Web3 applications to achieve mass adoption.

On this important Node, Compliance is both the biggest challenge and the most potential opportunity. More and more signals indicate that the Web3 industry is gradually moving from the initial 'wilderness era' to a 'new era of Compliance'. This transformation not only signifies a more regulated market environment, but also heralds the beginning of truly sustainable development.

The signals of this transformation are reflected in multiple aspects:

1. The regulatory framework is becoming increasingly perfect.

Hong Kong has launched a comprehensive regulatory regime for Virtual Asset Service Providers (VASPs)

The official implementation of the EU MiCA Regulation

The FIT21 Act was passed in the House of Representatives in 2024 in the United States.

Japan revised the Funds Decision Act to provide a clear definition of crypto assets

2. Standardized participation of TradFi

Major asset management institutions such as BlackRock launch BTC, Ethereum ETFs

Traditional banks are beginning to offer custody services for encryption enterprises and launching tokenized bank deposits.

Mainstream payment companies launch ComplianceStable Coin

Establishment of Digital Asset Trading Department in Investment Bank

3. Upgrading the compliance of infrastructure

More exchanges actively apply for Compliance licenses

The widespread application of KYC/AML solutions

The Rise of Regulatory Stablecoin

Application of privacy computing technology in Compliance scenarios

The launch of Central Bank-level blockchain (CBDC currency bridge mBridge, Singapore Global Layer 1, bank for international settlements Project Agora, etc.)

4. The regulatory pressure of Web3 and the transformation of project compliance

The largest decentralized stablecoin project MakerDAO is transitioning to Sky to embrace Compliance

FBI Phishing Enforcement Meme Project Market Maker

Decentralized Finance projects are starting to introduce KYC/AML mechanisms one after another

In this trend, we are seeing:

TradFi forces continuously control the price and discourse power of BTC through BTC ETF

The new generation of compliant Web3 applications is quickly emerging

The entire industry is gradually establishing order under regulatory pressure, and the opportunity for overnight wealth will continue to decrease.

The application scenarios of stablecoin have shifted from speculation to practical uses such as international trade.

There is no doubt that the future battlefield of Blockchain technology will focus on several key industries: innovation in payment systems, tokenization of real-world assets (RWA), the emerging concept of PayFi, and the integration of Decentralized Finance with Traditional Finance (CeFi) Depth. This reality brings an unavoidable proposition: if the industry wants to achieve breakthrough development at the level of real-world applications, it must confront the interaction with regulatory agencies and traditional Financial Institutions. This is not a multiple-choice question but a necessary path for development.

The reality is that regulation always sits at the top of the industry ecosystem. This is not only an objective fact, but also a iron law that has been repeatedly verified in the development process of the encryption industry over the past decade. Almost every major industry turning point is closely related to regulatory policies.

Therefore, we need to seriously consider several fundamental questions: whether to embrace regulation and seek a symbiotic path with the existing financial system, or to adhere to the concept of 'Decentralization' and continue to hover in the gray area of regulation; whether to pursue a purely 'casino'-style Mass Adoption, repeating the speculative-driven path of the past decade, or to strive to create real and sustainable value, and truly realize the innovative potential of blockchain technology?

Currently, the Ethereum ecosystem is facing a significant structural imbalance: on the one hand, there is a constantly stacking infrastructure and endless technological innovation, while on the other hand, there is a relatively lagging application ecosystem development. In the face of this contrast, Ethereum is facing a dual challenge: it must not only respond to the strong performance and user experience of new public chains such as Solana, but also be vigilant against the Compliance public permissioned chains that TradFi forces are deploying in the actual application market.

What's more challenging is that Ether is also facing competition from two directions: on one hand, public chains like Solana are gaining more market share and user attention in the meme market due to their performance advantages; on the other hand, traditional Financial Institutions are dominating the public permissioned chains, gradually deploying in practical application scenarios such as payments and asset tokenization, relying on their natural compliance advantages and huge user base, and are likely to gain a first-mover advantage in these key industries in the future.

How to seek breakthroughs under this double squeeze, while maintaining technological innovation without losing market competitiveness, these are the key challenges that Ethereum must face head-on when seeking a breakthrough.

The above views represent only personal perspectives, throwing out a brick to attract jade, hoping to stimulate more constructive thinking and discussion within the industry. As industry participants, we should all contribute to pushing Web3 towards a healthier and more valuable direction.

Due to personal cognitive limitations, everyone is welcome to engage in friendly discussions and explore the future development direction of the industry. Additionally, I also engage in Cryptocurrency Speculation and want to make money. Please refrain from criticizing meme tokens players and Decentralization believers. My point of view is just that the industry should not only be about speculative trading, but also have some positive aspects.

[Disclaimer] The market is risky, and investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situation. Investing based on this is at your own risk.

This article is authorized to be reprinted from: "PANews"

Original author: Spinach Spinach