Table of Contents
1. Introduction
2. Regulations
3. Adoption
4. Cross-Chain
5. Layer 1, 2
6. Closing
1. Introduction
The Xangle Research team attended Impact, the main event of KBW 2023, which is Korea's largest blockchain conference held on September 5 and 6. It was a moment to gain insights from speakers who remain dedicated to the crypto space despite the prolonged crypto winter that began after the Terra incident in May last year. Among them, Arthur Hayes from Maelstrom delivered a keynote speech on the regime change, predicting that the limits of fiat currencies will be revealed in a high-interest rate macroeconomic environment. He expressed his confidence in the crypto market, foreseeing a bullish trend for Bitcoin even without a rate cut. Many other speakers contributed insights on various topics like regulations, adoption, cross-chain technologies, and layer 1 & 2 solutions. In this recap, we'll summarize key takeaways from these sessions.
2. Regulations
Crypto Regulatory Frameworks: Asia Leads the Way
On the first day of the conference, several sessions delved into the realm of crypto regulation frameworks. The “Regulatory Landscape from US to Asia” session discussed how authorities in the U.S., Japan, Singapore, and Hong Kong are regulation and what an ideal regulatory framework entails. During this session, Emily Parker from CoinDesk pointed out that, alongside the EU's MiCA, Asian nations are taking a leading role in shaping crypto regulations. In particular, she noted that while the United States has a fragmented regulatory landscape with agencies like the SEC and CFTC vying for authority, Japan and Hong Kong aim for coherence and clarity by addressing crypto industry regulation through a unified body. Carole House from Terranet Ventures, a former member of the White House National Security Council, stressed the importance of enhancing policymakers' comprehension of crypto to develop effective regulatory guidelines. House said that many U.S. regulators currently view crypto as a form of fraud and something to be managed, and emphasized the need for the industry to proactively communicate with authorities to address this and ensure that suitable regulatory framework is in place.
CFTC: Setting Crypto Regulatory Standards Within Two Years
On the second day, Commissioner Caroline Pham from the U.S. Commodity Futures Trading Commission (CFTC) participated in a session as well. In this session, she underscored the CFTC's commitment to establish regulatory standards for cryptocurrencies within the next two years, with the initial crypto recommendations scheduled for release on October 5. To achieve this, she highlighted the formation of a digital assets subcommittee within the CFTC earlier this year, where she serves as vice chair. Commissioner Pham pointed out that not all digital assets fall under the category of securities; there exist non-securities assets like NFTs and utility tokens. Consequently, the CFTC plays an equally vital role as the SEC, which exclusively oversees securities. This indicates a potential ongoing power struggle between the SEC and CFTC regarding virtual asset regulation. However, while the SEC appears to seek a court ruling through litigation, the CFTC is diligently crafting regulatory proposals. The future will reveal which agency will ultimately wield greater regulatory authority.
Circle (USDC): Anticipating Regulations by 2025 and Commencing Mass Adoption
During a panel discussion on the second day, Jeremy Allaire, CEO of Circle, stressed the critical importance of establishing clear regulations to facilitate the seamless integration of the blockchain financial system with the traditional financial system. He highlighted that USDC has earned its position as the most trusted stablecoin globally by actively collaborating with , adhering to policies, and maintaining transparency as an asset. Allaire further pointed out that regulatory developments over the past year have outpaced the entire previous nine years of crypto regulation. And he went on to predict that regulations concerning digital assets and markets will be in place by 2025. Lastly, he emphasized that true mass adoption can only commence once these legal frameworks are firmly in place.
3. Adoption
Web3 Adoption by Major Japanese Companies: Leveraging Strong IP and Regulatory Easing
During the “Evolving of Enterprise Adoption in Japan” session on the first day, leading Japanese companies’ Web3 subsidiaries, including Sony Bank, NTT, and SBI, presented insights into the current state of Web3 adoption among major Japanese companies. Notably, all three companies agreed that Web3 is set to play a substantial role in fueling growth in the upcoming decade. In particular, NTT, a leading Japanese telecommunications company, emphasized its commitment to exploring new growth opportunities in the enterprise sector via Web3. This strategic move comes in response to the challenges confronting the telecommunication industry in Japan, marked by rising expenditures without quantitative expansion. Furthermore, Sony Bank, with its background in tokenizing loan products in collaboration with the STO platform Securitize, announced its plans to tokenize not just financial products but also Sony Group’s intellectual property assets within the gaming and entertainment sectors. Sony Bank underscored its commitment to attract retail investors to the STO market, leveraging Japan’s position as an IP powerhouse.
During the “Cryptocurrency Adoption in Japan: Trends and Predictions” session held on the same day, Asia (a venture capital firm) and Japan's leading Layer 1 blockchains, Oasis and Asta, provided insights into the Japanese Web3 market. The discussion revolved around the Japanese government's initiatives to promote Web3 and its regulatory reforms, which serve as the foundation for in Japan. Headline commented that in contrast to the SEC’s efforts to regulate the crypto market in the U.S., the Japanese government is actively pursuing policies aimed at promoting the Web3 ecosystem. These initiatives include the release of Web3 white papers and corporate tax reforms aimed at exempting unrealized gains on self-issued tokens from taxation. Moreover, there are ongoing discussions regarding bills that aim to exempt holding taxes on tokens issued by other companies and to lower personal income taxes on crypto assets. If these proposals receive approval, it is anticipated that the Web3 adoption in Japan will gain significant momentum. For further insights into Web3 adoption in Japan, you can refer to the Xangle Original article, "Embracing the Blockchain Industry: Japan is Back, Again" and "Xangle X CMC Live Recap: Web3 Adoption in Korea/Japan."
Circle (USDC): The Path to Stablecoin Adoption Begins with B2C Services
During the panel discussion on the second day, Circle CEO Jeremy Allaire emphasized that the widespread adoption of stablecoins will initiate through B2C service providers, such as gaming, fintech, and e-commerce companies. Allaire pointed out that these companies are increasingly burdened by the costs associated with complex transactions, and he sees the adoption of stablecoin payments as a potential solution to this challenge. In particular, USDC is broadening its payments ecosystem, as demonstrated by successful real-world pilot tests conducted by e-commerce platform Shopify and global payment processing giant Visa. Highlighting these examples, Allaire emphasized USDC’s potential to emerge as a frontrunner in shaping the future of stablecoin payment adoption.
The session also delved into the prospects of stablecoins in the future. Within the array of national currency-backed stablecoins, Allaire believes that dollar-based stablecoins will become the most trusted asset. This assertion is grounded in the fact that dollar-based stablecoins inherit the trust and stability associated with the U.S. dollar. Allaire emphasized that as approximately 70% of USDC is currently held outside the US, the popularity of dollar-based stablecoins is expected to surge even further in the future.
4. Cross-Chain
Axelar: Multichain Is Essential for Cross-Chain Horizontal Scaling and TAM Expansion
Axelar Network, the core project of the Cosmos cross-chain ecosystem, discussed the necessity and challenges associated with multichains with fellow bridge protocol Sommelier Finance and Cosmos layer 1 Archway at KBW. In the discussion, they stressed the importance of horizontal scaling across chains, pointing out that a single blockchain has limited blockspace and transactions, and that developers require this scaling to expand their Total Available Market (TAM).
Nevertheless, it was highlighted that a significant limitation of current cross-chain dApps is the requirement of substantial assumptions when developing a multichain dApp. For example, when executing a cross-chain swap on one chain, there may be instances where the oracle prices of various assets spread across multiple chains fail to match, resulting in exceptionally high slippage. They concluded the session by noting that developers view these factors as contributing to increased complexity when trying to onboard into the cross-chain ecosystem, ultimately acting as entry barriers.
LayerZero: Preparing Diverse Cross-Chain dApps Leveraging Stargate
LayerZero, the current leader in cross-chain technology, had an exclusive presentation session. To start, LayerZero underscored that it envisions a blockchain TCP/IP that prioritizes “immutable, permissionless, and censorship resistant.” LayerZero noted that it introduced the concept of Layer 0 via Stargate, and it continues to compete with Optimism and Avalanche with its own bridge technology. LayerZero also revealed its plans to expand its ecosystem by launching additional products alongside its flagship use case, Stargate. It also expressed its commitment to ongoing research and development of services with potential applications in DeFi and Fintech sectors. These services include the Omnichain Fungible Token (OFT), a native token on multiple blockchains, and liquidity leverage.
5. Layer 1, 2
Sui: Challenging the EVM Ecosystem with Sui MOVE and Its Unique Account Structure
In the second day's session, the Sui team explained how it challenged the EVM ecosystem with its dialect of MOVE, known as Sui MOVE, and its unique account creation method. The development of Sui MOVE, it said, came after a careful examination of Web 3 development languages like Solidity and Rust. Sui emphasized that, being based on Rust, Sui MOVE shares similarities with conventional development languages, making it easier for Web 2 developers to onboard. It also mentioned another advantage of Sui MOVE: it is an object-oriented language model that eliminates the need to create smart contract accounts, enabling shorter codes and a reduced likelihood of bugs.
Sui also cited the account structure as another strength of Sui MOVE that sets it apart from the existing EVM ecosystem. It pointed out that wallets in the existing EVM ecosystem are already "broken" and will require an account structure that facilitates the onboarding of more users in the upcoming cycle. The team underscored the fact that they have already implemented social login via email using ZK technology, enabling a seamless experience for users.
It added that it sees areas for improvement, recognizing that the mainnet has only recently gone live. One of the tasks it specifically mentioned was tooling, including developer tools. In an effort to expand the developer ecosystem, which currently lags behind the EVM ecosystem, Sui concluded the session by highlighting its plans to establish Sui Build Houses in many parts of the world, including South Korea and Singapore, as well as offering substantial grants for contributions.
Polygon, Scroll: zkEVM Needs Optimization and Performance Enhancement
Two of the leading ZK scaling solutions on Ethereum, Polygon and Scroll, participated in a panel session and stressed the need for optimization and performance enhancements for the advancement of zkEVM. Scroll likened Ethereum Layer 2 projects to "fixing an airplane when it's flying." Both projects agreed that zkEVM still has a long way to go: optimization has yet to be achieved on the development environment and gas fee front, and its performance remains relatively low, hindering its competitiveness. Both projects estimated that such optimization and performance improvements would take at least three to four years.
Scroll also cited bridges as a common bottleneck for Layer 2 developers. While Scroll is actively advancing its development on a testnet, the process of bridging it to the Ethereum ecosystem entails risks and demands a significant investment of resources and time. It acknowledged that while users have been relatively tolerant so far given it's in the testnet phase, they would no longer be as tolerant once the mainnet launches later this year, putting their assets directly at stake.
Polygon, on the other hand, noted that maintaining the zkEVM mainnet, which has already been launched, presents its own set of challenges. Apparently, the challenge looms large for Polygon, as it involves the delicate task of delivering an Ethereum-like experience for developers while ensuring the mainnet’s flawless operation. It also revealed ongoing efforts to optimize memory usage, given that its zkEVM requires a substantial amount of memory for its provers.
From the discussions at KBW, it seemed evident that the zkEVM is still an evolving technology. However, as 1kx predicts, "Optimistic rollups will inevitably evolve into zk rollups in the long run," and it is clear that zkEVM will likely be the long-term direction for all rollups.
6. Closing
During Xangle Research's second visit since last year, the enthusiasm was apparent at KBW. From discussions on the upcoming crypto regulatory frameworks and various use cases that are anticipated to accelerate Web3 mass adoption to discussions on the infrastructure that will serve as the foundation for mass adoption, the venue was filled with innovative ideas and insightful conversations. The heightened focus on crypto regulations at KBW 2023 in contrast to last year's event, where infrastructure and services dominated the agenda, underscores that the forthcoming regulatory framework certainly is at the center of the industry’s attention amid the changing regulatory landscape.
This year’s KBW saw a large number of projects, builders, and investors joining the main as well as over 100 side events, showcasing the resilience of the crypto market and the outlook for an exciting future despite the prolonged market downturn. Last year, as we wrapped up our KBW 2022 recap, we hoped that projects could successfully BUIDL services even in the midst of a crypto winter, services that would emerge as the preferred choice for many. A year later, at KBW 2023, though not many projects have gained widespread public adoption, it was evident that projects continue to make significant strides in a challenging market environment. Now, as we conclude our recap of our visit to KBW 2023: Impact, we hope that 2024 will see more projects making a stronger impact by making themselves more accessible and available to the public.