Written by: Liu Honglin, Founder and Director of Shanghai Mankun Law Firm
Source: Mankun Blockchain Legal Services
Last week, the reply received by Professor Yao Qizhi, Chief Scientist of Conflux and a key figure at the Shu Tu Research Institute, caused a stir among Conflux enthusiasts. On the same day this news made waves in the crypto community, Lawyer Liu Honglin of Mankun Law Firm posted a tweet on the X platform announcing that next week he would lead a team to visit the Shu Tu Research Institute in Shanghai to meet with Yuanjie and solicit questions from interested individuals. The tweet received enthusiastic responses from eager netizens.
Purely based on personal emotional preferences for Chinese Web3.0 entrepreneurial projects, Lawyer Liu Honglin has always maintained an interest in and research on this long-standing Chinese public chain. He had previously written several articles analyzing information about Conflux from the perspectives of legal compliance and Web3.0 entrepreneurs. Interested individuals can follow his work.
So, after nearly a year, Lawyer Honglin, along with the interest and questions from the vast number of netizens regarding Conflux, entered Conflux to once again engage in a discussion lasting over two hours with Yuanjie, Co-founder of Conflux. This visit revolved around topics such as the Conflux ecosystem, the relationship between Shu Tu Research Institute and Conflux, popular topics about Conflux online, as well as changes in the market conditions and regulatory policies in mainland China and Hong Kong. The discussions were intense and fruitful, with the visiting team gaining valuable insights.
Of course, it is better to share joy with others (promises made to netizens should be kept, as online deadlines are quite tight). Lawyer Honglin has compiled a written record of the discussions for everyone to read, and is sharing it here.
It is important to note that at the end of the discussion, I informed Yuanjie that I would compile the content of our conversation into a written piece to share, and offered to show it to him before publishing. He said it wasn’t necessary. I asked what if I accidentally disclose your business secrets? He said I could choose not to admit it.
So… this sharing only represents my personal recollection of the two-hour discussion, and I cannot guarantee the absolute accuracy of the information. Any misunderstandings or errors are my responsibility, not Yuanjie’s. The content is intended for friends interested in Conflux or Chinese Web3.0 entrepreneurs for discussion purposes, and does not constitute official answers or investment advice from Conflux.
About Shu Tu Research Institute and Conflux
Yuanjie provided a detailed explanation of the relationship between the Shanghai Shu Tu Research Institute and the Conflux Foundation. Currently, the majority of public chain projects in the market operate with independent foundations and development companies. There may be varying degrees of connection between the foundation and the operating company. For example, Ethereum’s governance structure centers around Vitalik Buterin (V God), with loose internal connections to the foundation members. In some cases, the foundation and the project operate as “one team, two signs,” a structure that may be more practical and efficient in the early stages of Web3 projects.
The relationship between the Shu Tu Research Institute and Conflux is as follows: Conflux is a non-profit organization registered overseas, while the Shu Tu Research Institute is a non-profit organization supported by the Shanghai government. From a legal perspective, there is no direct subordination or affiliation between the two.
However, the Shu Tu Research Institute plays a role as a core contributor of open-source code in the Conflux ecosystem, undertaking related technical development work. In this relationship, the Shu Tu Research Institute and the Conflux Foundation are somewhat like the first and second parties: the domestic research institute is responsible for development work, while the overseas foundation provides compensation through donations or funding.
Additionally, as a research institution supported by the Shanghai government, the Shu Tu Research Institute not only supports Conflux-related work but also explores new applications and projects in the Web3 field, including projects led by the Ministry of Industry and Information Technology and ZeroGravity distributed storage. Government-related research projects provide the institute with a stable source of income, enough to cover daily expenses and operational costs.
In summary, the relationship between the Shanghai Shu Tu Research Institute and the Conflux Foundation reflects the typical model of independent operation between a foundation and a development company. The Shu Tu Research Institute is not only a core technical contributor to the Conflux ecosystem but also receives stable income through participation in government projects.
Yuanjie also openly shared that the co-founders of the Conflux Foundation and the Shanghai Shu Tu Research Institute are continuously exploring better governance mechanisms for the foundation to find the most effective way to promote the stable development of the Conflux project.
About the Roles of Conflux Co-founders
Since the Shu Tu Research Institute and the Conflux Foundation are relatively independent, the division of roles among the co-founders is clear. In this discussion, Mr. Yuanjie shared the current specific responsibilities:
Yuanjie himself mainly focuses on business and operational affairs, closely monitoring hot tracks and cutting-edge business opportunities in the Web3 market, seizing opportunities for commercialization, and driving the project’s development.
Long Fan is primarily responsible for domestic government relations and related work, including communication and coordination with government agencies and departments to ensure the smooth progress of projects in China and obtain necessary policy support and cooperation opportunities.
Wu Ming is mainly responsible for exploring cutting-edge technical challenges and related technical development work. He focuses on technical research and development, working to solve complex technical problems and drive innovation and progress in the project’s technical field.
About the Abandoned BTC L2 Project
The BTC L2 project was an initiative suggested by Yuanjie during the hype surrounding the inscription at the end of last year. The Shu Tu team actively pursued related experiments, but market feedback indicated that the enthusiasm for this track has diminished, and the performance of existing projects is not ideal. Therefore, the team chose to temporarily suspend this investment. Yuanjie views this as a tactical exploration and choice, and he will continue to monitor and explore new emerging tracks and opportunities in the industry.
About Institutional Investment and Market Makers
In discussions regarding investment institutions and market coin price issues related to the Conflux project, Yuanjie mentioned that the Conflux Foundation’s investment institutions will complete full unlocking in the first half of next year, and recently the foundation has received strategic investments from other partners (but has not publicly disclosed this information). This new funding support has left the foundation with relatively ample reserves, ensuring that the team can continue to focus on project development and promotion. In short, Conflux is currently not lacking in funds.
Regarding the performance of Conflux assets in the secondary market, Yuanjie explained that this is a natural market behavior, and the foundation had previously collaborated with market makers such as DWF. However, the two parties found their styles did not match and eventually parted ways. At present, the Conflux Foundation is seeking to collaborate with more mainstream market makers, especially in exchanges in different countries and regions. These new partners will provide Conflux with longer-term and more closely integrated market-making services: not only providing market services but also participating in on-chain node work. This deep involvement helps build a healthy Conflux ecosystem and improve the performance of assets in the secondary market. Whether it will reach this ideal state is uncertain, as no one can guarantee it. Therefore, as adults, we must be vigilant.Taking Responsibility for Our Own Judgments
On the topic of Conflux’s position in the public chain ecosystem
For the Shanghai Hedera Institute and Conflux’s core team, entrepreneurship has entered its sixth year. During this time, the team’s mindset has undergone significant changes.
Initially, the Conflux team believed that a public chain should host hackathons in different countries and regions around the world, attracting entrepreneurial teams to develop and be active on the public chain. The sponsorship prizes and airdrop subsidies from various public chains were similar to the investment attraction in commercial districts. This strategy has been successful for other projects such as the Ethereum Foundation and Solana, thanks to their abundant financial support and traffic support (such as TON).
However, the team later realized that this path may not be suitable for Conflux. Many ecological projects developed on Conflux gradually shifted to other public chains as a result of market and capital flow. Conflux did not have its own moat advantage. Of course, this cannot be blamed on the developers, as everyone needs to make money to survive.
Conflux’s ecological positioning in the Web3.0 public chain track is a long-term strategic path. For Conflux, the Chinese-speaking region is where it can gain a differentiated competitive edge and build its moat in key markets. Therefore, while providing excellent performance, low cost, and outstanding user experience in public chain services, Conflux also combines with Chinese regulatory policies to ensure the compliance of its network ecology. This provides a natural and ideal encrypted platform for many entrepreneurs with Chinese backgrounds who want to enter the Web3.0 field.
Although Conflux cannot always wave the flag of patriotism, China and the entire Chinese-speaking region do need their own public chain projects. Currently, there are few public chain projects led by Chinese people, and Conflux is in a good state in terms of compliance, technical capabilities, development pace, future planning, and sources of income. It can be expected that in the next 4 to 5 years, Conflux will always maintain its position in the global market value rankings and remain patient, waiting for the right timing.
On the issue of Conflux’s ecological projects being hacked
Regarding the concern of Conflux’s ecological projects being hacked, leading to asset losses, Mr. Yuanjie has made a detailed response and explanation.
Since the incident occurred, he has been actively promoting relevant work, including assisting users in reporting to the police in China and regularly communicating with the management of two major exchanges. For the stolen losses of users with small amounts below 20,000 USDT in this incident, the Conflux Foundation has already compensated them. However, for users with large assets, cooperation from relevant exchanges is required.
On the Conflux BSIM Card
Mr. Yuanjie introduced and shared the research work on the Conflux BSIM Card project. Currently, the scientific research work on the BSIM Card has been completed, and pilot tests have been conducted in two cities in China. The pricing packages are quite cost-effective (Lawyer Mankun was also invited to participate in the product testing).
As for the large-scale market launch of the BSIM Card in the future, it depends more on the pace of promotion by telecommunications partners. After all, they are government entities, and their internal progress and market development are more steady. If it can’t be achieved, everyone can just consider it as boasting.
On regulatory policies, the Hong Kong market, and HKD stablecoins
Regarding whether there has been a relaxation of regulatory policies in mainland China and the market situation in Hong Kong, Mr. Yuanjie has the following opinions:
First, it is highly probable that China’s regulatory policies on virtual currencies will not be relaxed in the short term. This is mainly because the current economic situation and the performance of the capital market in China are directly related. Relaxing the restrictions on virtual currencies in the short term will not bring particularly positive effects to the domestic economic environment since uncontrolled capital outflows are not in line with current policies.
As part of China, Hong Kong has the support of mainland China to explore Web3.0 and virtual currency finance, which is actually a good opportunity. However, most of the major financial institutions in Hong Kong are still in a wait-and-see state regarding these new initiatives. For example, the trading volume of virtual currency exchanges and the transaction volume of Bitcoin ETF launched in Hong Kong are not optimistic. This is mainly because the majority of active participants in these new ventures are still mainland capital or financial institutions, such as China Asset Management and China Southern Fund. In Hong Kong’s financial market, foreign capital or Western financial institutions are the main players in terms of funds and resources, indicating that Western capital markets and financial institutions have not shown a positive attitude towards Hong Kong’s policies and matters related to virtual currencies.
Second, regarding HKD stablecoins, Mr. Yuanjie’s view is that stablecoins’ main sources of income come from two aspects: the friction cost of the inflow and outflow process, such as Tether’s friction cost, which is about one-thousandth; and the returns from underlying assets. Tether currently has a stablecoin issuance of over 100 billion, with passive interest income of four to five billion US dollars annually. The stablecoin project team of Tether consists of no more than 80 people, but their revenue output is astonishing. From these two perspectives, if HKD stablecoins were to be introduced, the challenge would not only be solving the settlement issues between traditional funds or financial institutions but also whether it can become a native application tool in the virtual currency market. For example, it could be one of the trading pairs in virtual currency exchanges or a payment settlement tool for a large number of small and medium-sized merchants. Currently, some domestic companies are already experimenting with overseas stablecoin businesses, including JD Finance’s user settlement business overseas.
Regarding HKD stablecoins, Conflux’s partners in Hong Kong are already preparing for relevant compliant HKD stablecoin matters and are expected to be on the first list. However, the government’s pace in promoting this project is slightly lower than expected. Based on HKD stablecoins, Conflux hopes to explore more financial technology on the chain, rather than just being a settlement tool for traditional financial institutions.
On the Web3.0 industry’s hierarchy of disdain
Yuanjie admitted that currently, Chinese projects are not always welcomed in the Web3.0 investment circle. Projects with European and American faces have advantages in fundraising and achieving higher valuations, while Chinese projects are relatively disadvantaged. This bias already exists in the industry. In previous years, some domestic investment institutions continued to pay attention to and invest heavily in emerging opportunities in the Web3.0 field. However, in the past two years, the attention and investment of domestic traditional funds in Web3.0 projects have significantly decreased. This does not mean that Chinese projects are weaker in terms of development capabilities or technological research and development. Chinese projects still rely on their strength for scientific research and development.
In this market environment, combined with China’s existing regulatory policies, for the majority of Chinese Web3.0 entrepreneurs, engaging in native Web3.0 technology development or blockchain projects will face significant limitations. A better approach is to find some cross-disciplinary business, which means using blockchain as an auxiliary technology and applying it to interdisciplinary or entrepreneurial fields. For example, combining AI and blockchain, using some blockchain technologies or elements as unique selling points in entrepreneurial projects. From both the perspective of market recognition and the risk of the project itself, this entrepreneurial path is a better choice at this stage.
