Xiao Feng: "Public Blockchains: The New Generation of Financial Infrastructure"
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Xiao Feng: "Public Blockchains: The New Generation of Financial Infrastructure"
Blockchain technology is building a completely new financial infrastructure, bringing disruptive advancements to areas such as transactions, clearing, and settlement—not merely marginal improvements to the existing system—but forming an entirely new financial paradigm.
Navigating Web3 tides with focused insightsThank you all very much for coming so early to attend this event.
This morning’s topic is blockchain, and there's been extensive discussion around Crypto and Token. Under this theme today, I would like to re-examine it from a financial perspective: how should we understand blockchain as a distributed ledger? How can we build an analytical framework from the standpoint of finance?
Therefore, my presentation is titled “Public Blockchains: The Next-Generation Financial Infrastructure”
What Is Financial Infrastructure?
When talking about financial infrastructure, we must first clarify what exactly it means. Financial infrastructure can be divided into two parts: the first is financial system infrastructure; the second is financial market infrastructure.
Financial system infrastructure leans more toward “software” and institutional arrangements—its core components consist of laws, accounting standards, regulatory frameworks, and the overall societal payment and settlement system. It represents institutional design at the national or market-wide level, where technology or hardware isn’t the primary consideration. This type of infrastructure is designed primarily from the perspective of public interest and macro-financial stability.
What Is Financial Market Infrastructure? Financial System
Infrastructure has a subcategory called financial market infrastructure. Financial market infrastructure is more micro-level, technical, and operationally focused on financial markets. Its main components include trading, clearing, and settlement systems—essentially establishing a foundational framework. Therefore, its core elements are registration and custody, clearing and settlement, trading facilities, trade repositories, and credit reporting systems. When we examine the primary structure of financial infrastructure, we find that blockchain-based distributed ledgers may not merely offer marginal improvements, but could bring disruptive transformation in areas such as trading, clearing, and settlement.
We often refer to payment, clearing, and settlement as three distinct stages within financial markets. Payment refers to actions like swiping your card at a store. Once you swipe, a clearing system notifies your bank to check whether you have sufficient funds—if so, the amount is reserved. This step is known as settlement. The third stage is clearing: suppose the merchant banks with another institution, so your money needs to be transferred to that bank account. Only after this fund transfer is completed does the full settlement process conclude.
Financial market infrastructure primarily focuses on these operational aspects.
New Financial Infrastructure
Now, a new possibility has emerged—the potential for blockchain to create a new kind of financial infrastructure. In essence, how does this new financial infrastructure differ from traditional systems?
First, the accounting method is different: distributed ledger technology contrasts fundamentally with double-entry bookkeeping.
Second, the accounts themselves are different. Traditional finance relies on bank accounts to record all economic activity. In contrast, the new financial infrastructure replaces bank accounts with digital wallets—collectively referred to as crypto accounts.
Third, the unit of account has changed. In traditional financial infrastructure, the unit of account is fiat currency—RMB, euro, dollar—all sovereign currencies legally recognized. In the new financial infrastructure, the unit of account becomes cryptocurrency, or at minimum requires tokenization of fiat money—such as USDT or USDC—otherwise it cannot serve as a valid unit of account in this new system.
As a new financial market infrastructure, the underlying ledger is blockchain—a publicly transparent, global, shared ledger. Assets recorded on the blockchain gain global recognition and establish global liquidity.
However, we now face a contradiction—for example, take RWA (Real World Assets). RWA involves securities issuance, which always falls under specific jurisdictional regulation. Something approved in the U.S. may not be accepted as an investment instrument in Hong Kong’s public markets. Similarly, an RWA or security token approved in Hong Kong might not be accepted by regulators in Tokyo.Yet when RWA is registered on a global public ledger, its processes of registration, custody, trading, and exchange become unbounded by administrative regions. Once circulating in secondary markets, it transcends any single jurisdiction. So far, there has been no effective solution to resolve cross-border conflicts. However, the global liquidity of any RWA faces no obstacles.
Second, the new financial market infrastructure eliminates many intermediaries.
Third, the model of clearing and settlement has changed—all settlements traditionally rely on netting. For instance, two banks may conduct countless transactions daily, ultimately settling only the net difference. Example: ICBC owes CCB 10 billion yuan, while CCB owes ICBC 12 billion yuan—only 2 billion yuan will actually move. This is net settlement. But on Blockchain, under the new financial market infrastructure, each transaction settles individually—delivery versus payment (DvP)—where every single transaction completes payment, settlement, and clearing instantly, all in one step.
Next-Generation Money Creation System
Smart contracts on blockchain make money programmable. Yesterday’s news was that the U.S. SEC stated that stablecoins backed by dollar reserves do not qualify as securities. There’s been wide industry debate about this classification and its implications. While there are several advantages, I believe the most significant one is this: if stablecoin issuance is not considered a securities activity, then the entities eligible to issue them are no longer restricted to licensed institutions or regulated financial firms. Since they’re treated as virtual commodities rather than securities, the scope of issuers expands dramatically.
With this expansion, unlicensed and unregulated entities effectively enter the money creation process, because stablecoins largely correspond to the M2 phase of monetary supply. Money creation becomes democratized. Previously, only banks and financial institutions could participate in money creation—money market funds, for instance, belong to M2. Now, stablecoins are part of M2, yet classified outside securities, enabling many new players to join the money creation pipeline. This is a transformative change brought by blockchain technology.
Next-Generation Payment and Settlement System
Next, let me briefly summarize: what are the characteristics of this new financial infrastructure and new financial market infrastructure?
Built upon this new financial market infrastructure, we are forming a next-generation payment and settlement system. The payment instruments are stablecoins—or potentially central bank CBDCs in the future—enabling peer-to-peer, instant, zero-fee payment and clearing systems. Notably, former President Trump specifically requested that Congress pass legislation for a dollar-backed stablecoin before its August recess. This matter is far more significant than debates over whether the U.S. should establish a Bitcoin national reserve. Ensuring the dollar remains the dominant settlement tool in Web3, the digital economy, and the broader crypto world is a core U.S. national interest—critical to maintaining the dollar’s global hegemony.
Thus, we observe an evolution: after WWII, the dollar was initially backed by gold. After decoupling from gold, it became the oil dollar—used to settle global commodity trades. Now we are entering a third phase: in virtual worlds and metaverses, efforts continue to ensure the dollar maintains its dominance as the primary medium of payment and settlement. From gold-backed dollars, to oil-backed dollars, to tokenized dollars.
Next-Generation Asset Issuance System
Based on this new financial market infrastructure, we are building a next-generation asset issuance system. All Tokens fall into five categories: payment tokens like stablecoins; reserve tokens like Bitcoin; utility tokens like ETH; security tokens such as RWAs and tokenized money market funds. Additionally, there’s a category whose classification I’m less certain about—but interestingly, A16Z also independently categorized Meme Coins as a separate class, which makes sense and isn’t entirely baseless. These five types of Tokens are necessarily issued on blockchains—on this new financial market infrastructure. Looking back since the Industrial Revolution, one Nobel laureate economist concluded: “The Industrial Revolution had to wait for a financial revolution; without corresponding financial innovation, industrial progress might never have occurred.” This was the life’s work of a Nobel Prize-winning economist.
Indeed, every industrial revolution has been accompanied by a revolution in financing methods. Britain’s Industrial Revolution was primarily funded through bank credit. The Second Industrial Revolution happened in the U.S., powered by its stock market—from debt capital to equity capital. America’s Third Industrial Revolution, the information revolution, was inseparable from Silicon Valley’s venture capital. One could argue that without VC funding, there would be no Silicon Valley—and thus no technological revolution in the U.S. today.
Now we are entering the Fourth Industrial Revolution—digitalization and intelligence. Does this revolution not require a corresponding financial revolution to support and accelerate its development? What we are witnessing today is precisely crypto and decentralized finance. Crypto finance will become the most critical financial innovation supporting the Fourth Industrial Revolution—an evolution in capital markets.
Next-Generation Financial Market System
In fact, based on blockchain and this new financial market infrastructure, we are constructing an entirely new financial market system. We refer to traditional finance as CeFi (Centralized Finance), and blockchain-based finance as DeFi (Decentralized Finance).
CeFi relies on continuously increasing leverage to maximize investment returns. But DeFi works differently: loans are over-collateralized. If you borrow in DeFi, you must provide collateral exceeding the loan value. Despite this, DeFi can still offer 8%, 10%, even 15% returns—where does this come from? These returns stem from increased capital turnover efficiency.How fast can a DeFi loan occur? The fastest transactions take just one or three seconds—known as “flash loans”—an extreme case, though not representative of all lending. But only on blockchain can a loan be executed, repaid with principal and interest within ten seconds. If you can complete such cycles repeatedly throughout the year, how many times can your capital turn over? It’s through this high-frequency capital rotation that DeFi achieves high returns—even low-risk returns—without altering or even while reducing risk exposure.
Next-Generation Asset Trading System
In fact, using blockchain technology, we are building a next-generation asset trading system. The U.S. has two major stock exchanges: NYSE and NASDAQ. Both have announced plans to implement 5×23-hour trading systems, although neither currently supports 7×24 trading. I believe this reflects the future direction of stock market reform, and I expect Hong Kong and mainland China exchanges may eventually adopt similar 5×23 models.
But crypto markets and Tokens have operated 7×24 since day one—this is a fundamentally new trading system. Moreover, there are two types: centralized exchanges (CEX) and decentralized exchanges (DEX). Centralized exchanges bring native digital assets off-chain for trading in centralized platforms. Meanwhile, Trump’s Meme coin clearly demonstrates that both issuance and trading can be fully closed-loop on-chain (Onchain), proving this business model is viable.
Next-Generation Wealth Distribution System
The new payment and settlement system built on blockchain is simultaneously a new wealth distribution mechanism. AI may eventually operate autonomously, independent of human control, generating commercial value on its own. Then, how should this newly created value be distributed? AI doesn’t need to drink wine or eat Cantonese food—the wealth it generates must be allocated to humans. This distribution model aligns with UBI (Universal Basic Income), a concept studied by economists two decades ago—using UBI to distribute the vast wealth generated by AGI (Artificial General Intelligence).
Thus, we see two iconic American figures: Sam Altman and Elon Musk—both deeply involved in AI and Crypto. Sam Altman even operates his own blockchain network, a global identity system, and has launched Worldcoin. This entire architecture is designed to distribute the immense wealth created by AGI.
Next-Generation Business Governance System
Using blockchain technology, we can build a new business governance system. Blockchain is inherently open-source and permissionless. Anyone can use Ethereum or deploy an application on it without needing approval from anyone. From a business application standpoint, blockchain is a plug-and-play system. Furthermore, blockchain enables large-scale, effective collaboration among strangers worldwide—representing a fundamental innovation in organizational design.
Transparency in disclosure differs radically from traditional corporate reporting. In theory and practice, blockchain-based applications disclose data per block. Once a block is finalized, the information is permanently recorded on-chain—immutable, traceable, and accessible globally to anyone inspecting the blockchain.
That concludes my presentation. Thank you all!
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