日本語版：Flow主催「Unlocking Value from Crypto Networks」国内有識者がNFTやDeFi市場を語る
Unlocking Value from Crypto Networks
The following is a transcript of an online discussion that took place on 25th September, 2020 under the title “Unlocking Value from Crypto Networks” during the Open World Summit by Flow Blockchain, a two day interactive event focused on onboarding the first billion consumers to crypto.
Panelists discussed the current situation as well as obstacles facing NFTs and DeFi, which have been a hot topic in recent months. The panelists included CEO.
- Masahiro Takeda（New Economics）
- Hirohisa Kunimitsu（Chairman of the Board, gumi Co.）
- Yusuke Ohikata（Web3 Foundation）
- Kensuke Amaba（Executive Officer, Coincheck, Inc.）
- Ken Kitahara（Vice President, B Cryptos）
- Yusuke Ito（Hakuhodo Co., Ltd.）
- SEHIRO YOSHIDA（President, HashPort Inc.）
Flow is hosting a Community token offering on 2nd October, with the auctions finishing on 6th October. Flow community token offering broke Coinlist’ record of largest participation with oer 6.5K committed users.
KUNIMITSU….I there’s too much emphasis on the blockchain aspect, projects become hard to use for the average user.
But on the other hand if it is taken to an App, Apple has been especially tough, and even on other variables such as usability for the users, it can be hard to compete with other ordinary mobile games. So I think many companies are standing at the crossroads faced to make difficult decisions.
TAKEDA
Coincheck and Hashport are moving to create a market for NFTs but how do you view the current situation for NFTs, Amo san?
AMO
Yes, from our perspective I think there are two good (not bad) factors.
First, as Kunimitsu san stated, is that currently it is not being heavily regulated like crypto assets. Additionally, even compared with other global markets, Japan has many extremely excellent contents. There are not bad things.
As a Crypto Asset Exchange we are concerned of the possibilities of having to secure and establish management systems once it is deemed a crypto asset, as well as the costs that will occur once FATF deems it a virtual asset.
TAKEDA
Thank you very much. You will be working with CoinCheck and HashPort as a consultant but how do you view the current situation of NFTs?
YOSHIDA
As Hashport and HashPallet, we mainly deal with so-called “concept holders”, namely publishing companies which hold IPs for manga, and gaming companies.
I think the Japanese market is at two major turning points. First, is that as Kunimitsu san stated earlier, the UX for these Apps can be bad. When we think how a wallet must be linked first and then the secret key must be managed by each user, can the average user overcome those hurdles?
Is the first big challenge. Secondly, I think so-called centralized NFT marketplaces, such as what CoinCheck is doing, will set an important precedent. Cryptocurrency, for example, started from making your own bitcoin wallet and managing that yourself, but achieved mass adoption after the introduction of centralized crypto exchanges. Therefore centralized, off-chain trading will be a huge turning point.
Additionally, I think the value of digital items for users is also a critical issue that must be addressed. I actually think that digital items themselves are not that attractive to users by themselves.
For example, if a person gets a clear file with a character they will be happy, but if they get a NFT of the same character, they probably won’t be as happy. How will we educate in this situation, or rather do we seek to provide value through DeFi, without games or NFT? I think that is the second turning point, or challenge.
TAKEDA
Yes. Hakuhodo is providing value to consumers and one of the ways they do that is through NFTs, but Ito-san how do you see the current state of NFTs?
ITO
Yes.
Due to the nature of our company, we are a traditional major entertainment company but we are affirming of blockchain so one thing that is a positive (even though it technically is not) is that many entertainment companies have been trying new methods, including digital, to conduct events as in-person events are hard to conduct due to COVID-19. These new ideas have been easier to get approval within our company compared to the pre-Corona days.
Previously even if we made suggestions for digital related ideas (including but not limited to blockchain) we were met inaction but more companies are willing to try new things out.
For example, J-League (Japanese Professional Football) published all of their players as NFT cards. This is huge, as previously we could see individual teams from football, baseball or idol-groups, such as AKB-48 doing something similar but for the J-League to do that is significant.
Although it is unclear how these will succeed as a business, it is notable that there is an increased willingness to try new things out and personally, I would like to be a part of that wave as well.
Another point is that, going along with what everybody else said, I think the value of NFTs is increased by its usability and so I think companies that have or issue IPs are a good target to get businesses and services surrounding IPs will be important.
For this to happen, media and publishing companies will have to be involved as well. There is now a group called the Japan Contents Blockchain Initiative, which has members such as the Shogakan group, AVEX, Dentsu and other gaming companies working to publish contents on a consortium blockchain.
Eventually the goal is for public NFTs but during the transition phase, a consortium blockchain will be used so it will be easier for traditional companies to join. From a technical standpoint, usability and UX are difficult and something that must be addressed, but for those publishers with IPs and other media companies who were previously reluctant to move into this space becoming eager, will make it easier to create an environment where collaborative problem solving is more natural.
TAKEDA
Thank you. Obinata san and Kitahara san, to get more users, it is necessary to have a bigger network, but what has been the emphasis as Polkadot and Flow have already been doing this? First Obinata san, could you discuss how to establish a bigger network using Polkadot as an example?
OBINATA
Regarding how DeFi and NFT have been incorporated into PolkaDot, Polkadot itself has a main chain which itself basically does not have many functions other than allowing interaction between various chains.
Other blockchains called parachains, bring specific components and functions that can be used throughout the mainchain. Currently there is a team creating a NFT parachain and the development has already begun. Once this is complete and operable on Polkadot, there is a possibility that fees for NFTs which have skyrocketed due to DeFi could be brought down.
Regarding DeFi, there is a team developing a stablecoin, but previously where teams could only explore Ethereum when doing this, now globally, companies are also exploring Polkadot or Cosmos or Solana as a platform. And along those lines we see Dfinity and Near. Where previously the infrastructures (layer speed etc) could not keep up with the evolution of applications in DeFi and NFT, I think it is finally catching up. In that sense, application services and development will move onto other networks and have begun already.
KUNIMITSU
It’s a real opportunity right?
OBINATA
Yes, it’s not a zero sum game necessarily, but where previously it was built on Ethereum, in the past 6 months there are projects building elsewhere, and there is the DeFi boom, such as yield farming so there is definitely a lot of opportunity.
KUNIMITSU
DeFI is more profitable so the transaction fees can be afforded but for NFTs it is more difficult.
OBINATA
Yes. There are more smaller transactions for NFTs and that can take a hit.
KUNIMITSU
Exactly. I think NFTs on Ethereum are almost over because the chain between DeFi and NFT cannot be divided. It will be hard if transactions cannot be divided for DeFi and NFT. Libra, Kakao’s Clayton and Link were slow to develop this.
I thought messenger applications would be the platforms for NFTs but Apple has really been increasing its regulations, so for blockchain to be run on applications…might be difficult. But also it is hard to do without Apple as well.
OBINATA
Along that line I wanted to ask you, there was recently an announcement about Playco which is started by Michael and Justin and basically it is a mobile game browser that does not go through the App store.
Moving forward if companies like that become mainstream, could there be a bigger opportunity in blockchain based games?
KUNIMITSU
I’m not sure. Those guys are all friends to begin. But development for games have been done on HTML for 8 years.
We were in this at first but had to back down, but facebook messenger opened its platform and we went in with full confidence but as you may know facebook messenger games did not take off. And the reason is simple; because Apple crushed it. Platform and platform is something Apple does, and also individual applications are all downloaded through the app store. So it begs the question; do you have to do this on HTML?
Because of this, there are many aspects to it, but if EPIC dramatically wins against Apple in the courts in the EU, and Apple is forced to approve third party payment, platform to platform and approve mini applications like WeChat in China is doing, this could change the situation. But I think it is better to assume this will not happen. It won’t be that easy.
Going native is difficult if the benefit of NFT only allows for speculation due to its asset property and tradability. However, most NFT users are not that concerned with it for investment purposes. People in DeFi are all about that but there is more attraction for investment in DeFi and as we go further and further to target ordinary audiences (and the fight becomes more about competition with traditional mobile apps) it will be difficult. So a big theme is which way will we go?
If we go too far with Blockchain, it can become like Etheruem with expensive transaction fees, but we could develop there and rely and wait on Polkadot or Binance.
TAKEDA
Thank you. NFT market and speculation is difficult. Kitahara san works with FLOW which aims to make a NFT marketplace for Warner bros and the NBA.What type of future are you envisioning as you make new blockchains?
KITAHARA
Adding on to the previous topic of Ethereum, I think most times users buy NFTs on ethereum as a proof that they are part of the Ethereum community. And I think NFTs hinge on social networks or “communities”, not necessarily on crypto networks.
I think what Flow does well is strategically gathering communities around a brand or an IP. The NBA, for example, has a huge and passionate user base. Even in Japan, there is a strong fan base. In that sense, Flow is gathering IPs well, which is most important.
Hypothetically, if there are users who want to purchase Crypto Kitties, you use just bridge the network with Ethereum Bridge and that problem could be solved.
I won’t get too deep in the technical aspects of Flow but as a new chain, fees are low and finality are fast, both issues in Ethereum, and therefore it is developer friendly.
TAKEDA
One question I think is all on our mind; How did you persuade the NBA and Warner Bros. to get involved with NFTs?
KITAHARA
It was through time and steady interactions through connections as well as lobbying.
I cannot say too much but due to COVID-19, the season and playoffs were supposed to begin and end earlier and we were planning to do a beta launch at the same time and do a full launch next year. However COVID-19 has affected the season schedule and the launch.
For individual teams in the NBA, there are actually many who are interested in crypto, so we started from there. For example, the Sacramento Kings are doing crypto mining, and Mark Cuban owns some Bitcoin.
TAKEDA
Thank you. Now we would like to transition from NFTs to DeFi. As all of you have mentioned, DeFi has been popular since June. Amo-san, as CoinCheck, how do you view the current state of DeFi?
AMO
I think it is a positive that there is excitement but as an exchange we want to protect the user so for example if the user hasn’t completed KYC or (of course this is the individual’s responsibility) but users losing more money than they should is something we are observing the situation closely, keeping in mind what happened with ICOs in the past.
TAKEDA
I wanna ask this to everyone but ICOs did not last long from a financial standpoint as many investors were not protected, and there are many opinions regarding “DeFi” as well. Do you think DeFi is simply a transient boom?
AMO
I think the recent case with new swap is a good example but moving forward, a business model will be created based on combining things.
If NFTs and DeFi are connected, or if crypto and something else are combined. I think there are business opportunities as well in staking although regulation in Japan is not in place yet.
TAKEDA
Kunimitsu san, what are your thoughts on whether DeFi is transient or not?
KUNIMITSU
More than transient, I think it is one of the revolutions. There are notably two types of DeFi, one is lending and the other is like a DEX. For lending, this is similar to the traditional financial structures (with collateral etc) so before you would buy crypto and all you could do was hold it.
Now you can compound and there are more ways of investing and you can also build trust so structures from the traditional financial industries are being incorporated within crypto. Also uniswap is memorable for me.
Financie is a platform where individuals can issue their own token, but to create liquidity we used a bank. We did this because Etherdelta failed because the orders did not match up. Although a deposit was required, we put an incentive for users to do so and created more liquidity.
The traditional business model of CoinCheck that I know sold tokens does not have much liquidity as an exchange so fiat and crypto will be done at centralized exchanges, and there isn’t much point for trading of BTC and ETH to be done at DEX, but trading of small time tokens could now be down with uniswap and DeFi.
Security is brought up often but Uniswap has gone through code audits so I’m sure it is safe from hacks. So I see many progressions from banko, Uniswap and Etherdelta so there are many variations we have seen. DeFi is used like a Smart Contract so this is a huge advancement.
TAKEDA
Amo san, any thoughts?
AMO
Rules are currently being formulated right now at the national and global level so I think it’s important to have a good balance between centralized and decentralized institutions.
KUNIMITSU
DeFi is interesting because who would be regulated for Uniswaps?
Uniswap’s base protocol cannot be regulated. The interface could be regulated but there are countries with no issues so those domains could simply be used so…I’m not sure who is going to regulate what.
For ICOs it was simple because a company wrote a white paper asking investors for money and in turn promising to accomplish goals. But for Uniswaps it is being airdropped to everyone and then users begin farming and then eventually start trading.
Perhaps team members eventually sell the tokens but they are not necessarily promising anyone anything. I do feel it will come under surveillance if there is excitement, but unlike ICOs, there is not a distinct law that is being broken so I’m not sure how they can regulate it and what that would look like. It is really interesting.
KITAMURA
Are you aware of the service called Abra?
It is a bitcoin token that sells tokens pegged to US stocks which can be purchased from non-custodian wallets. It came from Stanford and had investors from reputable companies but basically like what Kunimitsu san was saying, the point is how are they breaking the law, if at all?
The authorities are currently studying the mechanics and unless the product is examined, it is unclear how they are breaking what laws.
Last year I had a token from Abra that was begged to Tesla and BTC and the prices kept rising and eventually the prices disappeared. Turns out, in January they had quietly reached a settlement and agreed to switch from non-custodian to only custodian accounts. My point is, they are learning and the regulators also have an element of business, in that they are studying so that they can be ready to make a move once there is traction in this space.
But the question of who they will move upon is the question. I’m sure savvy companies discuss with lawyers how much projects must be decentralized.
TAKEDA
Obinata san, since you’re in Berlin I’m sure you have many opportunities to learn about new overseas projects, but what are your thoughts on this boom regarding DeFi? Is it a one time thing?
OBINATA
As Kunimitsu san stated earlier, it is definitely a major area. No doubt about it. One thing I felt is that, although it is frightening to see 60 billion yen worth of money locked in an unregulated smart contract, it also shows interest beyond all the problems in UX, high transaction fees and other areas related to Ethereum.
If in the future, the issues in usability and transaction fees are solved in the future, the situation can change, making it a very exciting summer for me. Additionally, yield farming is a Innovation unique to the crypto space.
Despite there being many projects criticized as scams, the system in itself is an innovation. It has the usability of the early phases but the ownership of the protocol is decentralized amongst the users and then the liquidity is increased as the network externalities is boosted up is a system unique to the crypto industry.
I think we will see other projects that apply this to systems other than DeFi, NFTs utilizing yield farming, for example, in an effort to seek innovation.
KUNIMITSU
On the other hand, for example, a problem would be that 95 percent of the tokens on Uniswap are shit, and most of those claim to have the purpose of governance.
I think almost 100 percent of tokens that claim to be governance tokens are shit. So while Uniswap and Lending DeFi are being established, most of those tokens on them are worthless and have no purpose. So once we see tokens that have a legitimate purpose, we can go to the next step.
Ethereum and Bitcoin are interesting. Ultimately, the reason this time as the Bitcoin and Ethereum price went up (and it’s not rapidly going down) is because bitcoin established its position as “digital gold”.
I am almost certain bitcoins price will not go down again because it is a store of value, even if the price may go up. So as long as bitcoin price remains, the crypto industry in its entirety will not completely collapse. For Ethereum, it has led a different path from Bitcoin.
Someone created ICO, someone created DeFi, someone created NFT. Various third parties have created new ways of utilizing Ethereum. So whether its Ethereum, Polkadot, or Cosmos, third parties will continue to innovate. In that sense, the situation is very different after the space went dead after the collapse of ICOs.
TAKEDA
I personally think the combination of DeFi and NFT will take place in the future and would like to ask about that from Ito san and Yoshida san. Taking Uniswap as an example, early users were given 400 UNI tokens and those early users benefited the most.
Content games have not had a huge gap in merit between early and late comers, but NFT and DeFi could combine in the future. DeFi provides financial value while NFT could provide interesting content. I personally think those two will eventually combine in some way in the future.
Yoshida san, Ito san, maybe Kunimitsu san, would you like to share your thoughts?
YOSHIDA
I want to share a different perspective on DeFi. I do think DeFi is definitely an innovation that will impact society in a huge way in the future. However, many times these new innovations have huge expectations in the early phases before it is adopted in society, causing its perceived value to run ahead of actual adoption. The internet, for example, the dot com bubble set NASDAQ markets 12 years to return to the same range.
My question is, Is the current assessment of DeFi truly flat and based on fundamentals? During the times of ICOs, people used BTC as currency and stuck it in a slot machine, which is ICOs, hoping to get lucky.
Now it seems like we are using ETH that is growing in price and putting it into a new slot machine which is DeFi. In that sense I think it is a good technology but perhaps it could be hyped up, in my opinion. However, as Obi san stated earlier, marketing methods unique to DeFi or NFT marketplace or so called “viral marketing” could be a good way to connect real value to blockchain and tokens.
As you may already know, there is a blockchain marketplace called Rarible which allows users to do “trading farming” which gives users tokens when NFTs are traded. However, as Kunimitsu san stated earlier, those coins are meaningless “governance” tokens.
I do think these viral marketing methods will become popular. However, we need to be careful that there are traders who constantly trade NFTs of high quality art to accumulate high amounts of tokens.
TAKEDA
Ito san, what are your thoughts.
ITO
Not necessarily NFT, but as I am in the advertisement industry, something that is said about DeFi is that since trading and liquidity is achieved without a “middle man”, such as a financial company, there were speculation that such systems that do away with the middle man could come into the advertising industry, where there are many middleman companies such as Ad agencies.
It is a little different from the financial industry but there were fears of something similar occurring in a separate industry. What seemed like fantasy before suddenly became real due to DeFi.
TAKEDA
What do you think of the combination of DeFi and NFT?
KUNIMITSU
Etherdelta did not work in the end, so I dont think DeFi is suitable for trading in between the order books. However, currently there are too few users so it won’t be of too much use. What could be possible is that gaming, or platform tokens combined with DeFi.
I think not just NFT but fungible tokens combined with gaming could be actually used in game so NFT combined with fungible tokens could be one point.
TAKEDA
One last question to everyone. You are all in this industry so I am sure you all believe in the future and potential of blockchain and crypto assets. When do you think blockchain will become used in daily life how the iPhone and Google are being used today?
AMO
You always think it will take 5 to 10 years and then it happens quicker than you expect so I can’t completely read. However, taking into account current situations and the rise in GAS fees, an in between point would be for off chain, instead of on chain models being developed and becoming popular.
Another thing would be for structures to be developed that allow content providers to receive revenue, without it going outside thereby making it harder to establish a business model. We hope a good market environment, including relation, can be established in this space.
TAKEDA
Thank you. Ito san, your thoughts?
ITO
More than specific years, I see it more in steps. Specifically for content, copyright is a popular topic right now, thinking of how an NFT of copyrights would look like.
There are discussions between national authorities and IP companies. I think this will expedite the mass adoption in society as companies that have relation to blockchain technology are also involved. With my optimistic expectation, I think things may move faster than we expected due to such developments.
TAKEDA
Kitahara san, when do you think blockchain will become a part of society’s daily life?
KITAHARA
I can’t say how many years but in general, I think it will happen when what we do in our day to day life can be found on-chain. One thing is cash.
Libra, although it is slow, once cash is on the blockchain, I think it will move fast. Now most transactions with smart contracts can only automate data. Once cash transactions can be done, and when major companies adopt the technology, this will happen sooner.
TAKEDA
Yoshida san?
YOSHIDA
I think the adoption by major corporations will be a big key. As stated earlier, there is an expectation that COVID-19 has expedited this process.
These new markets are either formed from ground zero or by diverting money from a different option. In that sense, a purely new source of money is quite difficult and would be hard to scale in the short term. So I think a purely blockchain native idea will happen down the road. On the other hand, the option of diverting funds from a pre existing source would be easier and could happen within the next 1 or 2 years.
TAKEDA
Thank you. Obinata san?
OBINATA
I think the situation can change drastically in the next 2 to 3 years, depending on the country. In the past 6 months I have been the advisor for Polkadot and Kusama, which is a canary project for Polkadot, assisting in global communication between them and other exchanges. Most countries around the world have been developing regulation and in most countries, there is an exchange that allows for fiat to crypto exchange.
Some of these exchanges move fast and allow lending so if they get bigger, and if the fees at the infrastructure layer can be reduced and the layers become more usable, UX and other problems which are barriers of entry could be eliminated.
Some in developing countries, such as Thailand and the Philippines, could entirely live off of NFT and games alone. For some countries, people who have more assets, could own part of their assets in crypto and increase their wealth at a higher interest rate within the next 2 to 3 years.
TAKEDA
Thank you. Kunimitsu san, your thoughts?
KUNIMITSU
I think there are 3 big points.
The value of Bitcoin is in its inverse correlation with fiat currency. With COVID-19 the whole world is in monetary easing, the whole world is in debt, effectively diluting the value of fiat currency. When this happens, just as the value of gold went up, the price of Bitcoin also went up. Moving on, there will be more political instability.
If I were living in Hong Kong, for example, I would not need Hong Kong Dollars anymore. And there are more and more countries like this so in this sense, Bitcoin will only continue to get stronger in the next few years. When this happens, other projects, that let’s be honest, hinge largely upon bitcoin, and a lot of those projects are tested upon Ethereum, so in that sense for Bitcoin, I think it is almost at the steps of reaching mass adoption.
Once other structures utilizing crypto such as DeFi, including Uniswap are coming close. Uniswap specifically is amazing to me because it is entirely made from smart contracts, doing what so many at other centralized exchanges do by itself. So I do think the technology aspect of it has definitely grown massively in the past 1 to 2 years. I think we will see mass adoption soon.
For games, what is important is having cool content and a cool platform. Without the iPhone, there would have been no mobile games. Without VR there would be no Oculus quest. So for Gaming to grow strong, we need a platform; whether that will be Libra, or Clayton, or Link, but I think it may take more time than we expected. Ethereum is having difficulty riding the wave of DeFi.
Perhaps Polkadot or other platforms could bounce back rapidly. Either way, I also think it is the next 2 to 3 years. The key is how bitcoin is strong this time around. I think it never will go back down again.
TAKEDA
Thank you very much everyone!
Related: Japanese version of Flow event article
