Opportunities for Web3 Public Chain Entrepreneurs in China

As an entrepreneur in the domestic Web3 public chain, Zhang Yuanjie, co-founder of Conflux, believes that there are many misunderstandings about China's Web3 industry.

"Web3 is cryptocurrency, and China does not allow cryptocurrency," so there is no Web3 in China. Such statements are rampant, but cryptocurrency is not Web3; it is just a hot application within the current application ecosystem of Web3. In Zhang Yuanjie's view, the reason for this perception is more due to "the people involved in cryptocurrency having a voice and dominance within the existing Web3 user group."

He considers the statement "compliance for domestic alliance chains, non-compliance for public chains" to be a significant misunderstanding. "There is no policy stating that public chain technology is banned in the country. National regulatory agencies have left some opportunities for exploration in this field, which is why we can operate normally domestically." As for the prominence of alliance chains, he believes it is entirely a move by major Internet companies from the Web 2.0 era attempting to seize the discourse power of blockchain, because "an alliance chain is merely a disguised centralized database, representing outdated technology and a continuation of the past's data silos and data gatekeeping."

Regarding the current craze for digital collectibles, the chaotic cryptocurrency market, and the DeFi industry, Zhang Yuanjie believes that these do not represent the true Web3. "What Web3 really looks like has not yet been presented; currently, there are only ideas and underlying philosophical concepts, and it has not yet been realized."

What is the concept of Web3, who are the users of Web3, and how should domestic Web3 entrepreneurship be conducted? Zhang Yuanjie discussed a lot in this interview, which has greatly benefited us.

It can be said that your understanding of Web3 may have been completely wrong before reading this article.

Key points of this article:

1. In today's internet, large enterprises monopolize data, forming isolated data islands. The cost of traffic is becoming increasingly expensive, and personal data is being divided among a few big companies, leading to fewer opportunities for internet entrepreneurship. The entire industry is stuck in a deadlock. Web3 actually has opportunities.

2. If there are no applications with tens of millions or even hundreds of millions of daily active users, the era of Web3 has not yet arrived, and the concept of Web3 has not been truly articulated.

3. Those who always mention tokens and token economics are actually just trying to profit, and they no longer care about the essential daily needs of humanity. They no longer start from the users' needs, but instead focus all their attention on how to quickly create and harvest wealth.

4. In the entire blockchain world, true decentralization has never existed; it is more of a process of disintermediation.

5. The belief that consortium blockchains are compliant while public blockchains are non-compliant reflects a lack of serious interpretation of national laws, mistakenly equating some of the public relations narratives from major internet companies with national laws and regulations.

6. If Web3 wants to go mainstream and reach more internet users, it needs to find a place on Earth to settle down, which must comply with local laws and regulations as well as the country's conditions.

7. Web3 is just a technical component of internet entrepreneurship, not the whole picture; do not lose sight of what is important.

Current Status of Domestic Public Chain Ecosystem

Conflux is a public chain, which serves as the underlying infrastructure for Web3. It can be considered a trustless distributed ledger, primarily used for the issuance of digital assets. The development theory of Conflux was established in 2018, and after 2 years of research and development, it went live. It has been running for over 2 years without a single network outage and has successfully completed several hard forks.

Conflux mainly focuses on the domestic Web3 ecosystem, and currently there are over 8 million digital collectibles issued on Conflux, more than 3 million independent users, serving over 300 brand IPs, and incubating more than 70 companies scattered across the digital collectibles, Web3, and infrastructure sectors.

After the central bank issued a document last year to phase out digital currency trading, and with the clarity of policies, the things that can be done in entrepreneurship have also become clear. In addition, the popularity of digital collectibles in the past two years has led many enterprises to start exploring the Web3 field, which is also a reason for the relatively rapid development of our ecosystem this year.

There are some interesting cases and applications on Conflux:

Recently, Jay Chou released a metaverse blind box, which contains a previously unreleased single titled "New York Subway." The blind box is very popular and even made it to Weibo's trending searches, representing a typical case of digital assets reaching the general public.

McDonald's China issued digital collectibles for internal employees through Conflux; Liberation Daily created digital collectibles by randomly combining historical front pages and gave them away for free to readers. Nayuki's Tea launched digital human presale cards last year and also placed digital collectibles on Conflux, with presale card sales reaching nearly 200 million RMB within three days.

In addition, there are collaborations with some automotive brands, sports brands, and ACG brands, such as Ford Mustang and Qin's Moon, which have made some attempts in Web3.

The domestic application ecosystem based on public chains is currently at this stage:

The field of digital collectibles has become very mature, but the entire market is in a contraction state, with many companies actively exploring how to integrate digital collectibles with marketing, social interaction, and the collaborative economy.

An example related to marketing is the digital collectible application TaoPai, which was incubated on Conflux. They launched a series of digital collectibles called "Kaozai's Friends" featuring avatar images. This brand collaborated with a niche French fashion brand to design clothing that was showcased at Shanghai Fashion Week and was noticed by buyers who wanted to place orders for offline sales. Therefore, users holding the avatar on this clothing will automatically receive dividends from IP sales. Additionally, when the clothing is produced, all avatar holders automatically become franchisees and receive a higher profit share than others. They can participate in distribution through a mini-program. Since it's a full payment in advance, they can directly earn commissions. Subsequently, manufacturers will produce clothing based on orders, which exemplifies the typical C2M model (Customer-to-Manufactory): zero inventory, 100% prepayment, and it utilizes a decentralized marketing concept, combining with offline physical goods, aligning with the domestic economic trend of "promoting the real with the virtual."

There are also gameplay elements combined with social interactions. For example, some enterprises have mechanisms where holding an NFT allows access to user groups, and selling it will automatically remove the holder from the group; holding an NFT enables the initiation of proposals and voting, turning digital collectibles into tickets or employee badges for joining organizations. It can also be integrated with offline events, serving as a pass for the community.

Many companies also want to place their data assets on Conflux. For example, "Black Myth: Wukong" publicly sold the 3D models of game items as digital assets.

Moreover, regarding the creation of co-creation content, I haven't seen many good cases yet, but IP brands like Happy Mahua and The Unexpected have already collaborated with companies in the Conflux ecosystem, trying to attract more entrepreneurs to participate in their creator economy. The creator economy is a significant part of the entire internet; for example, music copyrights are currently monopolized by QQ and NetEase Cloud Music, making it difficult for long-tail music producers to earn revenue. Can this problem be solved through the concepts of NFT and blockchain? This is something I am very eager to see.

Zhang Yuanjie joined Conflux at that time because he saw the values of Web3:

The concept of Web3 was first proposed by Ethereum founder Gavin Wood in 2014, but the term really became popular and widely adopted due to a hearing on digital currencies in the United States this year, where many cryptocurrency supporters presented the concept of Web3. The most important claim among them is that individuals not only have the right to read and write but also own their data rights.

When I joined this industry in 2018, there was no such proposition, and it wasn't a topic of interest for everyone. At that time, I was working in traditional financial institutions and always felt that my talents were not fully utilized. My good friend Professor Longfan mentioned wanting to create a public chain project. I really cherished this entrepreneurial opportunity, but many notorious ICOs (Initial Coin Offerings) were emerging from public chains, and the entire industry had lost confidence in blockchain, which left me somewhat conflicted.

The final decision to start a business is due to several reasons.

First of all, open finance, or decentralized finance (DeFi), is highly related to my financial background, and I am very interested in this matter.

At that time, I also gradually realized that when the server data of centralized enterprises or Web 2.0 companies becomes public data labels, this data can be accessed and analyzed by any third party or neutral developer. On this basis, countless internet services can be developed for users without barriers or entry requirements. Users can maximize the value they generate on the internet, no longer being exclusive to a particular company.

The concept of Web3 makes me firmly believe that the industry actually has a future and definitely represents an advanced technological direction. After that, when everyone advocated for Web3, they also clarified this concept further.

In today's internet, large companies monopolize data, creating data islands, the cost of traffic is becoming increasingly expensive, personal data is divided among a few large companies, and opportunities for internet entrepreneurship are dwindling, resulting in a stalemate in the entire industry. I believe that Web3 actually presents opportunities, and more and more entrepreneurs are starting to enter this field.

The early financing was not very smooth, and the main points of hesitation for the capital at that time were:

In 2018, the concept of Web3 had not yet been widely accepted, and it was just the beginning of the blockchain bear market, a stage of rampant ICO issuance, where everyone viewed the blockchain industry as a scam industry. Although it was known that blockchain technology represented advancement, no one knew in what scenarios it could be applied, and at that time, there were no ecological scenarios such as DeFi.

Moreover, when I talk to investors, I am not discussing the logic of Web3, but rather the concepts of blockchain Didi, blockchain Meituan, and other shared economy and payment network ideas. Investors have significant doubts about this matter itself, and as an infrastructure provider, we also lack confidence in what direction the future ecosystem will take.

Secondly, the wave of ICO scams has tarnished the advanced nature of technology, making investment require a high cost of public opinion, which has also led to a cautious attitude from capital towards investing in Web3.

It is also because of this that we are very grateful to Professor Yao Qizhi, who is willing to endorse us, which has led to the subsequent entry of capital.

Cryptocurrency and token economics does not equal Web3

Zhang Yuanjie understands Web3 and its value as follows:

First of all, although the concept of Web3 has been proposed, what Web3 really looks like has not yet been presented. Currently, there are only ideas and underlying philosophical concepts, and it has not yet materialized.

Many people say that the uncles and aunts in the country are not Web3 users, so I’m very curious about who exactly is a Web3 user. Are the users trading coins in the crypto space considered Web3 users? Some may say no, they are just trading coins; many people say they are blockchain users. Currently, the largest application on the blockchain, OpenSea, has about 30,000 daily active users. Are these people the Web3 users we want to serve? Are we really just building applications for these 30,000 people? There is still a significant gap between this and my vision of Web3.

If we consider the hundreds of millions of users of apps like Facebook, Tencent, Alibaba, and Instagram as Web2 users, and the users of blockchain as Web3 users, then the potential target audience is only 30,000 people. Even if we include users from the cryptocurrency space, it might only amount to 1 million people. I think the Web3 industry is too small, and it’s simply not worth such enthusiasm from so many people. We also feel embarrassed to call this the third generation of the internet; I believe this is a significant misconception among many entrepreneurs at present, and it has already formed a severe hierarchy of disdain, believing that only the users who have "gone out", the users on the chain, and those who have accepted private keys and mnemonic phrases are truly Web3 users.

Currently, the emergence of Web3