It has been over two years since I last saw Sharlyn Wu, Huobi’s new Chief Investment Officer, during a bustling, pre-pandemic crypto conference in New York and later on in Hong Kong. Wu, a rather low-key person, has been known in China’s crypto scene as the brains behind China Merchant Bank International (CMBI)’s investment in Nervos, China’s home-grown, public blockchain, way before Nervos became an internationally recognized public blockchain. Prior to that, she spent a decade at UBS.
For this week’s da bing, I sat down (virtually of course) with Wu, to learn about her new role as Huobi Group’s DeFi-skipper.
Huobi, which launched in China in 2013 and became an enormous Bitcoin exchange, left in 2017 after the government banned crypto trading. The Huobi Group, now based in Singapore, operates one of the largest centralized exchange platforms in the world, Huobi Global and has offices throughout Asia. Wu’s DeFi lab sits under the group.
So what prompted her to join Huobi after an illustrious career on Wall Street? And how is she planning to steer the company through the roiling waters of DeFi?
DeFi 2.0 = CoFi ( Computable Finance)
“Finance is all about pricing risk, and risk management,” Wu told me. One risk that Wu thinks is essential but has not yet been sufficiently tackled is price oracles. “Price oracles are at the bottom of every transaction. If the price is not solid or not verified, no large transaction will ever happen in DeFi,” she said.
This is precisely why Wu and Huobi’s DeFi lab’s first flagship deal is CoFiX, a decentralized exchange that sources its data from NEST, a decentralized oracle protocol built on Ethereum. (The name is a mashup of “computed finance” and exchange.)
Unlike its competitor Chainlink, which provides price reference points from a number of trusted nodes such as Coinmarketcap, NEST sources price oracles through market validators. Similar to how miners validate each block, market validators quote and validate price data in a decentralized fashion in real time.
“It’s certainty that we are chasing,” Wu told me. “If I were to trade billions of dollars on Ethereum, which is trustless and secure, why would I rely on a price oracle from a centralized entity with potential human intervention? What’s the point of decentralization in that case?”
To Wu, if DeFi wants to leapfrog from being a sort of casino, to being trusted on Wall Street, it needs to eliminate any uncertainty that could be introduced from centralization or human design errors. CoFi is a step toward a financial system where every financial parameter will be qualified and computed—to the extreme.
And for those projects that have no fundamentals but ride the rollercoaster anyway, Wu thinks they will soon be exposed, as we describe these projects as “滥竽充数.” (This is a pretty complicated thing to translate since it literally uses 4 characters to tell a story. But the literal translation is “bad musicians among the good ones.” The analogy here means that during the DeFi bubble, the bad projects can hide among the good ones.)
DeFi’s Sweet Spot
A self-proclaimed nerd, Wu could not hide her excitement over how DeFi will overhaul the modern financial system. When she decided to leave CMBI and join Huobi, the plan was to find 10 DeFi protocols that will survive, once the dust—or shall we say bubble—settles.
“We are looking for a liquidity backbone for the next generation financial system,” Wu said. “This new financial system will have users onramp through CeFi and then served by DeFi protocols. We can call it CeDeFi.”
CeDeFi is one of those terms coined by centralized exchanges, but each exchange has a different definition of it. For instance, Binance’s CeDeFi involves the exchange actively selecting, vetting, and occasionally shilling chosen projects, all on Binance’s newly-launched Binance Smart Chain.
Huobi does not shy away from shilling its own DeFi investments. After all, that’s how projects get heard nowadays. But the key difference is that Huobi acts more like a treasure hunter, meaning that it hunts good DeFi projects to invest in, but it doesn’t create new DeFi projects in-house, the way Binance does.
“It’s very clear to us that Huobi’s value add is to get users into the crypto gate and help them harvest the best DeFi yields on the chain,” Wu said. The key here is that users don’t even need to know that their yields come from DeFi, which makes DeFi the yield infrastructure that faces no consumers directly.
One big question that remains, though, is the progress of Huobi Chain. Announced in November 2019, Huobi Chain is designed to be a high-performance public blockchain that is also “a regulator-friendly financial blockchain.” Now that almost a year has passed, Huobi Chain remains largely dormant. Wu declined to comment on it and said only that they will announce something new soon.
This clear demarcation between what CeFi can do and what DeFi can do is the foundation of Wu’s thesis. In her medium article as well as in our conversation, she emphasized that, both CeFi and DeFi have their own merits. CeFi has the infrastructure for high-frequency transactions that require a trusted entity; DeFi is perfect for low-frequency transactions that carry no credit risk and is fundamentally trustless.
For Wu, each project needs to find its sweet spot.
Perhaps that’s why Huobi’s DeFi focus has been on providing cross-chain assets to Ethereum, such as its HBTC.
Huobi’s hot DeFi Plan (huo = 火 = 🔥)
Another major aspect that Wu spearheads at Huobi’s DeFi lab is to build and lead DeFi communities. In August, Huobi launched a DeFi Consortium with industry titans such as MakerDao, Compound and dYdX. But what does a consortium really mean?
“Pre-DeFi, centralized exchanges such as Huobi worked in silos. We were here to provide liquidity as a CEX. Now, with DeFi, it’s not just Huobi ourselves any more. We work with the entire ecosystem,” Wu said.
The word “ecosystem” is perhaps the most commonly used term in the crypto world. It’s true that consensus is built on an ecosystem, and it’s the ultimate defensibility of any product (think of Ethereum and Bitcoin).
But Huobi basically has no ecosystem and has to work from ground zero. “CEX has always been disconnected from communities. But now, we want to build real financial products that benefit all,” Wu said.
It’s probably a little disingenuous to say that Huobi has no communities. On the contrary, just like the other centralized exchanges, Huobi has access to a large number of retail investors. What it lacks is not people but a reputation as a pro-DeFi place. By gathering the DeFi OGs in its DeFi Consortium and investing in upcoming projects, Huobi does not hide its ambition.
It’s a big jump for Wu to move from the safety and conventional finance world of CMBI to Huobi. The former is one of China’s largest banks, while the latter is an up and coming Fintech firm operating in a gray area. But Wu’s optimism about Huobi is overflowing.
“I believe Huobi will become a super enterprise,” she said. “Let’s imagine: If the Internet can be thought of as continental Europe, and the blockchain world is America, Huobi wants to be the boat that transports people from Europe to America. And even better, once they are transported, we will provide travel guidance and services so they have a good time.”
But there is danger in being a ferry. Storms are everywhere and oftentimes come unexpected, as with the recent arrests and prosecution of BitMex show. And even when an ocean crossing succeeds, those who arrive in the new land might be disappointed as well (consider the recent burst of the latest DeFi bubble.)
For now, Wu’s priority is to identify the entrepreneurs who can help her weather the storm and show users how great the new land is. This journey is not only long and hard, but also full of competitors and predators. Only with a star team and strong ecosystem can Wu and Huobi be the ferry it aspires to be.