The crypto financial market is currently buzzing with hot DeFi projects. Technological innovations and various economic models continue to capture investors' attention, even acting as key catalysts for the bull market. However, the more popular these projects become, the higher the cognitive barrier for participants. A clear example: before many investors can even grasp the underlying concepts, some project tokens have already experienced volatile price swings of tens or even hundreds of times.
In such a scenario, how should we understand the nature of a bull market? How can we decipher these trends and see the essence of crypto finance? Chain Catcher engaged in an in-depth conversation with Yang Zhou, founder and CEO of Babel Finance. As one of the few leading crypto lending institutions with decades of traditional financial DNA, Babel Finance not only possesses an international perspective but also offers unique insights into the crypto market. Their shared perspectives are sure to provide valuable enlightenment.
Understanding the Nature of the Bull Market
What phase of the cycle is the crypto currency market in currently?
It's challenging to define an industry cycle for a sector that's just over a decade old. Compared to the traditional financial market, the crypto market's share is still very small, with the entire market cap around $300 billion. Its user base remains relatively niche. It can be considered a moderately sized financial category—a beneficial supplement to traditional finance—so it's still very early.
This experiment in rethinking traditional finance has spread from early tech circles to niche user groups and now to a broader general audience. It indeed enables many services that traditional finance cannot easily provide, indicating significant growth potential. This evolution has also spurred smaller cycles, like the four-year bull and bear markets.
Can recent hot topics like DeFi and Filecoin ignite a bull market?
Igniting a bull market depends on the macro environment, mid-term industry trends, and micro-level hotspots or events. These hotspots are essentially products of industry innovation and fall into the micro category. However, micro-level excitement alone isn't sufficient; it requires the push of macro conditions and mid-term industry trends.
The macro perspective involves correlating international economics and politics with the crypto market. The mid-term view focuses on how many people are participating in the crypto market and whether there's sufficient user liquidity. It's worth noting that each bull market might have different attributes.
Therefore, before discussing this topic, the market should first clearly define the essence of these hotspots and what lies behind them. For example, regarding the wealth effect brought by DeFi liquidity mining, it's crucial to understand that the emphasis is on mining. Such mining is inherently unsustainable; after short-term frenzy, it often leaves a mess.
What type of bull market does the current crypto market resemble?
Traditional finance distinguishes between technical bull markets and structural bull markets. A technical bull market focuses more on industry heat—the mid-term factors. Judging from this angle, we are likely in the early stages of a bull run, with many more participants expected to enter.
However, traditional finance uses yearly timelines to judge bull and bear markets, based on trading days in different markets—like 52-week lines or 220-365 day lines. From the 365-day perspective, the crypto market entered a bull phase last year, though the March 12th crash was awkward. The market was leverage-driven but recovered within a month, so 2019 can still be considered a foundational bull year.
With various countries implementing monetary easing policies, how will this affect the crypto market's trajectory?
In such conditions, global financial markets generally rise. For instance, the Fed's balance sheet increased by $4 trillion, but the global money supply grew by $20-30 trillion. This happens because asset growth has an automatic mechanism.
It starts with debt: as national debt rises, it's used as collateral to borrow more currency. This new money flows into stocks, real estate, and other markets. These assets then serve as collateral at banks, generating further credit. Essentially, easing policies create a rotational effect, similar to a reservoir concept.
Regarding Bitcoin, its price correlates with the U.S. dollar index. Although the correlation isn't high, over the medium to long term, Bitcoin is a product highly sensitive to monetary policy within global financial markets.
Will current tense international relations impact the crypto market?
It's not so much an impact. Bitcoin exists independently of any single nation. Whether for China or the U.S., the current conflicts are seen as low-probability events—issues of interest likely to be resolved within a reasonable framework.
However, for traditional high-net-worth individuals and institutions, even small risks can be damaging. For them, Bitcoin serves as a hedge against national conflict risk and sovereign credit risk. It's an asset class for long-term small allocations, or for larger allocations in breakthrough scenarios.
The Current State of Centralized Lending
How do you, as an insider, interpret the OCC's recent announcement allowing banks to provide crypto custody services?
It sounds like positive news and is very beneficial for the industry, but full implementation might take three to five years. In terms of understanding crypto finance and product design, companies like ours are likely more knowledgeable and familiar than banks. We probably won't lag behind major institutions in innovation and service, so even when implemented, lenders like Babel will likely become partners for banks.
Reports suggest lending product interest rates are generally lower abroad than domestically. Could such spreads催生跨国同行拆解业务间接促进全球CeFi市场的利率体系建设 (Note: This phrase seems incomplete or mistranslated in the original. The concept points to cross-border interbank lending influencing global CeFi interest rate systems). How should we interpret the logic behind this?
I agree with the concept, but the understanding of lending is somewhat one-sided. Lending isn't just about RMB or USD; it includes Bitcoin and is a major window for global value exchange. Many institutions aren't just doing interbank lending; they're also engaging in innovative traditional institutional businesses. For example, when our capital pool reaches billions of USD, we open certain windows for interoperability between stablecoins and Bitcoin.
With DeFi's market cap achieving significant breakthroughs, do CeFi institutions feel pressure?
No, because their customer bases differ. Whether large or small, participants in DeFi are primarily motivated by speculation—aiming for超额利益 (excess returns) or governance tokens with appreciation potential. CeFi products serve clients with investment needs; their starting points are different.
If you're an investor, understanding the玩法 (mechanics), profit/loss, and potential risks of an investment is fundamental. However, for current DeFi hotspots, these points are often ignored. The core becomes who enters earlier and exits faster—essentially a zero-sum game, like the recent YAM crash where the last entrants paid the price. Nonetheless, the DeFi fervor has undoubtedly pushed the market forward.
How do you view the competitive and cooperative relationship between CeFi and DeFi?
CeFi allows traditional finance to grow within the crypto industry, with product designs often being imitations of traditional finance. DeFi innovates on scenarios based on the crypto industry. In the current environment, CeFi primarily serves people, while DeFi primarily serves machines. The future requires robust infrastructure support, offering vast potential. Therefore, I believe they currently hold a mutually beneficial, complementary relationship.
Does imitating traditional finance mean CeFi potentially lacks innovation?
From a supply-demand perspective, innovation is based on need. If value can be provided to customers without innovation, then what is the purpose of innovating? In my understanding, finance is fundamentally simple. Financial innovation only comes in two forms: technological and transactional model innovation. I strongly support technological innovation in DeFi, but I am less supportive of transactional model innovation, like using pyramid-scheme methods. That would be a disaster for the market. So we should consider whether crypto financial products truly need to be innovated.
From a traditional finance perspective, how do you judge the real value of DeFi projects?
The premise of value judgment is demand—we must ask if current DeFi projects are truly useful. Therefore, it's premature to judge real value; we can only consider whether we are optimistic about DeFi's prospects.
Babel Finance's Crisis and Evolution
What was Babel's recovery period after March 12th, and what risk control upgrades were made?
During the March 12th event, we employed risk hedging and didn't suffer significant losses, so the recovery time was very short. We've always had multiple risk control mechanisms. Internally, we've established front, middle, and back offices and recruited talent from relevant sectors—professional CFOs, lawyers, and risk officers. Externally, we deliver daily morning reports on market conditions to clients, hoping they also stay informed of market changes.
What indicators are used to layout risk hedging strategies?
Our indicators are included in the morning reports—for example, if a established exchange suddenly moves large amounts of coins. Additionally, since our client base spans domestic and international markets, we can observe potential market directions from quotes and demand on both sides.
For instance, if many clients frantically mortgage assets to borrow Bitcoin, we naturally need to understand the intent behind these actions—whether it's for hedging or arbitrage. If arbitrage is predominant, the market will likely continue rising. The opposite suggests the market is at a peak with more selling activity, indicating potential risk. It's a simple principle: more buying drives the market up; more selling drives it down.
Facing competition from exchanges with innate traffic advantages and new lenders offering high annualized rates, does Babel feel a sense of crisis?
Not really. We primarily serve large clients. Serving retail investors isn't easy, so we rarely engage there. In our area of expertise, Babel has its own product system and has pioneered innovations often referenced by peers—like the TripleQ product launched last year, which evolved into 3x ETF products and now mainstream ETF-based structured option products across the market. This phenomenon aligns with Babel's philosophy of empowering the industry and high-net-worth users.
High-net-worth users seem to prioritize security. For example, the May attack on BlockFi causing user data leaks raised industry concerns about data and asset security in centralized lending products.
This security incident needs a dialectical view, clarifying the object of comparison. I believe compared to DeFi's transparent information disclosure, the characteristic of CeFi where users are not exposed might be relatively safer. Moreover, more security vulnerabilities have occurred in the DeFi space in the past.
As mentioned before, current CeFi serves people, while DeFi serves machines. If any problem arises, CeFi can find a person responsible, but DeFi can only turn to smart contracts or the community. In my perception, with many infrastructures still imperfect, people are more reliable than machines. Of course, different people have different perceptions and make different choices.
Can you透露 (reveal) Babel's future development plans?
We will next apply for financial licenses in Hong Kong, mainly to meet the demand of domestic high-net-worth individuals wanting to purchase Bitcoin. Furthermore, after the National Security Law, Hong Kong's sovereignty is clearer, making clients more comfortable placing funds there. In this context, Babel is positioned to be a safer service provider compared to others.
What has been the biggest challenge since entering the industry?
The biggest challenge was this year's March 12th. We faced several risks then: whether exchanges would disappear, whether the market would go to zero, and client attrition. We ultimately chose to争取 (strive for) more operational space for clients, trying to protect their assets. This choice helped us avoid losses from client attrition. Another consideration was that if the market went to zero, the lending industry might cease to exist—the worst-case scenario—so we made an all-in decision.
What is your most profound insight?
The essence of reality never changes. Follow the essence, stay true to your original intention, and always prioritize customer value.
Frequently Asked Questions
What is the main difference between CeFi and DeFi?
CeFi (Centralized Finance) brings traditional financial services into the crypto space, often mimicking existing products, and primarily serves human users through centralized entities. DeFi (Decentralized Finance) builds new financial scenarios on blockchain technology, operating through smart contracts and primarily serving automated processes or 'machines', aiming for permissionless and trustless access.
How does monetary policy affect Bitcoin's price?
While not perfectly correlated, Bitcoin's price shows sensitivity to global monetary policy, particularly the U.S. dollar index over medium to long terms. Expansionary policies increasing money supply can lead to increased investment in assets like Bitcoin as investors seek hedges against inflation or currency devaluation.
Is participating in DeFi liquidity mining safe?
DeFi participation, including liquidity mining, carries significant risks including smart contract vulnerabilities, impermanent loss, and project sustainability issues. Many projects are highly speculative with unsustainable models. It's crucial to understand the mechanics and risks thoroughly, acknowledging that early exits often benefit at the cost of later participants.
Why do high-net-worth individuals consider Bitcoin?
They often view it as a hedge against specific geopolitical risks and sovereign credit risk. It represents a non-correlated asset class for portfolio diversification—a small long-term allocation or a larger tactical position during periods of heightened uncertainty.
What should one look for in a crypto lending service?
Prioritize platforms with robust, transparent risk management frameworks, a track record of stability during market stress (like March 2020), clear communication, insurance where possible, and a focus on security protocols. Understanding their client focus (e.g., institutional vs. retail) and product offerings is also key.
What's the future of CeFi and DeFi?
They are likely to coexist and complement each other. CeFi offers familiarity, customer support, and integration with traditional systems, appealing to many users. DeFi drives technological innovation and permissionless access. 👉 Explore advanced strategies for navigating both worlds. Future growth may involve greater interoperability between centralized and decentralized platforms as infrastructure improves.