Yuanjie Zhang, Co-Founder of Conflux Ne...

Building a direct communication channel with your customers: Yuanjie Zhang, Co-Founder of Conflux Network on why every brand should adopt an NFT strategy

NFTs are a great tool to establish a direct channel of communication between your brand and your users. What’s more, the users who purchase your company’s NFTs will help manage your online community as they become increasingly invested in your brand.

In this attention economy, what matters most is the amount of time and energy your users and customers devote to your service products. And NFTs are the greatest attention magnet the web has to offer right now.

Welcome to the first edition of Breaking Through China, Radicle China's series of interviews with companies at the forefront of the dynamic, disruptive, and fast-growing Chinese startup markets that matter to you. If you are interested in learning more about Radicle China, please reach out to: lynn@radicleinsights.com

In our conversation, we cover:

Why global brands like McDonald’s and Oreos chose to work with Conflux?
NFT applications in China and what we can expect to see in the future?
Why is now a good time for brands to implement an NFT strategy?
What are some challenges that brands should consider?
And more.

Enjoy!

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As the world of blockchains, cryptocurrency and NFTs continues to evolve at a breakneck pace, so too must the companies building online platforms for fast and secure exchange. Faced with a number of variables, including shifting market expectations and new regulations, these businesses must quickly adjust as they strive to develop a new online infrastructure, often referred to as Web 3.0.

This rings especially true in China, where the recent ban on cryptocurrencies has necessitated a swift but dramatic paradigm shift in the blockchain and crypto sectors. To learn more about the most recent developments there, Radicle’s China Lead, Jianqian Lin, sat down with Yuanjie Zhang – Co-Founder of Conflux Network, the only permissionless blockchain that has achieved full regulatory compliance in China – to talk about where the market is headed and how newcomers to the space can get started.

Yuanjie holds a Bachelor’s Degree from Fudan University and a Master’s Degree from Brandeis University. Before becoming a founding member of Conflux, he worked at Huatai Private Fund of Funds, UNC Endowment Management Company, and Novus in Wall Street. His extensive expertise in investments, capital markets, and business operations made him eminently qualified to speak about the NFT landscape in China, how Conflux participates in it and how brands can work with Conflux.

Conflux Network is actively building a borderless, transactional, and technological ecosystem for globally-minded crypto projects, extending beyond China to North America, Russia, Latin America, Europe, Africa, and the rest of the world. Most recently, they worked with McDonald's China and Oreos to release NFTs on their blockchain.

What is Conflux Network?

Conflux is a public network, also known as a public chain. Really, it’s a public ledger where people can exchange digital assets and record those transactions. Nowadays, people are frequently exchanging fungible tokens, more commonly known as crypto assets, but non-fungible tokens (NFTs) are also fast-growing in popularity. NFTs can represent a lot of things: art, music, and various types of collections. Between those two – cryptos and NFTs – there’s a vast array of digital assets that are being exchanged and recorded on the public ledger that is Conflux.

In many ways, Conflux is extremely similar to Ethereum, which has surged in international popularity. Conflux, though, distinguishes itself from Ethereum with a significant improvement in capacity. Ethereum only processes 10-20 transactions per second and costs $50-200 per transaction, which is, as I’m sure you can imagine, insanely prohibitive. As it stands, Ethereum can only carry high-value transactions, and that’s preventing its mass adoption. Conflux entered the blockchain space in 2018 to solve these capacity problems.

What does it mean to be a platform that’s achieved full regulatory compliance? What advantages does it give Conflux?

I'd like to talk about compliance from two vantage points.

Let’s start with the technological perspective. Everyone knows that the use of a public chain requires the consumption of computing resources, which we often refer to as “gas.” If you want to use Ethereum, for instance, you have to have some Ether handy to consume as gas. But in order to have Ether in the first place, you have to buy cryptos on an exchange, which requires a fiat on-ramp. This whole process is essentially banned in China, which prevents ordinary users from interacting with the public chain. To work around this ban, Conflux has developed a solution – we call it a “sponsorship mechanism” – that allows any third party to pay for gas on the user’s behalf, instead of making the user pay for it directly.

Let’s use an example. When you use an application on a mobile phone, generally it’s deployed on a cloud computing server. But instead of making the user pay the cloud computing service fee directly, the developers typically pay for it, while the user pays through membership fees, advertisement revenue, or purchase of the application.

In the same way, Conflux’s sponsorship mechanism enables users to forego the computing cost – they no longer have to purchase any cryptos before interacting with the public chain. That’s not to mention the fact that the Conflux Foundation reserved a large number of tokens to compensate the developers who first adopted the Conflux public chain. As long as we’re in the early days of Conflux, even developers don’t have to pay a gas fee – they can simply request a sponsorship from the Foundation. And in the future, once these developers’ applications have been adopted by many users, thereby giving way to a steady revenue stream, they can commercially contract Conflux Foundation or any third-party vendor to deal directly with the cryptos. So we’ve created a platform where developers, applications, entrepreneurs, and users don’t have to transact cryptos directly in order to take part in the blockchain. The Conflux Foundation or any third-party vendors can take care of that while the merchants and the users all operate in a crypto-free environment.

Now, let’s also talk about this from a regulatory perspective. The Conflux team has actually built an excellent relationship with the Chinese government, especially the Shanghai government. Since we continue to keep an open channel of communication with them, the government has no problem with our work as we develop an ecosystem of applications in a sandbox environment. This has given Conflux a tremendous advantage throughout China – we’ve developed a very positive public image nationally, earning coverage from both People's Daily and Shanghai Weekly newspaper. And as a result, many developers, users, and enterprise clients are more than happy to collaborate with Conflux.

McDonald's has released a set of 188 NFTs to celebrate its 31st anniversary in the Chinese market.

How is Conflux different from other chains in China? Why do large companies like McDonald's and Oreos choose Conflux?

First of all, Conflux is actually an open public network. This means it's an infrastructure that’s not predicated on conventional business priorities, like profit-making or profit-maximizing for shareholders. The clients that have deployed their own NFTs on Conflux are not served by Conflux directly – McDonald's and Oreos, for instance, are both served by a third-party technology company called CoCafe, which helps their clients deploy on Conflux and then earns revenue from that. We actively encourage these ecosystem companies to figure out a business model through which they can successfully make money. Through Conflux, people are realizing their entrepreneurial goals.

In addition, we’ve launched a platform called TaoPai (淘派), which is similar to eBay or Taobao, that allows people to sell their NFTs or digital collections on the platform as soon as they’ve been onboarded. What’s truly amazing about TaoPai, is that it’s an open-source platform, which means that companies that want to build their own platform – such as a McDonald's or an Oreos, or even a Starbucks – will have no trouble leveraging the open-source code to develop their own platforms.

Our aim is to build a very open and transparent infrastructure that can be accessed by anyone, anywhere. We're not going after profits, or even revenue, at the moment. Instead, we’re trying to achieve universal adoption of the Conflux Network. The best way to achieve that is by being open and friendly to new ecosystem partners. If you can make money or attract new clients to our platform, we’re happy to work with you. And that includes everyone, from merchants and enterprises to independent video artists and cartoon makers. Even blind box companies who want to sell their digital blind boxes have a home on Conflux.

Within Conflux, there will be many sections: some larger enterprises will be verified, and individual creators who have a lot of followers on TikTok, Weibo, or Kuaishou will also be verified through our social networking verification mechanism. As long as you have a contingent of people who love your product, service, culture, or artwork, you’ll have no trouble monetizing that on our platforms. That's the spirit of Conflux – unlike big internet companies, whose bottom line is profit maximization, we offer open infrastructure that enables other people to realize their potential.

The second point I'd like to touch on is technological restriction. To offer NFTs on consortium chains like Tencent or Ant, which is owned by Alibaba, you have to use functions and features that are dictated by the big enterprises that own them. So if they determine that an NFT is not transferable, you’ll have no say in the matter – you won't be able to trade with other parties. On the Ant and Tencent blockchains, you have to adhere to the demands of the big companies overseeing the blockchain. If they choose to restrict your functions, that’s the end of it.

But on a public chain like Conflux, the developers – not the platform – decide how NFTs can be used for both themselves and their clients. They have independent agency over whether an NFT is non-transferable or transferable after a certain period of time, or whether its transferability is restricted to certain white lists. They’re able to write such features or functions into the smart contracts that come with all digital assets.

Also, a lot of the larger enterprises that own blockchains have other business interests, which often makes them very cautious and conservative when building their platforms. As a result, the larger enterprises are still subscribing to the monopolistic mindset of Web 2.0. They restrict functions and features for new users and prevent NFTs from being shown on other platforms. Every NFT you purchase on Alipay, for instance, which is deployed on AntChain, will only be displayable within Alipay. It’s no different from having a picture in Alipay – the data is completely inaccessible to other developers. Nobody will be able to serve your digital assets except Ali.

But when you’re allowed to treat a picture as your digital asset, not the blockchain’s, it becomes so much more – you can decide how to use it. As long as there are people who would like to serve your NFT, you’ll be able to see it on multiple platforms. And it can serve many functions: trading, social, auctions or even fractions. All of these are allowed by a public chain like Conflux, on which users can decide both how and where they want to interact with the blockchain while exchanging their NFT assets.

Now that's a huge difference between Web 2.0 and Web 3.0, and honestly I think they’re going in two completely different directions: the public chains vs. the consortium chains. It's two different paths. And gradually the people who work with those big internet enterprises are going to end up on a very narrow path – they’ll only be able to see their pictures in restricted contexts. That’s not to mention that a big enterprise could fail or suffer censure from the government, in which case people’s pictures may just disappear.

It all sounds like these consortium chains are anything but decentralized – users can only display their assets on a single platform. Also, some exciting features like trading transactions and fraction auctions are not permitted on platforms like AntChain and Tencent's Chain, right?

It's almost like a dictatorship, don’t you think? It's not up to you. It's up to them. And also the data are not accessible to other developers, which means that you can only be served on the platform where you originally bought the asset. If someone has exclusively sold in Ali Pay, for instance, that means he can only be served by other users of the Ali ecosystem. So if you bought your NFTs on Ali Pay, you’ll never be able to see them in Wechat or in Tencent's ecosystem. That's Web 2.0, where the big giants are fighting against each other. That's not decentralized.

If you actively try to prevent your traffic from going to other platforms, then you’re knowingly adopting a monopolistic mindset – at that point, you're basically treating your users’ data as your own assets, which is flat-out wrong. Digital assets should belong to the people who actually create or purchase them, not to the platforms. And that's the basic ethos on which Web 3.0 is being built – your data no longer belongs to the Web 2.0 giants. It belongs to you and any developer who would like to serve you, and you have the freedom to choose their service. That's the open and public infrastructure that a public chain can offer.

We've already touched on some NFT applications, such as community building. Can you tell us a bit more about some current NFT applications in China, and what we can expect to see in the future?

Sure. I'd like to give several examples, but first let’s start with the big picture. So many kinds of people and companies are choosing to sell NFTs to their followers, fans, or people who love their products. I believe that the Big Bang of the metaverse just occurred, and NFTs are the elemental particles of this world.

The first example I’d like to share with you is in social networks. Let’s think about today's most popular social apps, like Wechat and Facebook. You're basically getting to know people who you’re acquainted with, but not necessarily people who you share hobbies with. Maybe you’re meeting like-minded people on Reddit, or on Douban in China. But no matter what social network you’re on, there are always a lot of bots: fake people and fake accounts. And the more you look into it, the more apparent it becomes that these accounts are just advertising platforms. So instead of meeting people who share interests or hobbies with you, you’re just meeting bots that are built to sell you things.

But now, a new kind of social app is offering a solution to this problem by grouping people based on the NFTs they own. Let’s take CryptoPunks as an example, which everybody knows are extremely expensive today. Whoever does own a CryptoPunks is either an early adopter of NFTs or a super-rich person who bought a CryptoPunk in the secondary market.

So let's say I offer a chatroom that’s only open to people who are verified through the blockchain as CryptoPunk owners. This means that the people who enter this chatroom will know they’re talking to real people who either share an interest in CryptoPunks or are extremely wealthy. You're getting in touch with the same people you’re targeting. It's almost impossible to fake: when NFTs are minted, they come with timestamps that have hash data, and then every transaction is traceable.

Another example I'd like to share with you is a social app similar to Twitter or Instagram that’s being developed exclusively on Web 3.0, which means that you have to log in using your crypto or public chain accounts to use it. Once you're logged in, you can use an NFT you have as your avatar, just like people who have a verified avatar of a CryptoPunk. Or you can replace your old avatar with a McDonald's NFT, such as a Big Mac, if you want to let the world know that you're now a big McDonald’s fan. And while you’re at it, you can share and post your NFT – but only if you actually own it.

All of this marks the new era of Web 3.0, which comes with a new framework for serving and presenting NFTs. These elemental particles are colliding with each other every day and giving way to countless new business ideas. In fact, I foresee a new future in which all Web 2.0 services will be rebuilt on top of these NFTs, leading to a new Web 3.0 regime where users are the true owners of their data. That's the world I'm hoping for. Social instant messengers and apps like Instagram will only exist at the earliest stages of this rapidly evolving infrastructure. In this new cyberspace landscape, you’ll only have access to a collection of digital assets if you have one of the items in that collection. Now, we’re only in the early days of the metaverse – I believe the Big Bang just happened.

Let’s talk about the differences between Web 2.0 and Web 3.0. So as it stands, the only way that you can display a digital asset you own, like a CryptoPunk, as an avatar or label is on unverified platforms like Twitter. You – and anyone else, for that matter – can take a screenshot of your CryptoPunk and post it as your profile picture. Is it true that once we reach Web 3.0, only the owner or authorized users can use that asset in such a way?

That’s right. They can do that, or they can gain exclusive access to a chatroom, or in some cases, they may have restricted access – maybe they’re only allowed to post it or use it as an avatar. I've noticed more internet companies, especially startups, which don't have to worry about their old business model, that are entering the space and helping young people use their NFTs. And that's exactly where I see the internet going in the coming years – this is just the beginning of the blockchain and Web 3.0. People and companies who adopt these technologies right now are getting in on the ground floor, and the earlier they do, the more leverage they’ll have in the future.

(Sotheby’s Opens Virtual Museum in Decentraland)

You can’t just rely on your old customers, who are gradually dying out. Instead, you need to ask yourself, “How can we attract new, young users?” Well, the bottom line is that young people want to blaze their own trail – they want to be different.

Is now a good time for brands to implement an NFT strategy?

I actually think that now is the perfect time for brands to implement an NFT strategy. Let’s talk about Visa, for instance – they bought a CryptoPunk for somewhere between 50 and 60 Ether, which at the time was equal to about $200,000, right? The whole world reported on it, and people went kind of nuts – “Visa bought a Punk!” All of the people who owned Punks reported on it, all of the crypto people reported on it, and Twitter could not get enough of it. Meanwhile, Visa is getting all of this publicity for $200,000, which is a drop in the bucket for such a large credit card company. Now what’s especially significant about this is the demographic that Visa is reaching. They would like to attract new users, and it’s primarily young people who are interested in this sort of thing. It was, quite frankly, a brilliant move on Visa’s part.

Then there are the two top auction houses in the world, Sotheby's and Christie's, which also entered the blockchain space recently. They started to build a cyber virtual exhibition hall in Decentraland, which is a virtual world. Now, none of this costs much for these large enterprises, but it gives them a ton of free publicity, which inevitably attracts these younger audiences. Just like Visa, Sotheby’s and Christie’s are starting to extricate themselves from old money and find sources of new money by involving themselves in young people's worlds. It’s extremely innovative.

As for all the companies who are not following suit, I would recommend you start expanding your horizons and paying attention to this new movement. You can’t just rely on your old customers, who are gradually dying out. Instead, you need to ask yourself, “How can we attract new, young users?” Well, the bottom line is that young people want to blaze their own trail – they want to be different. In order to pique their interest, then, you need to have new technology, exciting products, or fresh concepts that will catch their attention. With each passing year, young people are spending more and more time on their cell phones. In fact, most of the time, they’re on the internet in some way, shape, or form. They don't care about physical objects anymore, they actually care more about the virtual world. And that's why companies are devoting so much of their marketing budgets to the virtual realm.

But listen, it’s not too late – it's still a great time to get in on the action. Web 3.0 entrepreneurship is only just beginning. And if you get involved now, other companies will build on top of you while the users who already have NFTs stake their claim as the virtual vanguard. Now, every time you want to make a big splash, you can mint a new set of NFTs and get them into the hands of your fans, who are then grateful to be a part of your exclusive community. All of this is to say that entering the space as early as possible will directly benefit your company – CryptoPunk, for instance, is now a classic in the NFT space. All of the people who are actually entering into the space for the first time will buy or auction a CryptoPunk so that they can use it as their avatar and show respect to a classic. If you choose to enter the space earlier, you’ll be amongst the first to catch wind of these fads – more Web 3.0 opportunities will open themselves up to you, and your fans will directly benefit.

At Radicle, we’re doing research on consumer preferences, especially amongst younger generations. What we’ve found is that younger folks are purchasing more from brands whose values they support. We already know that NFTs are an excellent channel to connect and converse with a fanbase – do you think they also convey values that would entice young people to learn more about the brand?

Yes, absolutely. A lot of enterprises are putting more emphasis on post-sale services, and NFTs are a great tool to establish a direct channel of communication between your brand and your users. What’s more, the users who purchase your company’s NFTs will help manage your online community as they become increasingly invested in your brand. In this attention economy, what matters most is the amount of time and energy your users and customers devote to your service products. And NFTs are the greatest attention magnet the web has to offer right now.

Clearly, a lot of brands are starting to build NFT strategies. We've talked a lot about the advantages of using NFTs, but can you tell us about some challenges, especially in the earliest stages, that brands should consider?

Sure. Honestly, I think a lot of people misunderstand the nature of NFTs. Some people still think that each NFT has to be attached to a physical object, which isn’t the case at all. An NFT is digitally born on the internet, and it’s in no way dependent on the corporeal world. So people who still define NFTs under the old framework need to start understanding how they actually work, and how they can serve as a great marketing tool amongst younger generations. And that’s a real challenge.

The other misconception that has proven problematic is the idea that NFTs offer a form of IP protection. The fact of the matter is that they don’t protect IP rights in the traditional sense – in fact, the wider your NFT spreads, the more value it accrues. This all completely contradicts the terms on which we’ve come to understand IP over the past century.

Thirdly – and this is especially true in China, where the government is trying to prevent speculation – people who use NFTs as a marketing tool should always keep in mind that trades and exchanges of digital assets within a reasonable price range are okay. But artificially inflating a price is precarious, both financially and legally. If people notice that a company is trading digital assets at extremely high prices, they might start to think that the company is laundering funds. And just like that, a company’s NFT strategy can backfire on them – one second, it’s promoting their public image, and the next, it’s a PR nightmare. This is why I encourage every company to use NFTs to manage their community, from its followers to the people who don’t know much about the company but happen to have adjacent hobbies or interests. Don’t get me wrong – it’s perfectly fine if some people send your NFTs as gifts or conduct exchanges with your NFTs. What I’m warning against is a pump-and-dump scheme. A lot of people get hurt during this kind of speculative process, and that leads to social unease. None of it is good.

Can you tell me more about what's next on Conflux’s roadmap? What should we expect to see from Conflux in the next quarter or next year?

Great question. In China, cryptos are mostly banned, but NFTs are actually encouraged by the government since they promote cultural content. As a result, we’re expecting NFTs to become a new wave, and the Web 3.0 infrastructure that’s built on top of them represents a whole other wave of entrepreneurship. And that's where the Conflux ecosystem development will put most of its emphasis in China. We’ll help consumer brands, luxury brands and popular brands build their NFT marketing strategies nationally and take part in the very large and growing Chinese NFT market. It's always easier to build through us or any third-party vendors than it is to build alone, since we’ve already developed the necessary infrastructure. But if an enterprise does choose to build on its own, we are available to help. In either case, we welcome all types of partnerships in the digital asset ecosystem.

Additionally, we’ll be eagerly supporting many of the Web 3.0 startups that continue to emerge. Some are focused on the social elements, others are involved in building marketplaces, and then a few others revolve around lending and borrowing. There are also some startups that focus specifically on the interface or building the metaverse. There are so many elements of Web 3.0 emerging directly from this ongoing NFT boom.

Since our capacity is about 100 times that of Ethereum, we also expect to work globally with companies in emerging markets, like Africa and Latin America, and help them build financial infrastructure where there is none. We’ll introduce trading platforms, lending/borrowing platforms, and we’ll help them raise money for local businesses. The largest logistics company in Nigeria, GIG Logistics, is actually building their wallet and membership points on Conflux. Banked or unbanked, we’re helping people in emerging markets develop a stable financial infrastructure through public chain technology.

Finally, we’re very excited about our global offshore RMB stablecoin insurance. We’re working on internationalizing the RMB. A lot of people use dollars to transact with China, but this presents a ton of problems. Moving forward, then, more people are going to try to accept RMB, and RMB stablecoins, which are used on the public chain, are actually presenting a faster, more efficient, and cheaper solution than the banks. So our RMB solution and the internationalization of RMBs are another big components of Conflux's global outlook.

Before we go, is there anything else you’d like to mention about Conflux that we didn't cover?

Yes. If you're interested in expanding your brand to China, or getting closer to your consumers and serving them in a post-sale context, please reach out to Conflux. We are happy to help companies build both their NFT and Metaverse marketing strategies.