Shanghai’s David Li is the CEO of Trinity Protocol, a “Layer 2” off-chain transaction network supporting the NEO and Ethereum blockchains. Layer 2 solutions, which include NEO’s Trinity Protocol, Ethereum’s Plasma, and Bitcoin’s Lightning Network, aim to enable their host blockchains to support high transaction volumes.

Li is the former overseas manager at Antshares (now NEO), who assisted the project during its 2016 worldwide fundraiser. His own project, Trinity, successfully completed fundraising on January 15th, 2018. Li’s past involvement in founding other projects includes the Chinese marketing/publicity firm FourierPR, as well as Rai Stone Media.

Colin Closser of NEO News Today reached out to Li to talk about Trinity Protocol, the blockchain industry, and development during a bear market. After exchanging pleasantries and discussing current events, the conversation turned towards Trinity’s long-term goals and the future of decentralized finance.

The below transcript picks up with Li reflecting on Trinity’s longevity and the conditions required for cryptocurrency to succeed.

David Li, Trinity Protocol: The last time I talked to an investor, I said, “I will be in this for this entire thing, at least ten years. I am talking about Trinity, I am talking about the technology. Maybe after ten years I will just be an investor and sit aside and let newer people lead.” He was actually shocked. “Ten years? I’m in this for two years. Two years is a little long.”

That’s when I realized…we were basically doomed back in 2018 with all those people. He doesn’t understand, “Why do you want to be in this for ten years?” That’s because if you see the vision, ten years is a very conservative number.

My ten-year horizon is very simple. That people in this world, at least the first world, the educated one. They will come to realize the value of cryptocurrency; more importantly, they will come to realize the value of a true free economy.

Some of them, a lot of them, are benefitting from the government regulations. And that’s when they will come to realize, it’s actually better for everyone that there’s less government interference. Especially in China, there’s actually a huge delusion right now in China that the Chinese economy is doing great because of our special regime, because of our political structure. And I think that’s totally wrong.

We are basically doing what the West has already done. We call that, “students who write their homework” versus “students that copy them.” Copying is so fast! Cheating is so easy. So that makes them look pretty strong, which is fake. Because you don’t get the advantage, the leading position, at all.

NNT – Colin: You’re not bringing value to academia by copying.

David: Exactly. Because they don’t say, or they choose not to say, the dangers and the hazards brought by government regulation.

I feel like both the USA and China, they want to control and incubate their own projects and companies and products they can fully control. Instead of just picking a side and choosing the existing grassroots startups. But at a certain point, they will choose.

Colin: This was my first bear market, but I know it wasn’t your first bear market, because you got into the industry in 2013.

David: Yeah.

Colin: So this is your second, maybe, third…

David: Exactly. The complete second cycle. [laughs]

Colin: What has occurred to me is, I was at the first NEO DevCon [in January 2018] and I watched your presentation which had some hype in it, and some other presentations which had some hype. But now, NEO News Today is starting to write obituaries for these other projects, and you keep developing. So I’m realizing now what I didn’t realize then: You made some decisions to take some of the potential upside out of your project, to make sure that it survives. You also took some downside out of it.

David: Exactly.

Colin: At what point did you recognize that we were probably in a bear market cycle and de-risk your project’s outlook?

David: To be honest, it took me like three stages. The first stage was right after DevCon. I had some friends who are very experienced in this industry. They are the real sharks, and they had been warning me about this…”The bear is coming, all of this hype is over.” At that point, I was just thinking about it, analyzing it. I didn’t buy it.

Somehow, because in my mind, I don’t feel anything wrong with Bitcoin being so high, the price. I think one hundred times higher is just fine with me. Because that’s the value of it in my heart! But that’s just wrong at that time.

The second stage was after the Spring Festival. Because after the funding we had a Spring Festival, we had a break, we had a team gathering. After that, I’m starting to think, “What if this is real? What should we do?”

And the third stage, we had some turmoil in March. We made some changes with human resources. That’s when I realized that this is coming, and that the priority is no longer that we have a very speedy development and very speedy application. Instead, we’re gonna think about the long term and see how we can survive this. Because both in terms of the technology and the market, we will have to wait a very long time.

It’s sort of like what happened to Alibaba in 1999. They got huge funding from Goldman Sachs and believed they would be listed on NASDAQ the following year. But the dot-com bubble burst, and they essentially lost the opportunity. And they had to cool down and think about what they could do to make themselves survive. That’s the same situation with us.

I don’t want to seem as a more authoritarian manager of the team. It’s more democratic, so I have to take the opinions from other team members, the co-founders, the high-level executives. Who I actually fired, after March. And also the developers, what they think. They’re going to tell me how long this is going to take, and what the product is going to look like. After assessing and recalibrating I realized, even when we do it, it’s not going to be enough.

What we promised at the DevCon, we’ve actually gone so far beyond it already. For instance, the state channel protocol, on NEO, was finished long ago last year. We didn’t promise this, but we did a version for Ethereum. That is not because we want to seize the opportunity on Ethereum and compete with something like Raiden or Celer. That’s not the reason. The reason is that we wanted to hedge against the risk of what happens if Ethereum is faster with their technology advancement, let’s say, Casper comes early, and NEO is slow. But not realizing, they’re equally slow, let’s just say. So we choose to come back to NEO.

What we promised for this project when funding it was actually accomplished already. So, what are we doing now? We are trying to stay relevant, and continue to develop. If you stop, you’ll become a technological legacy for people who come later. But since we have some funding left, we choose to continue, see what we can do.

So for example, we’re doing an integrated client, NEO-GUI. That makes every NEO full node automatically a Trinity node. That’s actually rewriting the entire client. And we’ll see what happens and what we can do the second half of this year and next year. Because we will have to wait for NEO 3.0.

Colin: I wanted to ask you about games, because I just published an article about how HyperDragons is coming to NEO. And I saw that MixMarvel was one of your original gaming partnerships along with Decentraland in early 2018. How do you see Trinity fitting in with blockchain games? You’re going to have microtransactions and NFTs worth fractions of a cent that you need to move around without paying the full Ethereum fee or the full NEO fee, right?

David: By nature, our generation is very familiar with video games. When we decided to get into this, we did a comprehensive study of video games. Back in early ‘17, when I was not involved with Trinity, I had a small PR firm. And I was involved with another project, Decentraland, to get them involved with HTC [mobile phone company] headquarters in China.

We had a delusion back when we were doing the HyperDragons cooperation that we thought blockchain gaming was going to be a huge thing very quickly. And a lot of people would participate and they will serve as a source of this new traffic coming into blockchain world. But later, maybe 2 months later, we realized this is not plausible.

I saw HyperDragons doing this project with Ontology, and now they’re doing it with NEO. Okay, I’m already in a position where I can speak freely. I don’t think it’s going to work. This is a fallacy. You want people who are coming here to seek excitement out of playing games to get excited out of making money which is not so possible. And about microtransactions, in the West, it’s even worse, because at least Chinese gamers accept microtransactions very well, but in the West it’s a disaster. It’s not viable because there’s not a social consensus that virtual commodities on these games are valuable.

Before you make a blockchain economic system, you have to make a game fun. And all these [game development] teams cooperating with blockchain teams right now, let’s just say, they’re not such good gaming companies. So you cannot expect much.

What I think is a possible solution: Tencent just launched their blockchain game, and people are playing it, they’re having fun. If you make the game desirable, maybe some people will say, “Okay, I think these virtual commodities are desirable and valuable.” Even then, it’s not so beneficial for the blockchain world as a whole. I think the real scenario that could happen for blockchain games is one day it becomes a byproduct of mass adoption of the main product on the financial side.

That’s my understanding. But I still wish all the best for them, because the HyperDragons team for example, is still in this. They’re still trying, and if they stay in the game, they will see the day when they can launch a real blockchain game. So that’s fine.

Colin: It’s like you had to have Microsoft reach a user base with Windows before you had Minesweeper achieve popularity for PC, and then other games built on Windows.

David: Yes, that’s also a very important thing. The gaming industry is changing very fast at the moment. The way it’s presented to gamers is going to shift so dramatically in the next few years. One trend that’s coming is to live stream video instead of computing everything locally. The other solution as well is the rise of ASIC chips. ASIC chips not only apply to Bitcoin miners, but everything else. Because we are going to hit the physical limit of these universal chips, like, at 3 nanometers.

I think blockchain game is not going to really matter, at least in the next full market cycle. Maybe after that, 3 or 4 years later. So we have to shift the focus.

Colin: Maybe you’ll see in the next bear market, there’s some kind of blockchain game that everyone is playing while they’re losing their entire net worth.

David: That’s possible. Maybe, yeah.

Colin: At least with the blockchains, they’re freely traded in a liquid market against fiat. So everyone can agree that they do have a value. As opposed to games, which currently don’t.

David: I think the dilemma here is control between gaming developers and the gaming community. And it’s quite hard because the reality is, sometimes gamers don’t know what they want. And sometimes, you’re not buying the product you want, you’re buying the product the developer wanted for you. 99 percent of the time that’s better, because if you let the gamers do what they want and decide everything, that’s not going to be a very successful game.

Right now we are leaning on highly centralized gaming developers because they provide the resources for the games to evolve. Sometimes I feel that games with more longstanding history and user base could be rolled into a blockchain game. Something like World of Warcraft, or Minecraft. Because it’s time-tested.

Colin: Why can’t your Minecraft items be on the Ethereum chain or whatever instead of a central server? There’s no reason.

David: Game developers will argue that the entire task of producing and iterating NFTs [non-fungible tokens] should be controlled by them, because that’s the core logic of the game. Gamers will argue, if they can control it, then it’s not decentralized, and they can’t believe in the value of the NFTs they are holding because you could easily launch a new one.

And to produce new content, you need a centralized team to do it, because it requires a lot of resources. I think right now it’s better to ignore this, for your readers, and our community, seeking investment opportunities, there’s none with blockchain games at the moment. Even if you have something like a FOMO 3D, that’s not technically a game. That’s a different thing.

Colin: No. That was a disappointing market, when that was one of the hottest dApps on Ethereum. I was like, “This is not healthy, we’re not ready.”

David: It’s not healthy, and the way it ended was actually fraudulent, obviously. Lao Mao was the COO of Yunbi [Exchange]. You remember Yunbi, right? And he was one of the early blockchain evangelists in China. In late 2016 he did have a projection that something like FOMO 3D would come out, a smart contract-controlled Ponzi. Sometimes, what we achieve is something we hoped or thought would happen three or four years ago.

Colin: So let’s talk about Trinity’s integration with NEO-GUI and NEO-CLI. You mentioned that you’re totally rewriting the code of these full nodes to natively integrate state channels.

David: Yes. So, the thing is, we decided that after finishing the protocol: the protocol is not something that normal people could feel. So, you want a tangible product, that means you need to have a user interface. The best thing for this is not to launch a standalone Trinity node, because no one is going to use it. You run a NEO full node to get a GAS reward, you could also run a Trinity node at the same time. I think that’s the best way to educate tech-savvy people about how a second-layer network could work and have them on board.

I still don’t think this product, when it’s launched later this year and everyone is using it, is going to be that successful. I don’t think so, because even by then, we have two problems. The first problem is there’s no real application, because there’s no dApp to use. And that has to do with number two, NEO itself, because we have to wait for the upgrade to NEO 3.0. We don’t know how it looks like and on what level it changed.

What if the design language changes with NEO 3.0? When they make it, we have to be quickly adapting to it. We have to upgrade the user interface, the bottom layer logic, new commands. Even a slightly modified consensus model.

With NEO 3.0 being successful, we can attract new dApp teams, and that’s when the Trinity product with every infrastructure ready can attract these developers. All these developers will still have the problem we had last year, they still won’t know how the second layer works. They won’t know how the bottom layer works. So what we try to do is ready the second layer to them to onboard easier. And then they won’t have the money issue. We had a money issue last year because the market’s going down. By then, it will probably be going up, so they’ll have a much easier chance to get funding. So I think that’s when everything will be looking good. Right now, I don’t think things are going to be easy.

Colin: One of the things about NEO I wanted a comment on is that its consensus mechanism gives it finality. And I know a second-layer solution needs to open payment channels for settlement on the base layer. What is your experience with developing Trinity protocol for NEO? How is it different than development for Ethereum, where it’s probabilistic, and after 10 blocks, something’s probably settled?

David: Okay, there are two things, one is good, one is not. With NEO, finality is one-block confirmation. That’s pretty easy, quick, clean. The costs associated with maintaining a state channel on NEO is very, very, low, close to zero. Our users, when we have a full version ready, years from now, they will be able to maintain a state channel for a very long time. They won’t have to worry about managing all these state channels. That happens right now, if you try Lightning Network. Because you open all these channels with different vendors and merchants, how much money to put in them, which ones to close or stay open. With NEO, you don’t have to worry about all of that. We can have them program-controlled, we can have them open all the time and it doesn’t cost much.

The bad thing is, and the bad thing will go away, that’s the instability of NEO network. I think a lot of people have experienced it, and a lot of exchanges said “No” to NEP tokens. That’s why we have the converter [to convert TNC between Ethereum and NEO], by the way.

I talked to Erik [Zhang], and I think they have the solution, I think they have many solutions, by the way, they will have to choose which ones work best. They have new talents coming in, hired some PhDs to figure this out. I think NEO 3.0 will become stable and that’s just a minor issue. Because a lot of times, the stability issue of NEO was not caused by NEO network itself. It was caused by bandwidth, by different network situations. Not really their fault, but they have to deal with it. So that’s how I see it.

Colin: Distributed computing: it’s quite a challenge to get a bunch of computers across the world to agree. It’s our generation’s figuring out space travel, it’s hard.

David: With NEO’s case, not being able to produce stable NEO blocks is, I believe, a conservative security decision on the consensus mechanism. It was not, to be honest, Byzantine fault-tolerant. You needed all the consensus nodes to agree, not even one of them could go wrong. That’s a conservative security decision, and after that, it has to do with the network. And sometimes the networking in China is quite complicated already.

Colin: I’d like to ask you about your competitors. Much earlier, you did mention Raiden Network, developing on Ethereum, and Celer Network, which was a Binance IEO.

David: Celer is not technically a Binance IEO. I have to come to their defense, because the IEO on Binance was mostly a marketing stunt to get more traction and more users. They don’t really need the money because they had very good funding back in 2018.

To be honest, I think Raiden is different from all of us, because they are trying to solve a very critical issue with Layer 2: the economic model. They are trying to empower their token with a different economic model, because a lot of people will argue, “Layer 2 doesn’t need a token.” So they’re trying to give different functionality to their token. It’s kind of interesting for people who provide liquidity to their mini-market, and there are many other potential ideas to empower Layer 2 tokens. Right now, we have that problem, Raiden has that problem, and we cannot get rid of our token, that’s impossible. So we have to wait–when adoption takes place, it’s actually the easier part to figure out a way to inject value into the economic model.

These are called “utility tokens” for a reason because you can add new functions.

With Raiden, I’m not sure of the progress because it seems like everyone on Ethereum are developing other Layer 2 solutions, other than Raiden. Like Plasma.

With Raiden and Celer, it’s actually healthy. There’s a truce, there’s no competition going on. Because no one wants to use any of us, so there’s plenty of time to discover different directions in technology.

The bigger threat comes from PolkaDot or Cosmos, because there’s a potential–all these public chain projects competing with each other in China, you’ve got Aelf, you’ve got Ontology, you’ve got NEO, VeChain, they’re all competing with each other, and on top of them, you’ve got layer 2 projects covering one or multiple public chains. But this combination could be defeated, potentially, by PolkaDot or Cosmos to come out and say, “Hey, everyone can launch their own blockchain now, instead of launching a token.” Or, everyone launches an application that syncs with a blockchain, that’s on Cosmos, and you run on it, and they’ll make you interoperable with other blockchains.

By then, you don’t even have to worry about performance issues, because your blockchain can be very much centralized. And you can have your own solution on your own blockchain to the scaling problem. That project could be business-wise so successful, that everyone could say, this whole public chain system, layer 2 solutions plus layer 1, becomes obsolete and outdated. That could happen.

This is just a discussion, okay. I do hear sharks and market observers saying this entire public chain game is over. That includes Ontology, NEO, and Ethereum. I don’t agree, I think they will coexist, and I don’t quite agree with this. Because somehow you could say that public chain teams are running the new generation Internet companies. And they do have greater potential, because as long as they have the manpower, the money, and the community resources, they can adopt to new business models emerging from our industry. So I think they are okay.

But also you cannot deny that there is great potential with these cross-chain products like PolkaDot and Cosmos. So we’ll have to see how we evolve and adapt to this. Because ultimately, I think all of us are not wrong. Layer 2 state channel networks, public chains, these cross-chains, all of them are adhering to one important principle: that is to make a decentralized network. And as long as that is the case, I think it’s fine.

Colin: Yeah, it’s been interesting, seeing that two years ago, none of the blockchains talked to each other, basically, ever. Now we see projects migrating, they can go one way, they can go back and forth. Atomic swaps are becoming more common. And all of these blockchains, which used to be separate ecosystems, are sharing assets now.

David: When I was with NEO, back when it was still called Antshares, we already had a series of articles discussing cross-chain interoperability. And that happens on two levels. One is that you have cross-chain interoperability on assets. The second level is to have this interoperability between the execution of smart contracts. That’s more complicated and even greater. Think about that. You can have an app whose core logic runs on different blockchains. That’s just pure magic.

So, back then, for developing NEO 2.0, the priority was on the smart contract system. So this didn’t get too much attention. If you want to say, “Cross-chain is a trend we cannot miss,” NEO has this technology reserve and has this vision long ago, so I think they will be fine.

Colin: That was the NeoX description from early 2017, correct?

David: Yes, very early 2017. And we did have a series of articles, in…Bitcoin Magazine? But we did have some documents about that, back then.

Colin: So this has been a more interesting and wide ranging conversation than I was anticipating with you, David. Is there anything that we haven’t covered that you’d like to talk about?

You know, one of the decisions I have made with Trinity is to prioritize the Western community over the domestic [Chinese] one. Chinese investors are sometimes not very rational, they can do crazy things. It seems a wise move to prioritize the Western communities because they are more rational and they see things long-term, they see things better, not only about money, but about freedom. In China we need more education about that.

Sometimes I feel guilty for not talking to Chinese investors too much. But we will compensate for that with good delivery of products and success of this network initiative we did early in 2018.

There’s a story I want to share to end this. There’s a big investor in Trinity, a renowned investor in the community in China, a very experienced veteran. And he said, “You know what, David? Some people come up to me and say, ‘Hey, Trinity’s still updating!’ …A lot of people may have had a misunderstanding about you.”

So after thinking about that, I realized: A lot of people in China think that what we did in early 2018 was fraudulent! They didn’t think of us as coming here to make a difference and do something. He knows, this investor knows, by the way, because he was associated with NEO in the very early days. And he remembers me talking about doing state channels for Antshares. We were looking at Ethereum, and saying, “They have this, and this, and this, and we need to have these things as well.” So he understands I’m doing this for real.

But all these people really have a hard time distinguishing us from all these projects. 99 percent of the projects that got funding at the same time as us are basically…weak. They don’t seem real, right? And all these people, if they’re still in the game, they’re doing IEOs, stablecoins, STO, exchanges, whatever that makes money. Quick cash. But we’re just here looking so dumb, developing our technology, and when I realized that the market is shrinking, and the media was asking money to hype, we even ceased that part of the operation. We just focused on providing what’s needed for our developers.

A lot of people will be shocked to find the fact that we’re still updating. So that’s when I realized, because I didn’t have this experience in the last market cycle–I was just a simple, pure gambler, so I didn’t feel this, but now, I feel this. This kind of drastic market cycle, up and down, could bring a lot of impact on these teams. Sometimes you look at a team, and say, “Hey, they exit scammed!” Probably not. Probably they were legit. Some teams you look at and say, “They are doing so well, so great!” Probably they started as a scam. [Laughs] So that’s how drastic our industry is at this point.

Colin: [Laughs]

David: Yeah, maybe I’m talking about Tron.

Colin: Yeah, that’s the best example of someone that faked it until they made it. But you know, well, you can run dApps on Tron now. So, that’s pretty legit.

David: It’s crazy, I know, I know. It’s crazy. But still. You can consider Tron as the Chinese economy. I’m still questioning it. They copied their homework. That makes them look so fast, and so good. But they copied it!

David Li is the founder of Trinity Network.

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