Point from Dr. Xiao Feng: The “Liquefaction” of Industrial Metaverse

Wanxiang Blockchain
6 min readDec 12, 2022

This is the speech delivered by Xiao Feng, Vice Chairman and Executive Director of China Wanxiang Holding Co, Ltd, Chairman and CEO of Wanxiang Blockchain, at Chief AIoT Industry Leaders Summit hosted by IoT 101 and AIoT Industry Research Institute where he made a detailed explanation on Industrial Metaverse.

In the Industrial Metaverse, how to “liquefy” physical materials like the manufacturing industry, hardware, devices, etc. is something we need to ponder over. In other words, we need to give a careful thought to the question: how should we digitalize and virtualize the physical world?

01 Define Products with Software

In the Industrial Metaverse, “Software will redefine everything.” That is to say, software will influence everything in a more comprehensive, refined and deeper way.

The adjective “wet” gives us the feeling that is similar to how water makes us feel, which is soft and bodiless. On the contrary, the industrial resolution is often described as hard, cold and angular with a strong physical architecture. In the future of Metaverse, the whole world will become “wet” as it will be built with software. That is to say, software will redefine everything. Devices and products, even if they exist in physical forms, will be composed of codes and driven by software. This represents the first feature of the “liquefaction” of the Industrial Metaverse.

02 Virtualize Design and Production

The second feature of the Industrial Metaverse is that the design and production processes have all been virtualized. For example, the new product line of BMW, including product design, 3D simulation and other processes, was first virtualized and then deployed in the physical world.

Virtualization may help to reduce the iteration and design processes from one to two years to one month or even one week. It allows repetitive iterations of designs, which helps to cut the fix cost of automobile design and speed up the launching process of different car versions. Traditionally, it may take three to five years to put the concept car into production, as we need to make physical models first and then test the samples and solve relevant problems. Moreover, there are subtle differences between concept cars and production cars. However, with all the design and production processes finished in the virtual world, we can shorten the production period and speed up iterations.

03 Make Manufacture and Operation Programmable

The fix cost of hardware devices is relatively high and needs to be covered by expanding the scale, which makes hardware devices hard to be customized. However, this problem can be solved by making hardware devices programmable. Once hardware devices become programmable, it can be customized in accordance with the different demands of different users, just like software and this will not increase the fixed cost.

04 Develop Industrial Chain with Protocols

Internet and blockchain consist of different layers of protocols. Take the Internet as an example. From bottom to the top, there are five protocols, namely IP, TCP, UDP, HTTP and SMTP. The development of Internet applications around the world follows unified protocols. Websites are built on the same IP and HTTP while email systems are developed with the same SMTP, enabling communication.

In the era of Industrial Metaverse, the cooperation and collaboration in a certain industry or between upstream and downstream players are no longer established by enterprises but with protocols. That is to say, the ecosystem is built on open source codes following a unified protocol and driven by cooperation.

05 The Value of Products Become Intangible

The value of software will gradually become higher than that of hardware in current processes of hardware, device and manufacturing. For instance, the software value of an EV is about 10,000 to 30,000 US dollars, higher than its hardware value. The value of the service industry has become higher than that of production and the income of the service industry has also surpassed that of production.

06 Imbed Financial Services in Blockchain Protocols

Internet protocols like IP, TCP, UDP, HTTP, SMTP, etc. are all open source, free of charge, and permissionless and are all available for everyone to develop applications.

However, it is unlikely for the protocols to create value as they are free of charge. The value can only be created with applications. In this connection, many Internet business models provide free basic services as they are built on free and open source protocols but create profits with other value-added services.

Similar to blockchain, the Industrial Metaverse, built on Web3 and blockchain, creates value with application scenarios. Value clearing and settlement are imbedded in the process while the financial system and value creation are included in the protocols.

Therefore, the Industrial Metaverse will definitely use token to drive all businesses and create value in different application scenarios, just like blockchain protocols.

The largest difference between blockchain protocols and Internet protocols is that financial systems and value clearing and settlement systems are imbedded in the blockchain protocols, which makes blockchain protocols both account systems and clearing and settlement systems. If you want to use this protocol, you will have to pay for it. However, you do not need to pay for Internet protocols like HTTP.

Traditional financial systems are plug-ins, which means financial services like value settlement are provided with financial systems and accounts out of the business scenarios.

07 Integrate Production with Services

Traditionally, the relationship between sellers and buyers ends once the deal is made in the fields of manufacturing, hardware and device. If you want to enjoy new or updated services, you need to buy new products. However, products like EV are connected to the Internet and driven by software. They can charge buyers on software and code updates with OTA. So their services will not end at the moment when the cars are sold.

The Industrial Metaverse employs the Product Life-Cycle Management (PLM) model that can create value during the whole produce life cycle. The fees can be charged include service fee, software update fee, etc. In this regard, production has been integrated with services, which means that manufacturers need to maintain their relationship with customers even though the products have already been sold. The companies will have a better understanding of their customers and keep providing services for their customer and create value from this process.

08 Turn Hardware Devices into Nodes

When there was no Internet or Industrial Metaverse, every hardware was independent. However, Industrial Metaverse has connected the hardware devices into a network and make them nodes on the network. Therefore, apart from the usage value, the hardware device can provide network value once they are connected to the network.

The Fax Effect proposed by Kevin Kelly about two decades ago can help us understand why it is important to turn hardware devices into nodes.

What does the Fax Effect mean? If you buy one fax with 2000 yuan, you can only enjoy the usage value of this hardware device. But if you enjoy a fax network with 10 million faxes with this fax you bought, you can fax to others and enjoy the network value that may be worth of 10 billion or even 100 billion yuan. The newcomers of this fax network will also bring you new value.

Once the hardware devices are turned into nodes of certain networks, just like the fax, what you can get from them is not only the usage value but also the network value. That is the new contribution of Industrial Internet.

09 “Liquefy” Manufacturing

“Liquefying” hardware and devices may bring the economic laws of software and Internet into the field, finally adding something new to economic and business laws.

its marginal cost is almost nothing. Once the software is developed, its marginal cost remains unchanged no matter there is one user or 1 million users. However, in the manufacturing industry, the marginal cost cannot be reduced to zero, but this industry exhibits the mechanism of marginal cost regression and marginal revenue increasing.

The marginal cost of manufacturing an EV does not decrease while that of the software does. As autonomous driving upgrades from L2 to L4, the marginal cost decreased. As long as the intangible value like the soft system plays a more important role in hardware devices, the marginal cost of hardware devices will diminish or even disappear.

That is all of my thoughts on the “liquefaction” of Industrial Metaverse. Device Democracy: IBM’s IoT Paper released in 2014 contended that once IoT devices were connected with Internet and run on blockchain, they would form a distributed autonomous network and be able to make decisions on its own. That’s what device democracy means. The paper also mentioned that after the devices were connected into the Internet, they would “liquefy”. I borrowed the word in my speech today to pay tribute to this paper.

Thank you. That’s all of my sharing.

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