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IOSG Ventures Jocy Lin: Explore the cryptomarket unicorn from IOSG's long-termism value mission

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DeFi is delivering value, and open finance is leading innovation

Source: IOSG NBSP; Ventures

Today is the annual gathering of friends, the atmosphere is very relaxed. Today is also a report card day. The past year has been a year of ups and downs in the cryptoeconomy, but IOSG Ventures is a value investor, a value investor, a long-term investor, and a friend of time. Here, in my capacity as an institutional investor, I will share how we can find a common investment value in the changing decentralized economic market from our perspective.

First of all, I would like to introduce to you our investment style and philosophy. IOSG Ventures is an early crypto fund driven by research and community. Our crypto fund is mainly centered on the re-innovation of cryptoeconomy driven by the combination of finance and open source code, focusing on the entire Web3.0 infrastructure, the whole open finance, and then cross-chain.

There are three key points: see the heart, see the line and see the distance. Why do you say that? We hope to find the right team to help them build the best products and meet the market demand in the right cycle and at the right time.

We believe that the cycle is very important in the investment. Secondly, a good team must produce a product that meets the market demand, which is also very important.

In the end, how far a team can go depends on whether the founder of the team has leadership, because everyone knows that blockchain projects are open source projects, open source projects will be at risk, how not to be split by the community? You have to have very strong community leadership.

The next three parts are how to think: the past, the present and the future.

How has DeFi's map changed in the past? First of all, I'm a research theorist, and I'm going to show you how the NASDAQ stock index in the United States has changed over the last 30 or 40 years, going up and down and up and down several times, including the previous stock circuit breakers. Around 2000, the Internet bubble reached its peak, and in 2008, the subprime mortgage crisis triggered the financial crisis.

Every bubble shows that the United States is a barometer of the global economic index. It can be seen that every 10 years, if an economic cycle is made, there will be various innovations in biology, science and technology, medical treatment and blockchain. The earliest 10 years are from the era of hardware led by IBM to the era of open source software, from 90 to 99 years. In the era of open source software, companies like Microsoft, apple and Google came into being; From 2000 to 2008, this was an Internet era, in which a large number of open source and open new companies, including Twitter and Airbnb, emerged. After 2008, mobile Internet entered the wave of mobile Internet. After mobile Internet saw WeChat and toutiao.com, many big macs rose up.

It can be seen that the whole Nasdaq index has a lagging effect. For example, Airbnb, Uber and Spotify, which went public in 2018 and 2019, were all founded in 2008, Apple and Microsoft, which were all founded in 2008 and IBM was the best performer in the stock market in 1998. From the cycle, the emergence of the currency time is 2009, PayPal recently opened more than 300 million users, can buy COINS, Square bought 50 million COINS, all of Wall Street and silicon valley's most clever into the encrypted economic circle, can predict the future Web3.0 age is what kind of cycle, from 2009 to 2019, has experienced 10 years, ten years in the etheric lane or guide the new smart with what kind of project contract or new Internet era? We'll see.

And then the infrastructure of open finance, which is very interesting. We used to tell a story about software eating the world. Now it is different. The blockchain is engulfing the financial world. Finance is the biggest industry in the world. Every country has a very high financial share of GDP, and most financial products are currently tied to very outdated technologies. But what we see is that DeFi open finance, decentralized finance took 3 years, took traditional finance 50 years, 80 years, and leveled off in 3 years.

Can see inside the DeFi trading unit, derivatives, lending, trading in all kinds of infrastructure, modular components are in the rapid rise to change, we can see the whole DeFi finance is from inside extroversion, from the traditional financial decentralization financial import, the innovation will bring a very big big MAC tuyere.

So let's talk about what we're going to do and how we're going to do it.

First, IOSG Ventures, was founded in 2017, we invested in the field of DeFi very much project, the first investment project in 2017, MakerDAO, DDEX, since that time, DeFi in the chain of blocks in the world is still very early, but from 2019 to 2020, more than a year's time, study the DeFi projects, large and small on the market at this time we submitted a report card, including from the etheric fang infrastructure to the protocol layer, to the application layer to have dabbled in middleware.

A few examples, why these projects, including, 1 inch a master is a decentralized trading platform can aggregate all the transaction data, tBTC is the bridge of bridging the etheric fang and the currency is the most important, can bring the currency market capitalisation of $200 billion, the imagination of future DeFi, UMA build is a generic intelligent contract template, anyone can be issued by UMA a synthesis of their own assets, Gelato, currency crash when many people were clearing, What Gelato does is help users automatically liquidate their assets.

Next, I will go into details about how each track is looked at and studied.

Part 1: Web 3.0 → Middleware & AMP; DeFi

Last year we drew a Web3.0 technology stack map, going from the bottom of the infrastructure to Layer1 to middleware, middleware up and down the chain, to the application layer, and inside the application layer, Open Finance. Why the Web3.0 technology stack? In the Web 3.0 era, users will have more control over their identity and data, and users will share data portrait rights with BAT. High replacement costs, strong network effects and user experience are barriers for the Internet giants that will not be overturned in the short term, but will eventually ignite the pursuit of user rights over identity and data control.

In Web3.0 technology cycle comes, distributed systems, cryptography, intelligent contract is unprecedented to assimilate into the life of the masses, and lead the industry toward a bubble FengKuangQi, speculative value () the inflow of investment capital faster than production capital (practical value), the continuous expansion of asset prices to the inevitable "collapse". But industry-related infrastructure technologies will still identify themselves as the new default initial value for the industry, and platforms that continually derive and define subdivided industry applications will emerge in large Numbers during this cycle.

The application form of Web3.0 will change from the product leading user to the user-centered open source product form. Web3.0 technology stack constitutes the overall framework of the blockchain project, while Token Economy is the blood and flesh that drives the entire ecological operation. The business model of Token Economy is also born. By changing the incentive model and value distribution system, Token Economy promotes users to contribute content and data in applications.

The opportunity to see middleware in Web3.0, middleware is a very important connector in the whole infrastructure to the application layer, such a connector can make the whole blockchain available, the user acceptability greatly improved. There are a lot of interactivity and composability potential between protocols in the middle layer of middleware finance, which can make some derived application scenarios appear. Most DeFi protocol projects play a more and more descending, composable and modular role in the open financial ecosystem. The greatest value they will bring in the future is to provide the basic framework and basic business logic for many top-level applications.

Next, let's talk about DeFi. We drew a map of DeFi in March this year. In June, many public accounts in China circulated. We draw this map with very simple logic, two logics one is bottom up, ethereum makes a big infrastructure and bottom up represents Token flow, ethereum generates middle layer protocols, generates applications, so Ethereum flows Token from bottom up. Token is alive and fluid in DeFi's maps.

From left to right, there are interoperable, composable, and modular splices between protocols, so this splicing gives DeFi a lot of imagination.

Part 2: DEX & AMP; AMM

I'm going to move on to the next point, which has been very popular lately, the decentralized trading platform and AMM. Data, in September to center platform representative Uniswap volume exceeded Coinbase, such a volume is a big trend, decentralized trading platform gradually devour centralized trading platform, we see the volume of $57 in centralized platform, the spot is $3.7 trillion, $6.5 trillion derivatives market, so you can see it in the inside of the decentralized contract trading platform market is very big. We think DEX needs to make improvements if we want to maintain this momentum.

Secondly, we also drew the whole AMM trade map, from the earliest trade model of order book led by IDEX, to the automated trade MODEL of AMM with Uniswap Balancer as the trade, to DODO as an active MODEL of AMM, to a Aggregator trading platform, in which opportunities of AMM could be seen.

The AMM efficiency of predictive machines like DODO is several times higher than that of basic AMM types. We like to see innovations in the direction of the machine, such as allowing professional traders to influence AMM to become smarter and more accurate. Hedge liquidity provider risk - Liquidity providers must fully understand the risks and potential losses in the market-making process, and we expect to see hedging products help LPS protect their positions. We expect more use cases for AMM. One potential area is the creation of AMM for derivatives trading with time attenuation.

As for the derivatives market, we believe that the improvement of blockchain technology will eventually enable decentralized exchanges to win the derivatives market. By eliminating intermediaries, we expect that decentralized exchanges will significantly reduce costs and make traders and market makers the biggest beneficiaries. You've heard about BitMEX's CTO being sued by the SEC recently, and you've seen discussions in the UK and Europe about derivatives market regulation, which could be the next big thing.

Part 3: NFT

Now NFT, NFT is very hot right now, and Today SuperRare has an exhibition at our Summit. Over the past two years, we've seen the NFT field grow from strength to strength. From the underlying scrip protocol and the public chain to the development platform, application and trading platform, the NFT now covers many levels. It is worth noting that DeFi's combination of attributes such as pledge, lending, and insurance will be the next NFT breakout point.

Now NFT is not limited to basic applications such as games and collectibles, but its unique social and artistic attributes are also emerging. Once upon a time, NFT was associated with games and collectibles because it could carry one of its unique value properties. But we believe that scarcity is just the surface of the NFT. We dig deep into the deep properties of NFT, focusing in particular on its ties to DeFi and new NFTS like Social Token. Today, NFT has a total historical trading volume of $13 million, and it can be expected that the NFT volume will exceed $100 million in the near future with the blessing of DeFi attribute etc.

Part 4: Layer 2

We generalize and summarize the expansion plan of Ethereum in a broad sense. It can be broadly divided into three categories: transaction package-up-chain Rollup, state-channel Plasma, and other interoperability common chain schemes, including side chains, etc. The most mainstream solutions are ZK Rollup and Optimistic Rollup. The difference between them is mainly use the zero knowledge proof, which USES the fraud prove zkRollup (here mainly refers to the zkSNARK, zkPlonk) support for universal intelligent contract is poorer, therefore only suitable for short-term tokens, transfer, which is very suitable for the decentralized exchange or one of the reasons for payment transfer, and Optimistic Rollup for any intelligent logic implementation contract, therefore very suitable for complicated DeFi application. The biggest difference between the Rollup solution and Plasma solution is that while the Rollup solution puts transactional data on the chain, Plasma simply notarizes out-of-chain data on the ethereal chain, which leads to a usability problem, which makes Plasma a poor user experience and a real lack of trust.

The expansion projects of the transaction packaging category are further subdivided according to the verification methods they choose respectively and whether the original transaction data is linked. One of the most popular technology paths for Defi projects is Optimistic Rollup because it is easy to run smart contracts; And Zk Rollup, because of its powerful performance, transactions can be determined quickly.

Both the state channel and the public/side chain have their own scenarios. Dapp with high latency requirements tend to choose the state channel, while many public/side chains provide strong performance and very low transaction costs.

We foresee a future in which most Defi ecology will run on Rollup as a solution for the underlying technology, which will have powerful network effects, as well as monopolizing the head players. However, the market for Dapp goes far beyond Defi, and there is plenty of room for a long tail of expansion schemes.

Far from being a temporary solution until ETH2.0 comes along, we believe that the second floor expansion will make Ethereum suitable for a much larger number of applications than today's users.

We believe that the next 6-12 months will be the critical time window for the completion of the two-tier expansion technology to achieve exponential growth. We are at the bottom of "hockey stick growth" and anyone who CARES about Ethereum should be excited about it.

Part 5: Traditional Finance

I'm going to talk a little bit about traditional finance.

I just talked about what traditional finance can solve and what it can't solve, including the fact that you know the DeFi protocol is still efficient, still faces poor infrastructure, and the biggest shortage right now is of users. Traditional financial besides no encryption users, there are some very available traditional assets, can step in to DeFi area, we studied several companies, Centrifuge, Persistence, is in a traditional supply chain, financial assets to DeFi chain and Teller Finance is to make the whole encryption circle of users through the credit data, through the traditional world of credit data can be performed inside the DeFi borrowing.

Therefore, we have said that finance is an outside-in innovation, and THAT DeFi certainly needs the push of centralized finance, and that the users of centralized finance are still very high quality users in the industry, so a lot of the information islands of traditional finance have become more joinable and aggregated in DeFi.

Part six: Insurance

Insurance is another hot topic. The concept of decentralized insurance is broad and covers the following four categories: 1. Intelligent contract insurance: for example, the guarantee of Nexus Mutual covers the loss caused by bugs in the code; 2. 2. Real-world risks: Arbol compensates for lack of rainfall; 3. Risks of financial products: for example, Opyn USES options to hedge the price changes of Ethereum; 4. Event risk: Betting on football results or even the presidential election through Augur and other forecasts.

Defi is booming, but reliable insurance products are still missing. The traditional insurance model does not guarantee the risk of Dapp and Defi. Defi's native insurance products are required to cover the following three risks: 1. Foretell machine risks: for example, Synthetix has KRW price error; 2. 2. Risk of intelligent contract: if bZx is stolen; 3. Price risk: e.g. 312 Black Swan event.

We expect the DeFi insurance market to reach $1.4 to $4.5 billion in 2022 and $2.5 to $15.2 billion in 2025. The current market TVL (Total Value Locked) USES 10 billion. Assuming that 10% TVL buys insurance with an annual premium of 5%, the current market size is 52 million and the premium income is 2.5 million.

We see two directions for the future of Defi insurance: insurance aggregators, such as 1Inch for AMM converged products; The reinsurance program provides a bottom line for systemic risk in the field.

Part 7: BTC-Ethereum Bridge

I'm going to talk about the bitcoin connection bridge, and it's very exciting to see that in the last six months, bitcoin has gone from hundreds to thousands to tens of thousands.

DeFi's market value has reached $15 billion (accounting for 1/3 of Ethereum's market value), which indicates that ethereum itself has very limited assets to contribute to DeFi. New growth is bound to be on a larger platform. This market requires us to break the barriers of different blockchains and create a larger financial market. We see that bringing bitcoin into Defi is likely an opportunity for sustainable growth at Defi, and if there is a project to bring some bitcoin into Defi, it will certainly be a unicorn that will change the whole ECOSYSTEM of Defi.

Most of the current bitcoin cross-chain Bridges are centralized, which goes against the most important part of decentralized finance, which is decentralization. Therefore, we think decentralized bitcoin cross-chain will be a necessary way to go, which is why we invested in tBTC. In the future, we hope to see more decentralized solutions across the chain, in these projects need to be able to guarantee the safety of the assets of common capital through technology to improve at the same time solve the decentralized inefficient, efficiency is not high, we believe that the future more decentralized assets across the chain will be a leading investment direction of the development of the industry.

Part 8: Wallet

As the entrance of traffic, the wallet plays a role in helping the block chain get out of the loop and attracting more users. The mainstream application of the block chain cannot be separated from the mature development of the front-end wallet. We see the wallet project has been in development to mobile end, purse on the mobile end projects, many projects using smart contracts of editable developed intelligent purse, the wallet allows the user to log in by means of web 2.0, use, recovery, manage their wallet, the use of intelligent contracts is the key to the wallet project to small white user innovation.

We think the wallet circuit, the safety of the assets is still the most important considerations, in attracting customers, only by capital operation to compensate poundage is definitely not long drainage method, we think simple good user interface in purse competitive market has now become the foundation of success, but the most important still need to create a set with defi project highly one-click asset management platform. Users can complete all DEFI transactions and learn about all DEFI projects without leaving the wallet app.

Wallet is still IOSG's focus on the user aggregation level, and we look forward to supporting a great team to create a convenient, easy-to-use wallet product while keeping assets safe.

Finally, let's talk about where we want to go in the future and what kind of expectations we have.

The Founder Network, which we founded in the last three or four years, we've invested in 60 or 70 companies in the whole encryption world, including many star unicorns. In 2017, we have looked at all the platform infrastructure, including NEAR Protocol, Avalanche and Oasis Labs. We adhere to the investment logic of pyramid and build it from the bottom up. But in this day and age, it's not enough to invest in funds just by money. To imagine what value we can bring to our partners, we've been participating in the governance of the community, joining the Ethereum Enterprise Alliance, helping them to provide all kinds of opportunities, provide all kinds of advice, and provide more value beyond investment.

So I think that in the past three years, we gain the trust of the market to see, LP also special trust us, we will in the next five years, continue to perform investment logic, pursues the investment values, also thank you very much for coming all the way to help our old friend, it is because you stick to, let us recognize the persistence, whatever, there will be a wait, we must not be barrels, together. We're also going to start our Fund2 soon.

I believe that in the age of growth, let's go hand in hand.

Thank you.