Partnered With:

How to invest like Multicoin

Read this article in 21 Minutes

Mable Jiang, executive director of Multicoin Capital, discussed in depth the investment methodology of Multicoin

Original title: "Dialogue with Mable: Review of Multicoin Capital's Investment Methodology and DeFi Observation|Chain Catcher"

Original source: Chain Catcher

Foreword

From the bull market detonated by DeFi to the current institutional bull market, the blockchain industry ushered in two outbreaks in 2020, both DeFi The large-scale emergence of applications, and the continuous increase of mainstream encrypted assets by overseas institutions, all signs indicate that the industry has stepped out of the wild stage and entered a key node of development.

Multicoin Capital, as a three-year-old research-driven encryption fund, is laying out infrastructure There is a solid logic in exploring potential projects. This time, the chain catcher had an in-depth exchange with Mable Jiang, the executive director of Multicoin Capital, with a series of questions, hoping to inspire you.

Cycle and innovation of the industry

Chain catcher: Any industry has a cycle. After the recent dramatic changes in the industry, what cycle do you think the blockchain industry is in?

Mable: The industry cycle as a whole has reached a very critical turning point, which is manifested in two aspects.

On the one hand, it is the change in market perception of Bitcoin. The most obvious is that overseas institutions have announced their holdings of Bitcoin in a few months. Although these holdings only account for a small part of their asset allocation, everyone knows that Bitcoin was born in the context of the 2008 US financial crisis. Its founding block also contained challenges to the existing financial system of capitalism, including the rescue institutions and release of water at that time.

So under the next big economic release trend, the position of institutions should be more and more The more there are, the higher the matching ratio may be.

On the other hand, the industry's perception of the blockchain itself has changed. Now everyone’s awareness of Web 3.0 has reached a certain level. We have observed that more and more people are aware of the risks of centralized platforms, and more and more companies choose to learn and understand decentralization. But a Companies and a decentralized network are inherently contradictory.

So in the long run, I think the company system will face the challenge of the decentralized organization system, After all, it is difficult for Internet giants to be revolutionized in the short term, unless they kill themselves.

Chain catcher: In fact, the current blockchain industry seems to have experienced weak innovation. Many projects are harvested everywhere under the guise of innovation. How do you view innovation?

Mable: Innovation does not happen overnight. In fact, looking back on the development of the Internet in the past 30 years, innovation has always been a spiral process. A stage of APP, the APP of this stage will become the basic setting of the new stage, and may give birth to other new applications, so it is a process of gradually going up.

Back to your question, I think resources will always have a Matthew effect. chain, it is unlikely that every chain will run out, and there may be only 2-3 left in the end, but many applications or middleware may be derived from them, but these applications are also based on the existing infrastructure products, rather than innovations that exist outside of a completely independent ecology. As said above, it is a spiraling process.

Chain catcher: Ethereum 2.0 is currently getting a lot of attention, how to understand the next development of ETH2.0?

Mable: Personally, I am more cautious. First of all, PoW is good enough, and the actual energy consumption is not as much as many people say.

Secondly, the PoS system is very unfriendly to the guardians of the existing valuable network. There are many miners around the world This value network has been maintained. PoW is also a guarantee for more decentralization. PoS lowers the threshold and makes centralization easier.

Finally, Ethereum 2.0 has a lot of work compared to 1.0, but in terms of performance The improvement is not very good, so if we simply solve the performance of Ethereum, 1.0 plus Roll-up may be able to last for a while (assuming that roll-up is not delayed for too long).

DeFi Trends and Problems

Chain Catcher: Previously translated One of your research reports mainly analyzes the 3 major risks and 8 solutions in the DeFi market from the perspective of the technology stack, which makes many readers rethink DeFi. Back to the actual operation, your criteria for judging and capturing the value What?

Mable: In fact, there are two standards. One is that if a project needs to interact with many external protocols, in this case, if the team's own security and engineering capabilities are not very strong, we will treat it more cautiously. The second also assumes that a project needs to rely on many external agreements to obtain liquidity, and if these external liquidity will disappear due to the withdrawal of external agreements, we will also put a question mark on this project.

In essence, it is a double-edged sword for projects to obtain liquidity through external agreements. On the one hand, external agreements can help you do various things; On the one hand, relying too much on external agreements has high risks and cannot help build core competitiveness, so this is very detrimental to value capture.

Chain catcher: Uniswap can be said to be the most popular DeFi product this year, but it seems to be in the dilemma of whether to continue to provide liquidity mining, and public opinion generally believes that Uniswp is standing at a crossroads, what problems do you think are hidden behind this label?

Mable: Liquidity mining is a good token distribution mechanism, especially for UniSwap shareholders, they need this kind of decentralized distribution mechanism, but The distribution of UNI is relatively concentrated. It does not mean that most of Sushi is produced by mining. In essence, Uniswap or Compound needs to distribute tokens through the mechanism of liquidity mining, otherwise the tokens will become stand-alone games for big players.

Of course, the "fairness" of the liquidity mining activities of those community projects is more of a rhetoric. In the final analysis, the real problem is that those retail investors who only participate in liquidity mining do not have much decision-making power. One of their individual votes is worthless, and they are valuable when gathered together.

This is also a question I have been thinking about frequently recently-how should the governance tokens of the DeFi protocol capture value? It is not a question of 0 or 1, that is to say, it is not a question of whether a vote of governance right is worthless, but only when the governance right (number of votes) reaches a certain threshold, the result can be changed by voting. A single governance vote is for a single For the holder, the value is close to zero.

Chain catcher: Yes, governance tokens are more about governance itself. I believe there will be more discussions on this issue in the future, but for now Look, what important directions and perspectives do you think are neglected in the DeFi track?

Mable: One is the brand effect, and the other is the security and interactivity of the protocol itself. The brand effect is easy to understand, and what complements the brand is the community. Frankly speaking, a community needs to have token holders who benefit from it in the early stage, and everyone can nurture the brand together, so that a strong consensus can erupt later, thereby incentivizing the currency price.

The security and interactivity of the protocol is about the formation of a super protocol matrix, such as a typical AMM Service provider Curve, it stands to reason that anyone can provide such a service, but users still use it more, because it has completed the interaction integration with various protocols, and the more it is integrated, the harder it is to be replaced.

Chain catcher: The concept of super matrix has not been mentioned much, but it seems that this logic is imperceptible, such as the YFI project founder AC released a while ago The series of M&A (merger & acquisition, merger and acquisition) is somewhat similar to this logic.

Mable: At first I was not sure how their specific value capture of this series of M&A works. For this reason, I communicated with AC, and he explained that this series of "mergers" is to coordinate the developer teams of each protocol, reduce friction in the combination process, and improve development efficiency.

For example, a smart contract and another smart contract need some specific adaptation work, if merged Under the circumstances, everyone's interests will be more consistent to directly promote this matter. Everyone's time is limited, and it is impossible for a DeFi protocol to specifically adapt to another protocol that has no interest. But it is different if there is a super matrix. Point-to-point collaboration must be more efficient.

I still agree with his statement, because when I invested in dForce earlier, one of my perceptions of DeFi was that all on-chain lending protocols such as Compound and AAVE go away By the end of the game, the rate will be infinitely compressed. The reason is that anyone can provide lending services. From the perspective of single mining, the liquidity will go to whoever gives the highest income.

And the code is also open source. As long as developers have the ability to attract liquidity to their own agreements, they can do lending business. It is difficult for lending agreements to charge high fee. Even if everyone only recognizes Compound and AAVE today, once they charge high fees, or too much money is in a pool, liquidity will flow to places with better returns, so DeFi ultimately needs to use the protocol matrix to capture the ecology This is also the long-term development direction of DeFi.

Investment review and forecast

Chain Catcher: I learned from public information that Multicoin Capital’s investments in the past three years mainly involved several sectors such as public chains, distributed storage, and open finance. Could you review your investment logic in the past year?

Mable: Generally speaking, our investment logic is still based on the basic laws of the development of things. We start investing from the bottom, and only after building the underlying infrastructure can we invest in the superstructure. The distributed storage and public chain invested in before belong to Web3.0, which is basically based on the technology stack.

The theme of 2018 and 2019 must be infrastructure. The basic idea is how to make Ethereum better. The Graph category belongs to middleware. The consideration two years ago was that any application on the chain would need data indexing, so when DeFi rose this year, The Graph also rose.

The direction of the most investment this year is the DeFi agreement, such as dYdX, Compound, etc. We have seen it early, but we did not participate in its equity investment at that time, because we It is believed that issuing coins is a necessary part of value capture. But in the second half of last year and this year, the market timing has begun to mature. We have invested in many basic applications of trading and lending. These layouts are also in the lower layer of the DeFi stack, and the upper layer is derivatives.

Chain catcher: But even if you invest with the idea of technology stack, you still need to face the huge noise in the industry. I am curious how you filter the signal from it?

Mable: One is to refer to the logic of traditional investment. I think the growth law of Internet products is still very applicable in the blockchain industry, and your perspective will be limited by the growth of top products at the moment, but the premise of making investment is to think about how far this track has developed and how it will present itself. In the current competitive situation, will there be a new wave of trends?

For example, FTX, when it entered the market, the exchange competition was already very fierce, but why did it have Possibly outperform these old exchanges? At this time, with the help of the traditional investment thinking framework-a track will have two to three iterations of product forms before forming a real giant structure, it may be better to penetrate the essence.

The other is to keep learning, keep developing your own tentacles, have an open mind to all new things, keep breaking past prejudices, admit your mistakes, and iterate cognition.

Chain catcher: In the final analysis, it is still through continuous learning to build a systematic cognitive system. Could you share how you built your own cognitive system?

Mable: This varies from person to person. For example, as an investment institution, you must first clarify what you are good at and which type of investment is more profitable. This requires continuous review Come find out. Some people are very sensitive to macro judgments, and may rely on Bitcoin to make money. Some people may have a good grasp of the characteristics of early projects and can find the best projects among more choices.

Back to Multicoin Capital, our core lies in the regular review after various decisions, but the premise of the review is to ensure that all previous investment decision-making processes and corresponding Think about it, so that you can know whether you are making long-term investment or trend trading.

Chain catcher: In the past two years, the industry has invested more in the primary market, but in the past year, there have been fewer and fewer good projects. Now everyone is basically investing in the secondary market In the high-end market, how did you find high-quality projects under such circumstances?

Mable: One is regular BD, mainly for networking; the other is to output content through writing to reach thoughtful entrepreneurs, such as You translated the article on the DeFi stack before. After reading it, many people were inspired and wanted to find us for communication. During this process, many interesting ideas can be exchanged, which is very helpful for reaching good projects.

Chain catcher: Everyone is making predictions at the end of the year. What do you think will be the trend in 2021?

Mable: I think the application side will continue to explode. For example, the derivatives track in the DeFi field, because many projects are still in the exploratory stage, similar to the stage of Compound in the middle of 19 years, with a little achievement but still a lot of room for development.

The other is the ecosystem of various AMMs themselves, because public chains with high performance such as Solana will support Serum, so orders on the chain Thin transactions may also be many.

If you think a little more divergently, I think there are many opportunities for synthetic assets. Synthetic assets include not only original on-chain assets, but also decentralized derivatives transactions Stocks available for purchase. In addition, there are some phenomenal opportunities, such as the application of existing Internet companies issuing coins.