Interview with Fan Yinggui from Qianfeng Capital: Summary and Prospect of DeFi

Original title: "Dialogue with Qianfeng Capital Steven: How DeFi Big Winners Are Made | Chain Catcher"

Original source: Chain Catcher

Qianfeng Capital is an encrypted VC fund with a relatively strong development momentum this year. It has created an early-stage and growth-stage equity investment and an encrypted digital asset investment matrix of Alpha Strategy and Beta Strategy. focus on.

Among them, Steven, the co-founder of Qianfeng Capital who is in charge of Alpha Strategy, said that he is an early believer and long-term adherent of Ethereum, and has long-term attention to Ethereum The investment and investment made him perceive the potential value of some DeFi projects in advance, and made a layout in advance, and realized multiple returns in pNK, AAVE and many other currencies. The chain catcher had an in-depth exchange with Steven, during which he reviewed the whole process of investing in DeFi, and expressed his views on the industry cycle, hot spots, and next year's trends.

Review of DeFi investment History

Chain catcher: a16z has summed up 12 key problems in investing in the cryptocurrency field, one of which is investment needs to stand at every layer of the technology stack and develop How does Qianfeng divide the technology stack of the investment field?

Steven: We still consider problems from the fundamentals. Personally, I mainly divide the technical development stack of ETH. For example, the earliest ETH is a token that miners can rely on simple consensus, which means that it has value for a period of time, which can be regarded as the first stage of technology development; then ETH will open the ICO platform, and simple smart contract interaction It was born, but it was not actually applied to commercial landing, it was considered as the second stage of technology development; after that, the development of DeFi was the third stage of technological development, and the smart contract had a more complicated operation process and commercial landing logic.

I think that after these three stages, what everyone really needs to consider is to improve user experience and technological innovation, so the next technological progress should be realized by ETH2.0 The efficiency of 10,000 TPS can truly realize the implementation of the project. At that time, it is even more necessary to use traditional Internet thinking to look at the development of this market.

Chain catcher: DeFi can be said to be a hot spot before institutional bulls. I heard that your deployment of DeFi has made the team a lot of profits. Can you review your layout of the DeFi track? The logic and trading process behind it?

Steven: The time when Qianfeng really got involved in DeFi layout was around 19 years Half a year ago, we observed that the number of transactions, wallet addresses, and developers on Ethereum continued to expand. These developers had previously started businesses on EOS, but later realized that EOS was not friendly and had a poor experience, so they chose to return to Ethereum.

At that time, the price of Ethereum was very low, floating between 100-200 US dollars. We thought that the valuation of Ethereum should not be at this level, so we began to deploy Ethereum square. At that time, the layout was relatively large, not only DeFi, but also traceability and cloud storage.

In March of this year, we observed that the transaction volume of DeFi products such as Kyber and Loopring that we invested in 2019 began to increase week by week, and the growth rate was basically maintained at 50% %, this data makes us feel that the entire decentralized exchange may change, so we decided to increase our bets in the first half of 2020. At the beginning, we will focus on exchanges such as Kyber whose trading volume has started to rise, and then we will focus on AAVE, because it has grown from The form of the original order book was transferred to the docking mode of the fund pool, and a relatively successful reform was made.

In general, the logic is very simple. The micro point of view is whether the project is doing something. The macro point of view is still attributed to value investment. Value investment requires us to Only by continuously observing the data of a certain public chain, looking at the items moving on it and maintaining sensitivity to the data can we make the layout as soon as possible.

Starting from this logic, I will slowly look at stablecoins, oracles, etc. In fact, the oracle machine is quite interesting. What you may not know is that the largest oracle machine provider before 2020 was MakerDao. They were the biggest players. A particularly centralized solution, but we know it won't do evil.

But when I went to Hangzhou for a meeting in January this year, I met the CEO of Chainpnk giving a speech there, and after communicating with them, I found out that they had already hired 70 Multiple nodes, and some exchange projects started to use their products at the same time, we began to realize the importance of the oracle track. When looking at the whole track, only Chainpnk can compare with MakerDao, then MakerDao is a particularly centralized solution Compared with Chainpnk, it has a particularly good imagination. At that time, the price of pnk was 2-3 US dollars. We started to plan, and when it rose to 18 US dollars, that is, before reaching the peak, we quit.

The reason why I chose this point to exit is because it should not have such a high value. The market is very weird. Although it is very imaginative, it is just a As a service provider, its value has surpassed the overall value of all serviced B-end users, which is an impossible phenomenon. Like China’s Wind, the combined value exceeds 70% of the value of financial institutions. This is an unhealthy state, but this is another story.

This is also the process, we voted for projects such as AAVE, Kyber and Chainpnk.

In fact, like another 0x, this is an old project that started in 2017, but we studied their annual report this year and found that their team is very low-key and has been No fundraising, purely to expand the second layer of Ethereum, and use this solution on its own exchange to build a decentralized exchange. You can see that the trading volume of ZRX can probably rank among the top three, and the value should be underestimated so far, so we basically choose these projects based on this logic.

My investment logic is very simple, not as complicated as everyone thinks, because I have been a staunch supporter of Ethereum since 2017, because I firmly support Ethereum, I also missed the wave of entrepreneurship in EOS in 2018, which resulted in many projects not being invested in. Looking back now, it is hard to say that this trade-off is not worthwhile, because for me, there is no way to have faith in EOS.

Chain catcher: The foundation lies in the underlying cognition. What is more curious is how do you value the above DeFi projects, and what standards are used to make specific decisions?

Steven: The valuation of DeFi is still relatively easy. First of all, these products have certain Cash flow can be calculated using traditional PE and PS economic models. For example, we can clearly see that the annualized income of DeFi is about 300 million, which can be used to calculate its annual inflation rate. Correspondingly, the estimated value calculated.

If it is specific to a single currency, we mainly look at the fundamentals, which mainly cover four points.

First, whether the integrity of the team can continue. Like the original well-known project AE, but the terrible thing is that their founding team has been replaced again and again. This is a particularly bad signal. If the integrity of the founders cannot be continued, there is a high probability that there will be problems within the project.

Second, whether the development capability can be continued. It depends on whether the community developers continue to do things and whether they are following the previous roadmap.

Third, whether the popularity of the community can continue. Look at the degree of discussion in the community, whether the curve of new fans is healthy, or the content that everyone pays attention to and discusses. If you are always talking about the currency price, and scolding the team when the currency price drops, it means it is not healthy.

Fourth, whether financing can continue. The most intuitive thing is that veteran projects such as Maker, AAVE, and Compound still have large institutions investing in them this year. The resources of these institutions alone can make this project not be limited in the future. These are our considerations based on continuity. Of course, we will also use our own more objective FCCS quantitative standards and Alpha rating methods.

Chain catcher: The annual DeFi project of AAVE is actually the first batch of lending agreements. It is also included in the investment portfolio, can you share how you discover valuable old projects?

Steven: It’s quite complicated, we did Salt and The research reports of the two contemporaneous projects of ETH-lend, although the latter has its cleverness, but the user experience of Salt is better in comparison, so Salt was ambushed. Until the second half of 2019, DeFi gradually improved, and ETH-lend also quietly carried out reforms. The model changed from the original order book to a fund pool-style lending model, which greatly liberated the original capital liquidity and enabled a certain level of financing on the platform. Fund precipitation.

At the same time, when we experience the product, we feel that its overall interface and user experience have undergone great changes, including the name changing from the low-key ETH-lend to a more The escape form AAVE (ghost) and the launch of the innovative mechanism of flash loans have done a series of imaginative things.

After refocusing on it, we saw that the loan balance began to slowly exceed similar products, and the Matthew effect is likely to occur, so we began to reduce positions in stages, and finally took When it comes to relatively high income, it is generally a process from negation to attention, and then to liking.

However, after I reflect on it afterwards, I feel that investment still has to embrace changes. Whether the user pays or not depends on whether there is a possibility of forming the Matthew effect. If the prediction is yes, then gradually place bets.

Chain catcher: Compared with the DeFi investment portfolio, you only have one KSM in the Polkadot ecological investment portfolio. I am curious that there are so many Polkadot ecology. Why? Choose only this?

Steven: Although Gavin also came out of Ethereum, Polkadot itself It is cross-chain, so we must first look at the necessity of cross-chain. At present, the largest cross-chain project is WBTC; secondly, comparing the number and quality of developers in the Ethereum ecosystem, it is obvious that Ethereum is in a monopoly position. Facing such a Platform, other platforms must have higher characteristics if they want to develop. Obviously, Polkadot has no way to prove it to everyone so far.

And Polkadot has been online for so long, is there any real strategic project? Including that many A-level projects will give a valuation of 100 million or even higher when they encounter the popularity of Polkadot. This is something that I can’t understand, so we are more cautious about its ecological projects.

My intuition always feels that the state of Polkadot is very similar to that of EOS at that time. In fact, many investors who participated in EOS ended up bleak, so everyone is still cautious , to avoid entering the second EOS.

Chain catcher: You have invested in many projects in the past. In summary, what are the commonalities of the failed projects?

Steven: Let’s talk briefly, the commonality is that some teams’ fundamental data are very Good, but they are too obsessed with building fundamentals and rarely go into the market. In the end, the market does not price them high, which naturally makes investors passive. I think investing in the blockchain industry should not be too idealistic, let alone stick to value investing, especially in 2018 and 2019, when many people were killed because of this idea.

Transition to an Institutional Market

It is inseparable from the personal knowledge system and the cycle. What cycle do you think the current blockchain industry is in?

Steven: is in the transition from the barbaric era to the traditional A-share market stage. On the one hand, we have seen this year's data that the people who can make money are basically institutions, and most retail investors still lose money. This is a common phenomenon in the stock market. For example, unicorns like Uniswap, if ordinary investors do not rely on professional institutions, it is difficult to reach them by themselves. On the other hand, the bull-to-bear conversion in the entire currency circle is faster than other industries, and the opportunities for speculation are less and less compared to the early stage. It is almost impossible to invest in thousands of times and ten thousand times coins.

Chain catcher: In fact, in the past, the industry generally believed that investment in the primary market is more certain than investment in the secondary market, and it is easier to get low-priced chips. How does Feng, as a primary and secondary linkage mixed encryption investment fund, view this point of view?

Steven: Good question, but the fact is just the opposite, the secondary market is better than the primary Come more certainty. The reason is that most of the primary market projects in the blockchain industry do not have a clear business model, and they cannot run out of cash flow for a long time. Once you invest in it, you will encounter uncertainties such as the track is not hot or the founder has problems. , It is impossible to value it at all, let alone transfer the equity out. But investing in the secondary market is different. No matter how bad the risk control is, as long as you are a little more sensitive to information, you can cut the meat in time and withdraw the remaining value.

Chain catcher: Ethereum 2.0 is the most concerned issue in the industry recently. Many views believe that various variables will be generated during the transition from POW to POS, especially The current volume of Ethereum is so large that if you are not careful, it will bring a lot of shocks to the industry. You have been paying attention to Ethereum since 2017. Can you analyze the potential risks?

Steven: Frankly speaking, I didn’t expect the deposit contract lock of ETH2.0 before The warehouse volume will be so high, but no matter how high it is, it will take at least 1-2 years for the assets to be pledged to be released. Such a long period, if the return cannot be guaranteed, the risk is still very high. After all, time is too important for investors Yes, just like Zhang Lei from Hillhouse said that "assets" are those that deepen the moat with the passage of time, and "expenses" that are more detrimental to business as time goes by. Many secrets are hidden in time, and time will give birth to everything.

Of course, for ordinary investors, there is no risk. It has risen many times this year, and the future growth space may be lower than that of BTC. But I think this is a low-probability event, and ETH is looking good no matter from the technical aspect or the development trend of Layer2. But for developers, the risk may be higher, because they have to make a choice of technical framework. If they are more confused, developers can wait and see the next phased results before making a choice.

Chain catcher: After working for so long, are there any things or phenomena that you cannot understand?

Steven: Maybe in August and September, YFI/YFII/YFII will drive At that time, many friends around us put their whole warehouse into this Farming, and some of them even had a technical background. It was really magical.

In fact, the so-called machine gun pool and income pool are all the building blocks above. The bottom layer is the income of projects such as MakerDao, AAVE, and Compound, but their The income is only 3-15%, so even if you use leverage to enlarge it, you will not be able to achieve a thousand-fold or ten-thousand-fold income. The pure illusion is as incomprehensible to me as the ICO back then.

Chain catcher: Last question, everyone is making predictions at the end of the year. What do you think will be the trend next year?

Steven: I think the first is Layer 2 of Ethereum, which has Opitmistic rollups If you are interested, you can make some medium and long-term bets; the second is the potential and development of DEX in the derivatives market. Now there are a large number of futures DEXs on roadshows for financing; the third is anonymous coins. Regardless of the market cycle, anonymous coins are just in demand, and there is a high probability that there will be an independent market, so you can go to see your favorite coins in the anonymous coin track and study them.

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