Dialogue with more than 20 investment institutions: where are the future opportunities in the encryption industry
Original title: "20 investment institutions tell you where are the opportunities in the future"
Original author: Jiang Mengchu, Chen Siyu, Dave Chan, Huobi Research
< /p>
Summary
It has become the consensus of all investors and practitioners that the encryption market has entered a bear market. And winter is the time to prepare for spring planting. What kind of fruit will be borne in the future, of course you have to ask the person who sowed it. Huobi Research interviewed more than 20 representative global excellent investment institutions, hoping to use their development status, investment philosophy and layout direction as samples to understand investment institutions' judgments on the status quo and trends of the industry, and to discover potential tracks .
In the interview, we learned that most investment institutions tend to look more and act less. They pay more attention to infrastructure projects, among which ZK, new public chain and middleware are the most concerned. In terms of application projects, DeFi, Game, and social networking rank the top three. Among them, DeFi is the most promising direction for institutions, and games and social networking are very controversial.
The key areas and logic of the institutions are as follows:
·
· ZK is one of the potential core driving forces in the next cycle and has long-term value. It occupies the two core narratives of Ethereum scaling and privacy computing. ZK accelerated network and mining are the focus of institutions' layout because it has a stable game structure.
· Institutions pay more attention to the new public chain for strategic allocation, rather than having seen definite opportunities . They are very concerned about the two innovations in the recent batch of new public chains, Move programming language and parallel processing technology, and believe that their value may exceed a certain public chain itself.
· The degree of attention of middleware is second only to zk and the new public chain. More attention has been paid to decentralized identities, data protocols, and wallets.
· Institutions tend to continue to pay attention to DeFi, but generally maintain a wait-and-see attitude. For existing DeFi protocols, only those with stable cash flow and not relying on subsidies can explode again. For emerging DeFi protocols, institutions are currently paying more attention to protocols with relatively mature businesses in the traditional field but fewer competitors on the chain. From the perspective of categories, most of them belong to the direction of derivatives.
· The main controversy of social networking is: everyone agrees that social networking is a necessary demand, and it also has a very high upper limit. However, many institutions believe that the existing SocialFi projects are still in the early stages of development, and the model is not yet clear and a sustainable paradigm has not been formed. It will be difficult to acquire users from traditional giants if we only rely on the Token economy and the packaging transformation of Web2 social networking.
· The main controversy of the game is: on the one hand, many organizations recognize that the game is the most attractive to incremental users; on the other hand, there are The organization believes that the current chain game model is unsustainable.
We believe that the industry with more potential in the future is infrastructure, including ZK, new public chain, and middleware. On the application side, there is greater uncertainty, and DeFi has a relatively high winning rate, and the potential direction is in the field of derivatives. Since the preconditions required for socializing are not yet complete, there is still some time before the outbreak. Games have growth opportunities, and games with better economic models have even greater opportunities.
1. Current status of investment business
First of all, we observe the current status of investment business in the global encryption market. According to public information statistics reported by Odaily and PANews, a total of 511 investment and financing events (excluding fundraising and mergers and acquisitions) occurred in the global encryption market in the second quarter of 2022, with a total disclosed amount of US$12.71 billion. Across all funding events, there were 28 deals that raised more than $100 million.
Compared with the first quarter of this year. A total of 461 investment and financing events occurred in the global encryption market in Q1 this year, with a total disclosed amount of US$9.2 billion. Although the environment of the encrypted secondary market worsened in Q2, investment and financing activities showed signs of recovery. The volume of investment and financing activities rose by 11% month-on-month, and the value rose by 38% month-on-month.
However, if we look at it in units of months, we feel There was a hint of coolness. From April to July, the number and amount of investment and financing activities decreased monotonically. The total value of investment and financing fell by nearly 70% in 4 months, and the volume fell by 16%. The desolate state of the investment and financing market is basically consistent with the psychological state of the investors we interviewed.
The reason for the divergence between the quarter and the month may be that the secondary market has rebounded from January to March, which has driven the investment and financing market, and there are many financing news was revealed in April. The collapse of Terra and 3AC severely hit market confidence and led investors to be more cautious. Therefore, the number and amount of investment and financing from May to July have declined.
Let's review what areas investment institutions have focused on before. As shown in the figure below, in Q2, the most concerned areas of global crypto investment institutions are GameFi and NFT. Games, game-related infrastructure and technology solutions received a total of 82 financings, ranking first in terms of volume, accounting for 16% of the total number of financings. The amount of financing in the GameFi field is also far ahead, reaching US$2.996 billion, accounting for 23.5% of the total industry financing. A total of 67 financings were received in the NFT field, ranking second in terms of quantity. DeFi ranks fourth with 50 financings. The infrastructure field represented by L1, L2, mining, privacy, identity, etc. has become a "long tail field", and the number of investments they have obtained is about 10.
As encryption industry changes, encryption after 2 months The focus of investment institutions has changed significantly. Let's see what the respondents said.
Huobi Research interviewed more than 20 investment institutions in this survey of investment institutions, including crypto native head investment institutions, crypto departments of traditional investment institutions, and crypto groups Investment departments of companies (such as trading platforms, wallets, asset management, etc.), investment incubation companies, and investment institutions that focus on specific tracks. We hope to obtain a more comprehensive and real understanding through a diverse sample of interviews. In this interview, we mainly communicated with various investment institutions about their analysis of the status quo and prospects of each track, investment logic and investment strategies, etc. I hope it can provide some guidance for readers to deeply understand the cryptocurrency industry.
2. Track potential ranking and investment logic
We have summarized the investments that participated in the interview The areas of institutional concern are sorted by frequency of mention, as shown in the figure below. There is an inclusion relationship between some fields in the figure. We will analyze it according to the specific content of each field in the following text. Here we will give you an intuitive impression.
The areas of focus of each institution can be divided into two categories , infrastructure classes and application classes. On the whole, everyone pays more attention to infrastructure projects. Infra has the highest frequency of mentions, and the two main lines are ZK and the new public chain. Fields such as middleware, data, oracles, and DID also obviously have infrastructure components. In terms of application projects, DeFi, GameFi, and social networking rank the top three. Although DeFi has been deserted for a while, it is still the most promising direction for institutions. In contrast, the controversy between Game and social media is very large. Some organizations support it, while others are obviously not optimistic. Let's analyze one by one to see why institutions pay attention to these areas.
2.1 Infrastructure
The survey results show that various institutions pay attention to infrastructure Significantly higher than the application class. Some institutions did not explicitly mention the word "Infra", but their focus still falls on areas such as ZK and new public chains. For the convenience of discussion, this article classifies zero-knowledge proof, new public chain, middleware, DID, data, modularization and other fields into infrastructure.
Why focus on infrastructure
More attention There are two main reasons for the infrastructure: the first is to comply with the industry development cycle, and the second is to prepare for the new narrative of Web3.
First, follow the cycle of industry development. The cycle mentioned here is not a general bull-bear cycle, but a sector rotation cycle between infrastructure and applications.
IOSG Ventures uses the law of "Newton's Pendulum" to summarize this phenomenon. They believe that if the emerging technology field wants to spread the application, it first needs the underlying infrastructure as technical support. When the infrastructure development reaches a certain level, its performance can support the germination of some early applications (for example, there is no earliest DeFi without Ethereum smart contracts. application). The growth and prosperity of applications requires stronger infrastructure and more complex technology middleware or the improvement of application infrastructure in subdivided fields, which reversely impacts and promotes further iterations of infrastructure (for example: more complex DeFi 2 Layer protocols need stronger performance support to reversely promote the development of Rollup. The current crypto GameFi and SocialFi are also in the early stage and require dedicated infrastructure in their respective subdivisions). According to this rule, there will be a phenomenon of fat protocol and thin application first, that is, the protocol will first capture the value of Token on a large scale. In investment practice, after five years of investment in the protocol layer and Infra infrastructure, IOSG has invested in platforms such as Cosmos/DoT Near Avalabs in Layer 1, invested in Starkware and Arbitrum in Layer 2, and invested in a large number of native developers in middleware protocol. When Infra approached stability and maturity, IOSG turned to the investment strategy of fat applications, and began to capture DeFi and game social unicorns (including metamask and 1inch/Project Galaxy and /Cyberconnect/Bigtime Studio and illuvium, etc.).
Bixin Ventures believes that the current application layer is highly innovative There are not many products, some hotly-hyped concepts have not yet landed, and there is no time to invest. This is a good time to invest in infrastructure, hoping that they will be the first to start in the next bull market. Compared with betting on application projects, this is a layout method with a higher winning rate [1]. Moreover, the odds of infrastructure projects are also very high, and they can also undertake larger funds. Matrix Partners proposed the "8020 Law" as a practical work guide. In a bear market, spend 80% of your energy on researching Infra and 20% on researching application projects, and in a bull market, reverse this ratio.
Second, prepare for the new narrative of Web3. The most ambitious narrative in the current Internet field is Web3, and many traditional Internet giants such as Amazon, Google, Meta, ByteDance, Baidu, etc. are actively exploring and deploying. One theory is that Web3 is a new generation of Internet ecosystem based on blockchain technology. Of course, the number of users served by this Internet system cannot be just a few million, but 1 billion. However, the current blockchain infrastructure is far from sufficient to serve such a large number of users, so it must be continuously upgraded and transformed.
In terms of how to judge the value of Infra, Cobo Ventures and Foresight Ventures pointed out that infrastructure is a technology-biased field, and it is necessary to pay attention to the advancement and maturity of technology , There must be a low-cost, efficient and safe solution. More attention needs to be paid to the activity of the developer ecosystem and the degree of user recognition, so as to create actual value.
The following discusses the views and judgment logic of each institution on several key areas of infrastructure.
2.1.1 Zero-knowledge proof
Zero-knowledge proofs (ZK) are the area of the most attention from various institutions in the technical infrastructure. It mainly includes ZK Rollup and its accelerated network.
ZK's Status
Let's do it first Two horizontal comparisons to see the position of ZK in the hearts of institutions.
First, within the Layer 2 field, ZK has become synonymous with Layer 2, and is significantly more optimistic than OP. At present, the mainstream technology of Layer 2 is Rollup, and Rollup includes two technical routes, Optimistic Rollup and ZK Rollup. In the interviews, almost all institutions that mentioned ZK and Layer 2 are only optimistic about the technical route of ZK Rollup, but not OP Rollup, which is clearly leading in all aspects of data. More than one institution believes that OP can use the logic of short- and medium-term applications to see that it does not have strong value in the long-term. ZK is to cryptography what machine learning is to AI. It occupies a core position and is one of the top narratives in the industry.
Second, in the competition landscape of public chains, institutions are slightly more optimistic about ZK than new public chains. The reason is that ZK, or the Layer 2 it endorses, represents the expansion direction of Ethereum, and institutions are relatively more optimistic about Ethereum at this stage. JDAC Capital believes that Ethereum will become a settlement agreement in the future, and the objects using this agreement may expand, and even the traditional Internet can use the public chain for settlement. The asset attributes of Ethereum are high, and the network value consensus is high, so settlements on Ethereum will have a higher degree of trust, and the value of assets will be more recognized.
The logic of layout ZK
Optimistic about ZK In addition to comparative advantages, it is necessary to look deeply at its own value. Zonff Partners clearly stated that ZK is one of the four potential core driving forces in the next cycle and has long-term value. It occupies 2 core levels of narrative, Ethereum scaling and private computing. Maybe what ZK Proof is to cryptography and blockchain, will have the positioning of machine learning to artificial intelligence. Especially in the field of Ethereum expansion, it already has the structure of the upstream and downstream of the track, such as developers, computing equipment providers, node services, application requirements, user requirements, etc. On the one hand, a track with a stable structure is more suitable for the capital layout of institutional types; on the other hand, the development expectations are stable, and it does not completely depend on the macro or a hot event. Positive feedback is easier to generate during the entry process of projects or entrepreneurs.
First, ZK Rollup will play a greater role in the expansion of Ethereum, and its capabilities have not been fully utilized at present. Needless to say, to improve performance, ZK can also solve the problem of lightweight blockchain. Because all nodes have to store a large amount of data, it is difficult for ordinary operators to carry it, which increases the degree of centralization. ZK Rollup requires a smaller amount of data to be uploaded to the chain, which helps alleviate the storage pressure on nodes. The more prosperous the ecosystem on the chain, the greater the demand for lightweight, and the greater room for ZK Rollup to develop. Of course, the original transaction data still needs to be stored, which is where the data availability layer in the modular public chain comes in handy.
Second, ZK is expected to solve more problems related to privacy protection. Before the rise of DeFi and NFT, there is not so much data on the chain, and the importance of privacy has not yet been revealed. There is nothing to protect, and I don't know how to protect it. It's more about the concept. After the emergence of DeFi, privacy becomes more important. There is no reason to require everyone to disclose data on the chain, especially for large households and institutions, whose operations on the chain may contain huge economic interests. However, the current data analysis tools magnify the open and transparent nature of the blockchain, which has caused some troubles for them. Therefore, the need for privacy is real and deterministic. And with more and more data on the chain, the demand for privacy is also increasing. But there is no better way to protect privacy now. In addition to ZK, homomorphic encryption and MPC also have opportunities.
Based on the above logic, many institutions believe that ZK Rollup is the best solution in Layer2. And because the Ethereum Foundation itself also takes a fancy to ZK technology, and has not seen the same advanced solution so far, it is necessary to lay out its bottom layer.
Key layout direction of ZK
Zonff Partners, JDAC Capital, and Hashkey Capital have all explicitly mentioned that they are focusing on ZK accelerated networks and mining. ZK Rollup needs a large amount of calculation when generating proofs, so it needs to be accelerated by hardware, which has real requirements. Considering the position of ZK in the entire ecology mentioned above, ZK mining is still a long-term demand.
Institutions pay more attention to the position of ZK Mining in the entire industrial structure.
ZK’s industry chain is similar to Bitcoin mining, with chip manufacturers, mining machine manufacturers, nodes, and mining pools upstream of the industry chain , there are developers and various applications downstream, and there is a stable game structure as a whole. At present, the upstream technology routes of ZK Mining, such as Scroll, zkSync, Starknet, Aztec, Polygon, etc., are relatively scattered, which is not conducive to institutional heavy positions, because it is very difficult to choose cost-effective targets. Investing in these infrastructures involves risks, even gambling. After the downstream has experienced the DeFi summer and the explosion of games, there is no obvious application direction at the current point in time, and the competition within the application track is extremely fierce. Institutions are also faced with the difficulty of choosing. First, they must bet on the right track and bet on the right players on the track. This is not a matter with a high probability. And ZK Mining is in the middle of the two, and there are structural opportunities. When the upstream (various technology routes) are scattered and the downstream (various applications) are also scattered, there will be structural opportunities to obtain stable income in the middle. This is the logic that accelerates the development of the network and the mining industry, just like selling mineral water and jeans to gold diggers.
However, it is difficult for the ZK hardware industry to achieve the market scale of Bitcoin mining. The first is to see whether the ZK underlying protocol is open to the proof of decentralization, that is, mining, and it can be done in a centralized way. The second point is more important. ZK mining is limited by the scale of the zk project, that is, how much capital can be carried on ZK in the future. If there is a big breakthrough in this point in the future, the ceiling of ZK mining can also be very high.
The impact of the rise of ZK on other tracks
First of all, ZK will enhance the competitiveness of Ethereum. JDAC believes that the level of technical solutions and community building of Ethereum is incomparable to other L1s, and it is difficult for other L1s to break its rule when using EVM. Once ZK matures, it will further strengthen the position of Ethereum. Here we do not draw conclusions early, but we can make such a guess that the development of ZK will greatly enhance the competitiveness of Ethereum, and the Iron Throne of the public chain will not be so easy to change hands. When the market was good last year, Ethereum’s Layer 2 was not adopted on a large scale, and the handling fees of other new public chains were already negligible, and Ethereum still accounted for more than 60% of TVL. So if Ethereum narrows the performance gap with other public chains and maintains a high degree of decentralization, we have reason to believe that its status will be further strengthened.
Second, ZK will expand the demand for the DA layer. As mentioned above, although ZK Rollup needs to upload less data to the chain, it still needs to upload the original data. The DA layer is responsible for storing these raw transaction data and ensuring their availability. From this perspective, it can be said that it is an upstream industry of ZK, and the prosperity of ZK will also drive the prosperity of the DA layer. The author's previous article "How the Data Availability Layer can shape the future of blockchain" once made a simple calculation. If Rollup achieves greater development, a "Rollup-centric" situation will appear. With the price of ETH rising again, DA layer is expected to reach $2 billion in annual revenue.
Third, the rise of ZK may have little impact on data analysis tools. It seems that ZK Rollup is still focused on For capacity expansion, there are also projects that focus on privacy, but they are not mainstream. Privacy is a long-standing field that has not received special attention, and it is the same in the traditional Internet. Protecting privacy requires cost. If the cost is not low enough, some small and medium users will be discouraged. Reduce network utility. More people still care more about convenience and cheapness, so the author believes that the development of ZK is not enough to shake the survival foundation of data analysis tools in a short period of time, and both can continue to develop.
< br>
Fourth, the development of ZK may give birth to new application projects. ZK Rollup needs to upload a small amount of data, which means that applications can design more complex business logic. Maybe some For application projects that are different from the current ones, such as DeFi projects with more complex business logic, Layer 2 killer applications are likely to appear in ZK Rollup. However, this requires a prerequisite, which is the maturity of the general ZKEVM.
2.1.2 New public chain
New public chain The degree of attention is also very high, but investment institutions have much less discussion on it than zero-knowledge proof. Many of them are concerned about strategic configuration, rather than seeing definite opportunities.
< br>
The logic of laying out the new public chain
The public chain is a blockchain investment The long-lasting mainstream track has a very high ceiling. Every wave of new public chains has a certain degree of development paradigm shift, such as the transformation of the consensus mechanism from POW to POS, which has promoted the long-term development of the industry. Development. There are huge opportunities in this. If the impossible triangle is broken, it can even subvert the current logic and the status of Ethereum. However, there will not be many disruptive opportunities. Because it is difficult for a large paradigm shift to occur, it requires innovation It is very high and needs to be 10 times better than the current solution. More than one institution said that no project can reach this level yet. However, the future public chain structure will most likely maintain a pattern of coexistence of multiple chains, and the new public chain does not necessarily occupy a large area. A large market share is considered a success. As long as it has a certain number of users and assets, there are opportunities for market value growth in a bull market. From an investment point of view, it is a good choice.
When judging and selecting projects, several venture capital institutions have proposed to look at performance correctly. First of all, the performance itself is not important, but the comparison of performance is important. Every new generation of public chains has to mention performance improvement, and their comparison object is Ethereum. However, Ethereum itself is also improving performance. When Layer 2 is more adopted, users may find it difficult to detect the performance gap between public chains, or this gap is not enough to attract users. Second, actual performance is more important than lab performance. The 160,000 TPS claimed by Aptos is laboratory data, and it is necessary to detect the correlation between transactions in order to better utilize the concurrent capabilities. The actual performance remains to be seen. Solana claims 65,000 TPS, but it has experienced 4 large-scale downtimes, and its performance is not stable enough.
The highlights of the new public chain
Although There is no particularly exciting project. HashKey and NGC Ventures are very concerned about two innovations that have appeared in a recent batch of new public chains. The first is the Move programming language used by popular public chain projects Aptos and Sui. The second is parallel processing technology. Their value may not be limited to a certain public chain itself, but will have a greater impact on the industry.
Move language is a bright spot, and its value may be greater than the new public chain of several stars. Move proposes the concept of resource-oriented programming and abstracts something called "resource". Users can easily define any type of resource (for example, our common encrypted asset is a non-replicable and indestructible resource), You can also define how this resource can be manipulated. This gives it the following characteristics. First, the Move programming language is more secure. It separates resource definitions from control permissions, static types, generics, module systems, and formalization Features such as verification make the smart contract language more suitable for its asset-oriented scenarios, ensuring the security of digital assets from the smart contract level. Second, Move can help developers shift their attention to other places that should be more concerned, such as writing correct Business logic, implement the correct access control strategy, etc. Third, the smart contract of the Move language is more composable. This can save the block space occupied by the contract and make it easier to optimize and upgrade. Fourth, Move’s The threshold is lower than Solidity. There will also be an underlying compiler to further reduce the development threshold. If the new public chain based on Move is not as satisfactory, it can be regarded as another round of science popularization for future developers. If it succeeds , will bring a brand-new programming method. So from this perspective, the value of Move is greater than that of the public chain based on it.
Parallelization Processing is another big bright spot, and it may be the trend of underlying improvement. At present, Ethereum transactions are processed serially, and all transactions need to be processed by EVM's single-core CPU. The idea of parallelizing transactions is to no longer use linear processing Instead, use a more parallel approach. For example, Aptos uses a 16-core CPU to open multiple threads to process unrelated transactions at the same time to improve TPS. Fragmentation technology is actually a typical example of parallel processing, but more at the architectural level Parallelization design, the parallelization processing mentioned here refers to the parallelization of processes or threads during program processing, which is closer to the bottom layer of the system. In the future, parallelization may become the standard configuration of public chains, and all public chains have more or less Or less with this feature. This transformation is similar to the adoption of the POS consensus mechanism in public chains after 18–19 years, and the general abandonment of the POW mechanism.
2.1.3 Middleware
The degree of attention of middleware is second only to ZK and the new public chain .Middleware generally refers to software that provides common services and functions for applications. Data management, application services, messaging, authentication, and API management are usually handled by middleware. Its role is to connect infrastructure and applications , for the convenience of discussion, this article first classifies it into the infrastructure category.
Because middleware has the attributes of infrastructure, if more applications use it, It will attract other applications to follow, and then form an unwritten standard. Therefore, its network effect is very strong, and it is prone to a winner-take-all situation. Investment institutions will naturally not let go of such a field. They focus more on decentralized identities, data protocols, and wallets.
Decentralized identity (DID) is an Internet address that users can own and control, and is an infrastructure for many Web3 applications. In the current blockchain network, users already have ownership of assets, but the user's identity in virtual life has not yet been established. Just as assets in a decentralized world can flow freely across the boundaries of applications, users themselves should also have this ability, which requires a user identity that can represent the user. With identity, social applications, other Web3 non-financial applications, and some new DeFi businesses can be launched. For example, when users use social applications, they can prove who they are by using a certain DeFi protocol, participating in the governance of DAO, or playing a certain game, so as to find more like-minded friends. However, investment institutions are also concerned about whether the agreement can generate sustainable income. This point has not been seen so far, and most DID protocols obtain income through staking and liquidity mining, which is unhealthy. In the long run, if you have a certain user group, you can make profits through service fees. There will be a long construction cycle in the middle, and the project team must adhere to long-termism.
In terms of data protocol, accurate privacy definition and quick response are the features most valued by investment institutions. EVG said that so far they have seen almost no agreement that clearly defines which types of data should be privately owned and which types should be open to the public. For example, identity information in general should be classified as confidential, but for some specific data, should they be owned by the protocol and made available for retrieval and review by others. There is a delicate balance that needs to be mastered, and the data protocol that solves this problem is likely to be the winner. The other direction is fast and high-frequency response, because many hedge funds need fast data support to respond. They are great for protocols like Dune and Graph, but need to be more time-sensitive.
For middleware like wallets, expanding the audience is a key issue. Most outsiders have never used an encrypted wallet, and wallets are even an obstacle for them to enter the encrypted world. And StepN has made a good demonstration. It integrates the Web3 wallet into the product itself. When registering an account, it guides users outside the circle to create a wallet, giving users a seamless wallet experience for the first time. This is also a new idea for the wallet itself, through deep integration with consumer-oriented dapps to achieve non-inductive acquisition of incremental users.
2.2 DeFi
As a pioneer in the application layer, DeFi has naturally attracted quite a lot of discussion. However, apart from the AMM algorithm, DeFi does not have more mechanism innovations, and the nesting doll-style innovations cannot stir up too much splash in the market. Therefore, like the public chain, institutions tend to continue to pay attention to DeFi, but generally maintain a wait-and-see attitude.
DeFi Logic
Block Chain has been closely connected with finance since its birth. With the introduction of smart contracts, DeFi has gradually demonstrated strong financial innovation vitality and attracted a large number of funds. At the same time, DeFi, by virtue of its own combination and no need for admission, has solved the pain points of users such as high access threshold, centralization risk and high capital volume in traditional finance. For transactions, there is no private misappropriation of assets, and anyone can also perform corresponding operations based on the liquidity and positions on the chain. Smart contracts provide automated rules for how specific financial instruments and protocols should behave, executed and governed by code, without favoring any one investor. After the frequent thunderstorms of CeFi institutions, the advantages of DeFi are particularly prominent.
Development Path
From AMM Hengkong Since its birth, the current DeFi market has developed relatively maturely. Not only are the tracks diverse, but the ecological projects are also relatively complete. Some large and comprehensive infrastructures have formed an obvious head effect, such as DEX, lending, etc. Institutions such as Nothing Research and Matrix have some basic judgments on the overall trend of DeFi in the future:
1. For the existing DeFi protocols, there are more things to consider How to survive this round of bear market smoothly. Looking back on the rise of DeFi, project subsidies are an important means to stimulate ecological expansion, relying on good narratives to earn market dividends. But this is by no means the way to long-term survival. In the bear market, only those projects with stable cash flow and gradually getting rid of subsidies can meet the future outbreak again. On the other hand, many protocols are very useful, but Token fails to capture the ecological value. This caused the price of Token to weaken, which in turn affected the further development of the protocol. Therefore, existing protocols that can optimize Token economics are expected to achieve secondary growth.
2. For the new DeFi protocol, the current DeFi tracks are relatively saturated, and it is difficult to find development before disruptive innovations appear in the general environment New World. Therefore, institutions are currently focusing on DeFi protocols with relatively mature businesses in the traditional field but fewer competitors on the chain. From the perspective of categories, most of them belong to the direction of derivatives. The current model of some derivatives agreements is not bad, but the market has not yet been educated. In addition to allowing users to learn by themselves in the big rising market, it is also necessary to rely on the protocol's own operating capabilities to acquire incremental users.
2.3 Social
The social track has always been a hot topic worthy of attention, but many organizations Views and judgments on the track are quite different.
The logic of social layout
On the one hand , various institutions have basically reached a consensus on the discussion of the meaning of social existence, that is, social interaction is the basic need of human beings, and it is also a necessary behavior for the interaction and exchange of values that occur in production and other social activities. Web3 social networking is the future trend, and the upper limit of development is very high. Cobo Ventures believes that in the social platforms of the Web 3.0 era, people will have absolute control over their social data. SocialFi products are based on the underlying infrastructure of Web 3.0, starting from people's needs for decentralized social and financial, and integrating the two needs into a product category. It can break platform monopoly, eliminate single-point risks, and create new business models and product categories in the wave of the global digital economic system.
On the other hand, the difference between institutions mainly lies in the short-term and medium-term expectations. Huobi Incubator believes thatexisting SocialFi projects are still in the early stages of development, have not formed a sustainable paradigm, and the future model is still unclear. More importantly, if SocialFi only relies on the Token economy and the packaging transformation of Web2 social networking, it is destined to be difficult to open the user gap of traditional social giants, and it is necessary to dig more into the original user characteristics and user needs of Web3. From these perspectives, the conditions for SocialFi to become the next wave of leading bull market outbreaks are not ready yet.
Development path
Through multiple interviews Finally, we summarized the development path of the social track. The protocol that uses blockchain technology and tokenomics to empower social has the following directions:
First, Blockchain + social, improving the disadvantages of Web2 social
The core idea of some social projects is to subvert the monopoly of traditional social giants and to use blockchain Changes are made based on the characteristics of the data, which are mainly reflected in the following aspects:
1. Data autonomy. In traditional social platforms, users are only data participants or users, and the blockchain can realize the data on the chain, allowing users to control the data themselves;
2. Data shared. There are isolated islands of information in the Web2 world, and the data between various platforms are not interoperable;
3. Data privacy. Unlike the traditional Web2 where users passively bear the risk of privacy leaks, although the information in the blockchain is publicly accessible, users can also use encryption technology to protect the privacy of data such as addresses on the chain and control the degree of disclosure.
In terms of the economic system, it is logical for blockchain social projects to reward users by issuing platform tokens. After the introduction of the Token economy, the interest relationship between the user and the platform will change accordingly, and the binding relationship with the platform will also be deeper. If the user participates and pays more in the platform, not only will he be rewarded in terms of the number of tokens, but a single The value of the token will also increase accordingly. At the same time, in order to provide more economic incentives, some "X2Earn" or content creation and mining models have also brought new ideas to social networking, leading to a short-lived SocialFi boom.
Token economy can help blockchain social projects to give some support in the early cold start, but how to make more users generate real value on the platform? Social needs and production creation cannot be solved by simply relying on the Token economy.
The bigger difficulties facing SocialFi are:
1. The user base is small. In view of the relatively small number of Web3 social user groups, the effect of only using Token to realize Web2 traffic conversion is not ideal;
2. Token economic backlash. The interest relationship represented by the token itself is of a time nature. Rewards issued in cash are timely, but the value of tokens will continue to change over time. When the value of tokens drops, the incentives that users can obtain are also shrinking, which exacerbates the deterioration of project fundamentals;
3. The portraits of users on the chain are blurred. Since most SocialFi projects focus more on "Fi", that is, the financial nature of the project, a large number of trading speculators have attracted a large number of trading speculators, and they will leave quickly once they are unprofitable. As a result, the platform has insufficient understanding of social users on the chain and cannot capture the real Demand;
4. Insufficient infrastructure. The current underlying infrastructure cannot support complex and data-intensive SocialFi applications.
Second, the exploration of Web3 social interaction
The focus of each project has gradually changed , began to pay more attention to Web3 users themselves, and improved the bottom layer to make information transmission and relationship establishment based on their respective Web3 identities.
· Web3 Identity
Stable and far-reaching The premise is a solid infrastructure, and more and more projects are exploring the creation of Web3 identities to describe user groups with real social needs. The establishment of an identity graph includes two aspects:
1. Data analysis. Traditional social products need to establish user habits from scratch; however, the data on the Web3 chain is a public resource, and anyone can use existing data (such as transaction data, NFTs that commend identity or personal taste) to portray user images and establish identifiable identities ;
2. Identity Aggregation. There is no threshold for data analysis, and any project can use identity data to develop products on this basis. However, if users can actively aggregate information on multiple chains, multiple addresses, and even off-chain, so as to carry out a more accurate and three-dimensional image portrayal, it will be the source of continuous development of the project.
· Information transmission
Information transmission is divided into two Two situations:
1. Non-directional information transmission. Mainly rely on the form of social media to attract the attention and communication of others by publishing content (text, pictures, videos);
2. Directed information transmission. For example, send a message with a specified address or a type of address. The main scenarios are: NFT off-site transactions, hacker negotiations, and project airdrops.
· Relationship building
When reaching the individual After that, it is necessary to establish a social relationship with the other party, including strong relationship, weak relationship and temporary relationship. Web2 applications contact users through the platform, and weak links are difficult to realize; while Web3 introduces Token, which strengthens the economic attributes behind social behaviors, and weak links achieve stronger binding through transactions.
In general, after experiencing the early exploration and the enthusiasm of SocialFi, social has slowly figured out the path of sustainable development. In the future, with the continuous completion of infrastructure such as social data and network relationships, the real needs of social networking will be gradually discovered, and Web3 social networking will be just around the corner.
2.4 Games
From the point of view of demand, games and social interaction are very similar, and both belong to The common application track in life; the difference is that the wave of games led by Axie in 2021 has proved that the game can get out of its own Alpha, and at the same time, it can also earn enough premium on the second level by virtue of Token gold and money-making effects. However, the good times don’t last long. As the top projects gradually cool down, there are more and more arguments about emptying GameFi, and GameFi is often on the cusp. Judging from this survey, GameFi is also full of controversy.
The logic of the layout game
In the game In the discussion of why the issue of chaining should be discussed, most institutions can find a consensus. Animoca Brands and Huobi Ventures have made a detailed discussion on this, and we summarize it as follows:
1. Blockchain + games can realize the return of player ownership, allowing The game better establishes a decentralized trust mechanism and asset transferability, making the game more sustainable.
2. The game is easy to generate various trading scenarios. Gold mining and free markets in traditional online games and client games have long existed. Both on-site and off-site markets have developed mature adjustment mechanisms and design logic. There is also a need for item circulation and gold coin circulation in games. It's just that the secondary trading market is not very common in traditional games, mainly because the company prohibits it, and the user experience in this area is actually not good. Blockchain technology has changed this, and it will benefit both game companies and users. Now the company mainly earns money from selling skins, and the secondary market of games also has a huge space. Game companies can obtain continuous income by collecting transaction taxes. Players have more freedom and can create and experience more gameplay, which will increase their stickiness to the game, increase the value of the game, and be more willing to pay for the game.
3. The multiple purposes of unique assets in the game (trading, speculation, collection) have a relatively high fit with NFT. Some in-game items are unique, and these items also have differences in rarity and function. NFTization is a matter of course.
4. The game can be used as the traffic entrance of L1 and the test field of L2. GameFi is regarded as the track with the most active transactions and the closest to physical applications so far. In 2021, GameFi began to pay attention to the role of the public chain, and the TPS of Ethereum could not meet the requirements of instant computing in the game scene, and some high-performance public chains began to seek new opportunities; for L2, there is currently a lack of attention A cash cow with fast delivery and high activity, and the game just fits with it, and the two may be able to achieve each other in the future.
From the above perspectives, the game has great long-term investment value. However, the existing GameFi development model has also attracted some doubts. The biggest problem is the sustainability of the game. Most of the current GameFi is a wave of streams. The short, flat and fast Play to Earn model can quickly attract a large influx of funds. Coupled with the promotion of fomo sentiment, GameFi can often experience explosive growth in the early stage. But in the long run, the economic game structure of most GameFi is unhealthy, and it can even be said to be a Ponzi scheme. When the novelty of the game slowly dissipates, GameFi often shows insufficient successors, making it difficult to attract incremental users. The imbalance of the economic structure has driven those who had previously received dividends to slowly withdraw from the game system, causing a decline in the economic value of game assets and accelerating the death of GameFi. When the game dies, so does the asset based on it, whether the asset is on the blockchain or on a centralized server.
There are 2 ways to solve this problem. The first is to make the game fun and keep it fun. The second is to make the economic structure healthier, allowing players to have a relatively stable game relationship due to the outcome of the game or the division of labor in the game. It cannot rely on growth to solve all problems and let new players take over. At least one of these two methods needs to work, so that game-based assets can have a foundation of long-term value, and its value consensus and transaction logic become possible.
GameFi Development Path
Emmas According to Lowe's hierarchy of needs theory, human beings generally satisfy basic physiological needs and safety needs first, and then pursue higher-level needs, such as social relations, respect, and self-actualization. From this point of view, the game belongs to a higher level of demand, and it is at a very early stage of development in the blockchain world. Specifically, the history of Ethereum is only 10 years old, and the explosion of applications began with DeFi Summer in 2020, followed by GameFi represented by Axie one year later. The boom of the bull market has made the development of GameFi a bit ahead of schedule. The primary market needs new narratives, and the secondary market needs new gameplay. The market conditions have forced the rapid rise of GameFi. As the market gradually cools down, we are able to re-examine the game track. Although there are shortcomings, in terms of long-term value, games are still regarded as the starting point for killer applications built on infrastructure, and there are still many opportunities bred in it.
1. Looking at the opportunity from the game team
First, the traditional game manufacturers of Web2 . It is not uncommon for traditional Web2 companies to seek transformation and actively embrace Web3 news, and the game field is no exception. Generally speaking, this kind of game manufacturers who have been cultivating for many years have rich game development experience and resources. They have their own systems in various channels such as game release, online operation, project revenue, and advertising. A game product is not a problem. Therefore, such game manufacturers entering the GameFi track may not only develop one game, but a series of game matrices, using the existing user base to gradually realize user conversion, and then inject more incremental users into the ecology. What is certain is that although the user increment brought about by this conversion is the most effective, the development and operation process is relatively slow, requiring game manufacturers to make long-term plans.
Second, crypto native game manufacturers. Correspondingly, there will also be some teams in the native encryption industry who choose to develop blockchain games. However, game development has a considerable degree of participation threshold. Even if the team can introduce talents from major Web2 game manufacturers, after losing the operations and channels of the original major manufacturers, it will be difficult for them to replicate past success in terms of gameplay. As a result, some game teams began to change their thinking, trying to find a way to break through the Token economic model. A good economic model must be full of games, so that players can benefit from others while paying, instead of blindly picking up the wool of the project party. Foresight Ventures proposed that for GameFi, the economic model is 1 and the gameplay is 0. It is impossible for original manufacturers to compete with traditional games in terms of gameplay, and a good economic model is the first priority.
2. Looking at opportunities from the game mode
Whether it is the P2E mode represented by Axie , or the expanded meaning of the X2E model represented by StepN, GameFi can actually be regarded as a pan-DeFi product. Because the main innovation of such projects is focused on tokenomics, not on gameplay. The P2E and X2E models are essentially liquidity mining with a few more steps. They are new Token distribution mechanisms and do not have core competitiveness. What's more, as mentioned above, the current Token economics model is not so healthy. In the future, the value source of GameFi must be the playability of the game and more model innovations on crypto native. SevenX believes that there are 3 types of games that are most likely to take the lead in breaking through: the first is simple games, which use a low threshold to expand the number of players; the second is competitive games, allowing players to "struggle with others and have endless fun" Long-term retention; the third is that the economic model is more optimized, allowing some players to make stable money in the game, and realize the endogenous cycle of the game ecosystem.
In general, GameFi Tier 1 investments are riskier from an investment standpoint. In the field of traditional Web2 games, before any game is developed and launched, the manufacturer will do a lot of market research and testing. The cost of human, material and financial resources is unbearable for the crypto industry, especially in terms of time. Because this industry is too cyclical, opportunities to make money are often linked to the overall market conditions. If GameFi wants to take into account the playability of the game, it must require a strong and professional team, and the development cycle will naturally be extended. Therefore, this contradiction often means an increase in investment risks and bargaining chips.
Conversely, investment institutions in the encryption market usually seek relatively fast liquidity, and this trend will force the GameFi team to do things that are conducive to short-term value. Therefore, the current status of some GameFi that claims to be developed for 1–2 years is not good in the encryption industry.
In addition, from the perspective of the game itself, any game has a life span. The type of a game is determined from the very beginning, and the difficulty of updating iterations is relatively high. Investing in GameFi is more like a one-shot deal. Therefore, before the game solves the above problems, various institutions are more cautious in taking action on game projects, tending to watch more and act less.
3. Where are the opportunities in the future
After analyzing so many fields, we can’t help but wonder Think about what kind of projects will explode in the next round of bull market, and in which field will they be born. And what kind of strategy should be adopted to seize these opportunities. We make a little prediction and do not constitute investment advice.
Infrastructure prediction and strategy
Judging from the cycle of plate rotation, the next protagonist of the encryption market is likely to be (in fact, it is already) infrastructure.
ZK Mining is a good opportunity with high odds and odds. Similar to Bitcoin mining, the concentration of ZK mining will not be very high, and the return will be relatively stable. Its market has a lot of room for imagination. Although the current technical route (GPU/FGPA/ASIC) is uncertain, the residual value of the first two is high and the fault tolerance rate is high. The ZK Rollup platform has two relative leading projects, StarkNet and zkSync, but the competitive landscape of the industry has not yet been fully determined. There are also huge opportunities here. From the perspective of technical strength and financing situation, the two leading projects are still the most optimistic. But StarkWare currently has a high valuation, which may be risky.
The new public chain is in a state where all the heroes are rising together. This is a track with a low winning rate but very high odds. At present, they are still in the early stage, superimposed on the overall downturn of the market, so it is not yet time to explode. Investors have a relatively long time to study their innovations, go deep into the community, and witness the process of ecological construction together. More than half of the value of the public chain comes from ecology. When you see that there are several high-quality projects or even featured projects on a certain public chain, the winning rate of betting on it will be even greater.
Middleware is similar to the new public chain, and it is also an industry with a low winning rate and a high odds. It needs to pay more attention to upstream and downstream cooperation. For middleware, the advantages of leading projects will be more sustainable, so we need to keep paying attention. Before the industry competition pattern is clear, it can be configured in an indexed way, and it is not appropriate to bet on a certain project alone.
Application prediction and strategy
DeFi still has huge growth opportunities in the next bull market . DeFi is also an area with high odds but low winning rates. At present, due to the sluggish market, DeFi will temporarily enter a dormant period. Some blue-chip projects may go through the bull-bear market, and their second growth curve needs to superimpose mechanism innovation or business scope expansion on the basis of public chain performance improvement. The focus of DeFi innovation may be concentrated on Layer 2 or derivatives on the new public chain. In the field of derivatives, the proportion of perpetual contract trading volume is still far lower than that of CEX, and there is still room for development here. As the market continues to pick up and go higher, the demand and narrative for unsecured/undercollateralized lending and algorithmic stablecoins is long-standing, and they may have opportunities to grow. However, after the collapse of UST and 3AC, these two fields need to evolve. DeFi has great growth potential and a high degree of industry concentration, so we should focus on leading projects.
The social odds are extremely high, but the winning rate is very low. Its development needs to be based on on-chain identity and performance improvement of the public chain, as well as more application scenarios. So it's probably a late start area. It is difficult to have a breakthrough advantage by copying the existing model, and it is impossible to compete with traditional social giants. Blockchain-based social networking is not useless, and there may be opportunities in these areas. First, meet the original needs on the chain, such as accurate information transmission and community building. Second, use the Token economy to solve the real needs of actual social networking, such as trust issues in social networking.
The odds of the game are very high, and the winning rate is higher than that of social networking. It is a track that can accommodate many small and medium-sized projects. As more major manufacturers enter the market, more incremental users will enter the market, bringing about the overall growth of the track. So gaming is an area where the next bull market is likely to break out. Fun is not necessarily the most important attribute of chain games. The P2E narrative will definitely make a comeback, especially in the rising stage of the market. Games with better economic models may achieve greater success. To have a relatively long-term development, an economic model with a stable game structure is essential.
Thanks to the more than 20 investment institutions that cooperated with the research for their suggestions and inspirations for this article. list):
[1] The text uses "win rate" The words "odds" and "odds" measure the cost-effectiveness of an investment. The winning rate refers to the probability of obtaining a positive return on investment, that is, how likely it is to make money. Odds refer to how well an investment will pay off if it produces a positive return.
Original link
Welcome to join the official BlockBeats community:
Telegram Subscription Group: https://t.me/theblockbeats
Telegram Discussion Group: https://t.me/BlockBeats_App
Official Twitter Account: https://twitter.com/BlockBeatsAsia
Related Articles
