On the afternoon of April 22, "Bull Cycle of Long Run is in the ascendant——ArkStream Capital Brand Conference" was officially held. This conference was jointly organized by BlockArk & ArkStream Capital and Odaily.
ArkStream Capital partner Warren Fang (Captain) delivered a keynote speech on "Investment Thoughts on the Encryption Industry under the Long-Cycle Bull Market" at the meeting. Warren Fang said that ArkStream Capital will pursue an investment methodology that takes into account future development and capital efficiency.
The so-called focus on capital efficiency means that investment is to find some encryption application innovations under the existing infrastructure, and their innovations can meet the urgent needs of the current scene; while focusing on capital efficiency, we also need to imagine the future and participate in the entire In the investment in the Web3.0 era, regarding this type of project, we may not know the exact product model in the future at this stage, and there may be large variables in future development, so we will pay more attention to it. Evaluate whether the project has good ideas and whether the team is solid.
The following is the full text of Warren Fang's speech, organized by Odaily:
Hello everyone, I'm Warren, and today I'm going to share the topic "Investment Thoughts on the Encryption Industry in the New Cycle".
First of all, share what is the new cycle? We believe that the encryption industry is currently under an unprecedented new cycle. Unlike the previous three to four years of bull-bear cycles, we believe that this cycle will last for ten years or even longer. If you want to discuss whether this has happened before, you can refer to the continuous growth of the entire Internet industry after the Internet bubble burst in 2000. Although we encountered the subprime mortgage crisis in 2008, the growth trend of the entire Internet industry has never changed and has been growing continuously. We believe that the next wave of investment bull market in the encryption industry starting in 2020 will be a long-lasting bull market cycle.
what is the reason? We can't make an estimate without any reason. It's not that we sit here and believe that this is a bull, but that it does have both external and internal reasons.
Let me talk about external reasons first. We believe that we are currently in the global inflation phase of the macro cycle. The new crown epidemic has triggered a rapid increase in the unemployment rate in the United States, which once reached the level of the Great Depression in 1929. In order to save the economy, the U.S. central bank has adopted large-scale flooding measures, causing the U.S. to enter the era of zero interest rates, and some people even expect to enter the era of negative interest rates. The United States is just a microcosm, and central banks around the world are releasing water, which has led to global inflation. On the one hand, the currency has depreciated, and on the other hand, the more far-reaching impact is the US dollar credit crisis. At present, the global economy is based on the US dollar credit system. Whether it is import and export trade or commodity transactions, we all need to use US dollars for settlement. However, after such an unprecedented flood in the United States, the US dollar credit may be further impacted.
Secondly, since 2015, the innovation of the global Internet industry has begun to slow down. By 2020, the development of the Internet industry has encountered a certain bottleneck. This bottleneck may come from the macroeconomic cycle we mentioned earlier, or it may be because we are very It is difficult to find a direction that can expand demand in the market based on the current technical framework. This has led to the lack of high-quality capital targets in the market. From Wall Street to all capitals in the world, everyone is looking for high-quality targets, and then they see cryptocurrencies. As the leading product in the cryptocurrency market, Bitcoin has been favored by investment institutions from various countries and Wall Street financial giants, and recently it has seen some obvious pursuit. It is true that the global large-scale water release and high-quality targets are the external reasons for what we said "we will enter a long-lasting bull market cycle".
The second is internal factors. We believe that the encryption market has accumulated for a long time in the past four years, and the valuation model has changed. If you look at most of the projects on the market in 2017, most of them are story-driven. The situation at that time was that people could imagine what the future would be like, make a PPT, write a white paper based on the imagination, and tell others that we have such a solution, but when the project is actually implemented, everyone will find that the actual situation is more complicated much. Today, after 2020 and 2021, the valuation model of the entire industry has undergone tremendous changes, from the original story-driven to the current user- and product-driven. Now we can clearly see that the valuation methods of DeFi products, exchange platform coins, etc. have gradually matured, and we can reasonably estimate the valuation model of the entire product, which is an important step for digital currencies to enter the traditional capital market.
The development of DeFi products has also brought about the rapid growth of TVL, bringing a large number of user retention, user interaction and interaction between different products, which has pushed up our demand for the use of Ethereum and other blockchains. This part It can be understood as the maturity of the business model, or the maturity of the blockchain industry.
It is also important to note that the token economy has matured for a bull market in 2021 after years of development. Previously, we would distinguish whether a token is a security token or a functional token. There may be some blockchain projects that define their own tokens as functional tokens in order to isolate external risks and ensure team security. However, we later discovered that functional tokens have certain defects and cannot develop well with the growth of the network. Security tokens involve dividends and repurchases, which are a good way to promote user growth. Let users no longer be just users of the blockchain network, but builders of the network. Everyone finds that more and more cryptocurrencies in the market have both functional attributes and securities attributes.
We believe that the innovation at the product level and the update of the economic model have truly solved the financial needs and further promoted the development of the encryption industry, which is the internal cause of the development of the entire industry. Under the combined effect of internal and external factors, the market came out of the bottom of 312. At that time, the total market value of cryptocurrencies was only 200 billion US dollars, and now it has reached 2 trillion US dollars. The ten-fold increase means that cryptocurrencies The market has gradually become an optional target for the mainstream financial market. When the size of cryptocurrency was small back then, leading investment institutions may not be able to use it as an option. With the further expansion and growth of the current market size, Wall Street investment institutions instead Willing to hold Bitcoin and use it as a transaction target. The growth of the overall market value means that there are more market participants, and it also means that more funds have entered the market.
Under the joint promotion of internal and external factors, a joint force is formed. Once this resultant force is formed, the trend will be irreversible. Of course, this is not to say that a correction will not occur in the short term, but that a certain short-term correction or a waterfall decline cannot change the development process of the entire industry. This is exactly the fact. Since the second half of 2020, the entire industry has achieved explosive growth. Although there have been many 30% corrections in the middle, the overall trend has never changed.
Many people who entered the industry earlier have begun to worry about how long the bull market can last, or have begun to look for opportunities to leave the market. Everyone is thinking: When will the bubble burst? Before discussing this issue, let's define whether there is a bubble or not.
The calls of Tesla founder Musk and Twitter founder Jack Dorsey, the involvement of Wall Street institutions, and the reports of mainstream media all make people feel that the current market bubble is extremely huge. But is this the case?
Looking at the market reaction after the listing of Coinbase, one can draw an obvious conclusion: the market is far from hot as expected. As the leading asset in the digital currency industry, Coinbase has an overall market capitalization of only about 50 billion U.S. dollars after its listing on Nasdaq, ranking only between 500 and 800 in the U.S. stock market, which is far from what we saw in the Internet in 2000 The level of the bubble period. Or compare the bubble in the A-share market in 2015. At that time, A-shares had a daily turnover of trillions, and the Shanghai Composite Index climbed from 2,500 points to 5,000 points in a short period of time. The daily trading volume is far from reaching that level of popularity. Top products (assets) other than Bitcoin, such as ETH, BNB, Coinbase stocks, etc., have not yet been enthusiastically sought after globally.
Take a look at the current DeFi projects on the market. Compared with the entire market value, their TVL is much higher than the normal ratio. A large number of DeFi projects have a large number of assets locked on them, but the valuation is very low. Including the annualized rate of return of DeFi products, we will find that the MC/TVL ratio of some of these projects is very low, which is different from the bubble burst that everyone is worried about Far, so we think that the current market is still in a good rising period, and there is no obvious bubble.
It is very difficult to predict the top of the secondary market, but one conclusion can be drawn from the factors we have just mentioned that we are only in the process of the entire development now, and our journey is much more than that. Since this top cannot be predicted, the best form is to participate in it. This is the first point of my speech, which defines what a new cycle is, what cycle we are in now, and how we should operate.
Moving on to the second point, I will discuss what investment strategy should be adopted in this cycle, or what strategy ArkStream Capital will use to participate in the investment of blockchain projects.
We believe that the development of the blockchain industry now has both native applications and grand visions.
What is the grand vision? Let's imagine the Web 3.0 era. In the future, everyone will have an independent identity in the Internet and encrypted world. They will be able to control all their data and participate in every encrypted application as an individual. It is decentralized and not controlled by a centralized institution. The entire network will be very developed in the future, and everyone can have any interaction here. This is the grand vision that the encryption world wants to realize. We think it will be divided into three stages, which also correspond to the three types of projects currently on the market.
The first category is native encryption applications based on existing infrastructure. In 2020 we saw the development of DeFi, in 2021 ushered in a wave of NFT outbreaks, and recently we saw the decentralized autonomous organization (DAO) that is gaining momentum. A section that can directly involve users. We believe that the development of DeFi is still in the initial stage. Although there are many DeFi products and some good applications, we found that there are only three DeFi products that people are really willing to use: lending, decentralized exchanges, Liquidity mining, these three products are the cornerstone of the DeFi industry.
Which other sectors will have phenomenal applications? First of all, we believe that decentralized derivatives are very important, because it can be clearly seen on centralized exchanges that the trading volume of derivatives is much greater than that of spot trading. The same is true of market demand. A large number of users hope to have leveraged products available, buy or even short through leverage, but the current DeFi products cannot be well realized. Now some decentralized derivatives projects are still being explored, and we are willing to invest in some projects with new solutions or some great ideas in this sector.
In addition, we believe that decentralized insurance is also a good breaking point in the future. In the traditional world, insurance is a very important sector in the financial industry, but in the current DeFi field and the decentralized world, the insurance target funds are less than 1%. We think there will be huge room for growth, but there is still There are no particularly good decentralized insurance projects that can occupy the entire market. We believe that this type of application will definitely explode in the future.
There are still many decentralized stable currency products. U.S. dollar stablecoins or other fiat currency stablecoins have become an integral part of the entire crypto world, and you can use stable assets to trade on different exchanges. Algorithmic stablecoins have undergone zero-collateralization and half-collateralization evolution, and have undergone further changes recently. Judging from the current currency price situation or the growth rate of the entire market value, the current algorithmic stable currency is still in its infancy, and the exploration of algorithmic stable currency will continue to exist. In the future, we don't even have to anchor the US dollar, but we can anchor the growth of the entire encryption market, which may be the direction of the development of algorithmic stablecoins.
We regard DeFi as a major native application in the encryption market, and another major application is NFT, which will achieve significant development in 2021. From encrypted cats and encrypted collectibles in 2017 to encrypted artwork in 2021, the emergence of sports items such as NBA Top Shot has brought NFT out of the circle step by step. We believe that there is still a lot of room for NFT to explore in the future, but limited by the existing infrastructure, it has not yet been able to meet real needs. In the future, some NFTs with financial attributes, such as fixed-rate products, may have certain growth space.
And DAO (Decentralized Governance). Before 2020, the market's understanding of DAO was very vague. After the incident of The DAO on Ethereum, everyone also felt a certain sense of fear. In the past, everyone thought that governance tokens were useless, but the emergence of Compound has changed everyone's opinion. We believe that governance is meaningful. After the project is decentralized, everyone can participate in the process of the project. When we participated in the YAM product, we found that a large number of community users had carried out project governance on the Snapshot website. In the end, although the project failed due to some code reasons or untimely operations, I think it was a review of the DAO organization. Very meaningful exploration. On the other hand, in addition to being able to participate in the decision-making process of the project’s development process, holding governance tokens, many times the market also believes that holding governance tokens can have project revenue expectations, because since you can participate in project process management, you can decide The function of tokens, the governance tokens of products like Uniswap or Compound, although there is no dividend function now, but the platform has huge profitability, and these profits will give investors the expectation of dividends in the future. At present, although the entire chain governance is still in a very early stage of development, we can see that more and more projects have begun to try to use DAO governance, such as the Snapshot I just mentioned, although the product form is very simple, only voting For this function, governance has to be realized off-chain, but it has been loved by many people. The so-called DAO governance is not only about returning the project to the community, but after the founding development team understands the project development process and governance significance, it can allow more people to participate and promote better project development.
What I just talked about is based on the encryption application under the existing infrastructure. We can further explore and find many innovative points, which leads to the second stage we want to talk about. In the process of exploring encryption applications, we increasingly find that the existing underlying infrastructure has many limitations, which limits the development of applications. Now many blockchain projects are trying to explore how to expand the boundaries of the blockchain, such as innovative Layer 2 solutions, or constructing new public chains. We believe that these are all blockchain products in the second stage. Another focus is decentralized storage. The storage layer can help us put data content on the chain and make the entire encrypted world more decentralized. This is also an indispensable part of the entire Web3.0 road that we believe. Only when it is built can it be used by more developers. Since 2017, everyone has been exploring how to build a better underlying infrastructure, and many public chains and blockchain networks have emerged. In 2021, some have achieved remarkable results. The market is willing to give such products a high enough valuation, and we are also constantly looking for encryption applications in these new ecosystems.
In the development path of the blockchain, developers are a very important part. Whether it is developing more DeFi products or NFT products, or building a new chain, they can participate in the ecology and even help the ecology to further improve supporting facilities Facilities are very important.
In the next third stage, there will be some new fields and sectors that need to be explored, such as the data trading market, privacy computing, and metaverse, which are all important parts of the Web3.0 landscape. The real Web 3.0 era will come only after the infrastructure in the second phase is perfected. At that time, there will be some new areas waiting for us to explore. For example, after the data has controllability and programmability in the future, users can reasonably participate in transactions in the entire data market. We have now realized the need for privacy protection in DeFi application scenarios, but privacy computing is much more than that. The future on-chain network may also have a one-to-one complete mapping with off-chain identities, that is, we are one role in real life and another role on the Internet. The two correspond one-to-one, but may play different roles. This is like the "Oasis" in "Ready Player One", which is far more than just a game, but will become a part of future life. We believe that in the third stage, it is necessary to imagine the future. In the Web3.0 scenario, there will be some indispensable sections, but they are not favored by the market at present, and there are no more developers pouring in. Everyone is more The land is still exploring the decentralized application of the first stage, or exploring the underlying expansion of the second stage, but only in the third stage will more products generate real value.
Just now we talked about three stages, now let’s summarize. We believe that in the development process of these three stages, it is the process from value storage to value creation. At this stage, Bitcoin occupies 50% of the market share. We think this is a sign of the initial stage of the encryption market. In the future, the encryption market will really enter the scene of blooming everywhere. When the development of encryption bulls develops to the later stage, the proportion of Bitcoin will definitely be further reduced, and more good applications will begin to stand out. In the financial market, a large number of digital currency projects and areas Blockchain projects and encryption projects can occupy the top position in the entire market and gain the favor of more users, investment institutions and capital.
Based on this, we summarize ArkStream Capital's investment methodology - an investment strategy that takes into account future development and capital efficiency. The so-called capital efficiency is to find some encryption application innovations under the existing infrastructure, and their innovations can meet the urgent needs of the current scene. For example, after the birth of Uniswap, countless AMM "imitation disks" appeared. Some of these products can carry out certain micro-innovations on the existing basis, or gain more user trust through their products and market strategies. It has a certain investment value, because the entire market iterates very quickly, giving latecomers a lot of opportunities. Another example is the decentralized derivatives, decentralized insurance, and algorithmic stablecoins I just mentioned. We believe that these sectors will have a good capital efficiency at this stage, because once their products or solutions are favored by the market, they will Explosion can be achieved quickly, and of course this also includes relatively mature sectors such as decentralized lending and decentralized exchanges. We will continue to look for in the market, especially those projects that have no institutional investment in the early stage and only rely on some geeks’ unconstrained ideas to make products. We are willing to embrace these projects, invest in them, and bring these projects to the market. to the market.
At the same time, we also need to imagine the future and participate in the investment in the entire Web3.0 era. Regarding this type of project, we may not be able to know exactly its future product model at this stage, and there may be large variables in future development, so we will pay more attention to evaluating whether the project has a good idea. Is the team solid. A good idea means a good guiding ideology, a good solution can be proposed, or a very mature infrastructure has been built, we can see what the scene will be like when it is done, and we are willing to look for these projects. There are also some projects that have not received much favor at the current market stage, but will definitely explode when the entire Web3.0 arrives, such as the decentralized storage, privacy computing, data transactions, metaverse we just mentioned , as an investment institution, we need to find more such projects and evaluate whether the team has the strength to overcome obstacles and kill blood. Because we know that under the grand vision of the future, even if everyone is rushing there, 99% of people may become "martyrs". One step ahead of the times will become heroes, but ten steps ahead of the times may become victims. However, we believe that such sacrifices are necessary, and this will not hinder us from continuing to search for such products to promote the further development of the encryption market.
Just now we talked about the investment strategy and analyzed some current opportunity tracks in the market. We divided the process of entering the Web 3.0 era into three stages. When investing in projects in the three stages, we need to take into account our capital efficiency. And find a reliable team on the track that has the opportunity to explode to a certain extent in the future.
In the future, investment in the primary market must become more and more professional. We hope that as a professional investment institution, we can continue to participate in the further development of the entire market.
This is what I share today, thank you all.
