On August 26, it was co-sponsored by the leading financial technology elite readers Chain News, Winkrypto, the integrator of encrypted ecological resources, the world’s largest Chinese encryption community Binhu, the open financial application platform smart wallet MYKEY, and the original blockchain investor D1 Ventures. ——The first Open Finance Conference (OFC) continues to be in full swing.
This roundtable focuses on the next trend of DeFi, the method of selecting DeFi projects, the value of the DeFi community, and the differences between the East and West communities, and is committed to discussing the future development of the DeFi field by discussing the globalization process of the DeFi community.
Roundtable theme of this issue: The globalization process of the DeFi community
- Moderator: DeFi Labs partner Jerry
- Arthur Cheong, founder of DeFinance Capital
- First Class Analyst Miao Qi
- Andrew Kang, Managing Partner of Mechanism Capital
- Ray Xiao, Investment Director, IOSG Ventures
Core Aspect
The combination of games and DeFi, risk control (including price risk and contract risk), oracles, new lending, and innovation are considered to be the next trends in the DeFi field. The DeFi project, which can provide solutions to some key problems and improve the user experience, is considered the most attractive project. In response to the question “What is the difference between the current DeFi community and the community one or two years ago?” The general view is that the community determines the lifeline of the DeFi project.
Host Jerry : Hello everyone! I’m Jerry, a partner of DeFi Labs, and I’m today’s host. First, please let the guests briefly introduce yourself. Let’s start with Arthur Cheong.
Arthur Cheong : I am the founder of DeFinance Capital. We are a venture capital consensus focused on DeFi. Since the end of 2018, we have been paying close attention to the DeFi field and have also invested in many DeFi projects such as Synthetix, Aave, and Kyber. As you can see, we are very active in the DeFi field.
Miao Qi : I am an investment manager and analyst in the first-class position. We mainly prefer to invest in the secondary market and do not invest in the primary market. At the same time, we also provide some consulting services and compile industry research reports.
Andrew Kang : I am the managing partner of Mechanism Capital. We mainly invest in the primary and secondary markets in the encryption field, and currently focus on DeFi. Our goal is to be able to further develop new financial products under the DeFi agreement, and we are also happy to use our experience to participate in the governance of some DeFi agreements.
Ray Xiao : I am the investment director of IOSG Ventures. IOSG Ventures was first established in 2017. It is a research and community-driven crypto venture capital fund with offices in China, the United States, Singapore and Germany, focusing on the entire crypto ecosystem such as Web3.0, DeFi, and cross-chain. We have invested in more than 60 projects in the past 3 years.
Host Jerry : Okay, then our first question today is, what kind of DeFi project do you think is more attractive? Can you explain more specifically?
Andrew Kang : For me, it is very attractive to create new financial structures that do not exist in centralized finance, such as automatic market makers, synthetic asset trading platforms, etc. In addition, these DeFi projects will further increase the adoption rate of DeFi. On the contrary, it doesn’t make any sense to just copy the products in the centralized financial market.
Miao Qi: I think there are solutions to some of the key issues DeFi project is very interesting, such as Bancor v2 version. Bancor v1 does not realize the importance of liquidity providers. Bancor v2 has made a lot of improvements to this, which can effectively reduce slippage and reduce the loss of liquidity providers due to arbitrage, and allow liquidity providers to provide 100% risk exposure for a single token. These three points are the key problems that automated market makers have in decentralized exchanges.
Arthur Cheong : DeFi has now developed into a very comprehensive ecosystem. We can see some interesting projects in many areas of DeFi. In the field of lending, AAVE’s total lock-up volume and market value have recently grown rapidly and have surpassed the long-term ranked Maker, to rank first. Even so, the project continues to innovate and has obtained an electronic money institution license issued by the UK Financial Conduct Authority. Curve, the stable currency exchange platform, should continue to be in good shape. In addition, we also invest in DODO, a decentralized trading protocol. I think this team is also building a new generation of AMM and DEX.
Ray Xiao : IOSG Ventures has invested in many related projects. In DeFi, our main concern is the upper-level application products that can improve the user experience . Although the market value of DeFI has surged in recent months, I believe that user growth is out of proportion to the market value growth. One of the main reasons is the expensive gas fee of Ethereum. Of course, we can wait for a better infrastructure, such as Ethereum 2.0. On the other hand, what we can do is to reduce user barriers and improve user experience to make the user interface smoother.
In addition, we have also invested in 1inch, a decentralized aggregate trading tool. 1inch is expected to bring more sources of liquidity, better prices and lower slippage, and provide better solutions.
Host Jerry : Everyone mentioned Bancor v2 and 1inch DeFi products. Next, you can share how you selected these high-quality DeFi products , or what methods did you use?
Andrew Kang : In 2018 and 19, these projects had little influence. In addition, there were not many high-quality projects, so it is not difficult to do some screening. But now we are seeing many DeFi projects emerging. To be honest, we have a lot of work every day. Later, I discovered that many of our friends have been constantly exploring and using new projects. These friends may be users of the DeFi agreement, or the founders of the DeFi agreement, or some investors. Therefore, I wonder if I can filter out useful points from the conversation with them. In terms of discovering new projects, we have indeed provided investors with a lot of help, which is also conducive to our own development.
Ray Xiao : We always believe that the DeFi protocol will play an important role as the middle layer of financial services in Web 3 . Last year, we also released related technical research reports. We believe that the DeFi protocol is an intermediate layer of financial services and a bridge that can pass the basic layer and native tokens. IOSG Ventures is a research and community-driven venture capital company. In the DeFi field, we will conduct a lot of research before investing, and will also establish a deeper connection with the invested project, such as providing resources for the project and the entire community. In addition, we are also a member of organizations such as the Chicago DeFi Alliance.
Arthur Cheong : Indeed, I miss the previous period when I could spend two weeks studying a project and then making an investment decision. With more DeFi projects coming out in recent months, making an investment decision is much more difficult. I think the best way is to subscribe to some of the top newsletters and DeFi sources. Another way is to join some DeFi communities. However, the most effective method is to find some data, the data will speak.
Miao Qi : I totally agree with Arthur’s point of view. It is becoming more and more difficult to select investment projects. I want to show some of our experience in investing in AAVE, and we have gained more than 100 times of benefits from this project. In the bear market last year, we began to invest heavily. We believe that the bear market is an excellent opportunity to invest in the secondary market. Aave was originally a P2P lending model of ETHLend. We thought this was not a good investment project in June last year. During 2019, we analyzed more than 1,000 projects one by one, but this year there is not much time. After AAVE switched ETHLend’s P2P lending model to a pool-based model, we found that this can greatly improve lending efficiency. At the time, Compound was also a pool-based model. We found that AAVE has a very clear goal, so we included AAVE in our top portfolio. As AAVE continues to innovate, we have increased the target price many times.
Host Jerry : Okay. As everyone knows, there are several projects that have led the development of the DeFi industry and have had a great impact on the industry, such as Compound, Ampleforth, etc. What do you think is the next trend of DeFi?
Arthur Cheong : This is a very challenging question. Everyone is looking for the next trend. I think a new trend may be the combination of gaming and financial functions. The combination of the speculative elements of finance and the game elements of such games may lead the next trend . As long as the market is in a more optimistic environment, I think we will still try more, and I am also open to this. However, this remains to be seen. Another trend may be mortgage lending. Some DeFi protocols are currently doing similar work.
Miao Qi : It is difficult to clearly explain the trends in the coming weeks or months, but I think risk control is a very important part of the DeFi field. In the near future, more people will face price risk and contract risk . I think these derivatives can be used to hedge risks. dYdX, Opyn and UMA are options that can hedge risks.
Andrew Kang : I think the entire field of DeFi will explode in the next few months or a year. Therefore, it is difficult to determine whether a certain field will be the next trend. If the scope must be reduced, I think that smart contract insurance may be more attractive, and its coverage is relatively small.
Ray Xiao : I agree with Miao Qi’s idea that we need to pay attention to security in the entire DeFi industry from a higher level. The first is contract review . With the rapid development of the DeFi market, the amount of DeFi pledged and locked up is also increasing, which is very tempting for hackers to attack small contracts. In addition to the current contract auditing agency, we are also willing to make attempts like formal verification to provide more security performance in the DeFi field.
The second direction we are currently focusing on is the oracle . We believe that not every DeFi project has the ability to build its own oracle. In addition, the decentralization and safety of the project are also worthy of attention. Overall, we believe that there is still room for improvement in the oracle. We look forward to seeing more exciting things in this industry.
Host Jerry : Everyone mentioned the combination of games and finance, new lending models, risk control, innovation and other trends. Next we will discuss things related to the community. Everyone knows that in the field of cryptocurrency, the community is a very important part. There are currently many communities for DeFi products. So what do you think of these communities? How is the current DeFi community different from the one or two years ago?
Miao Qi : I think the community will always play a good role in the cryptocurrency market . We can see a trend that some projects are currently undergoing on-chain governance, which leads to very high gas costs, which may be a factor that hinders a large number of investors from entering the field. Therefore, I have seen that some projects have been voted in community forums and moved from on-chain to off-chain . I think this may be a very effective way to solve this problem. The current community has more power to determine the governance of the community and the parameters of the project. I think this is a very big improvement compared to two years ago.
Andrew Kang : Obviously, the community determines the lifeline of DeFi projects . For me, the meaning of community existence is not only to spread the project (idea), but also to dialogue with the community. Effective community dialogue may affect the governance and future development of the project agreement. Synthetix is a very good example. The design source of many features in Synthetix is the community. Community building is very important.
Miao Qi : Obviously, the trend of community-driven projects is completely different from two years ago, especially for crypto venture capital firms. From my personal experience, I can feel that most of the current startup projects are driven by the community rather than capital.
In 2017, many projects were actually driven by capital and crypto venture capital companies. The main reason is that these projects (especially one-tier projects) require a large amount of initial startup capital to build infrastructure. They need to design their own consensus, conduct public relations and marketing, and develop tools to attract investors and developers. In other words, they need to do all the preparations.
But today, most successful DeFi protocols actually have only a small team, perhaps two or a few developers. They just need to focus on polishing the product.
In other words, the current cost of innovation is much lower than before . The current DeFi environment is very friendly to people who want to build new products.
Arthur Cheong : I would like to add that historical data shows that from the perspective of pure return on investment, we see that the community of projects that perform well is very strong. Obviously, community building is very important.
Compared to a few years ago, the current DeFi community is more complex. However, I am very surprised by the willingness of some DeFi communities to participate in governance. For example, the YFI community is very active and the willingness to participate in governance is also very strong.
The input of the agreement is very beneficial to the project and the user. The community members two years ago just wanted to make money and knew almost nothing about the development of the project. But now community members are more aware of project governance and development process.
Host Jerry : Okay. The next question is more about the differences between East and West. Users in China use WeChat and Weibo, and users outside of China usually use Telegram and Twitter. In addition, in terms of DeFi and communities, what do you think are the fundamental differences between the East and the West?
Arthur Cheong : I personally think that, at least in the initial stage, Chinese users are skeptical of DeFi. Before that, they relied more on centralized exchanges. But in Western countries, I think there are more people who truly believe in decentralized design or ideas and participate in community building. At least in the initial stage, the Western community sees further. However, this situation is also changing. The Chinese community also began to realize the development of DeFi a few months ago.
Ray Xiao : I don’t think so. I think there is not much difference between DeFi users between East and West. In addition, Chinese developers are highly sensitive to user needs and have upgraded the user interface very smoothly. Western developers are very good at innovating products. I think the DeFi community is a global community.
Moderator Jerry : I very much agree with this view. Even in China, many people are used to using telegram and Twitter.
Andrew Kang : DeFi is global. We communicate with investors and founders from every country in the world almost daily. What I want to say is that when it comes to the projects we invest in, it may be mainly Western projects. But I think, as Arthur said, Chinese users were really skeptical of DeFi before. However, a few months ago, many communities began to understand the importance of DeFi. I think these projects should continue to innovate. Lianwen and Satoshi Mamoto are in the lead in reporting on the DeFi industry.
Miao Qi : I think the fundamental difference between Eastern and Western investors lies in the language barrier . This is the most important and critical issue for Chinese cryptocurrency investors who want to get first-hand information from Twitter or other sources. Indeed, very few people in China can read or obtain first-hand information from foreign websites. Many people do not understand English and they can only rely on WeChat groups or daily to obtain second-hand information. I think this is the most inconvenient place for these Chinese cryptocurrency investors to participate in DeFi projects.
In addition, many investors lack basic encryption knowledge , and many of them don’t even know how to transfer funds from a centralized exchange to a wallet. This is the main obstacle for users to participate in DeFi projects. But a good trend is that these YFI projects attract more investors, prompting them to learn how to participate in DeFi. I think this will be a very good trend for the entire system.
The third point is policy differences . In China, there is a certain degree of risk when exchanging fiat currency and USDT on some OTC platforms.
Host Jerry : Yes. In addition, I think the East and West communities need more exchanges. Next we will enter the last question of this conference. Will you join some DeFi-related groups on WeChat and Telegram? If so, how would you get useful information from multiple groups?
Ray Xiao : I don’t know much about this. Because I actually want to join all DeFi groups, but this is obviously impossible for me because time management is very difficult. I also need to like to spend time researching and due diligence on some projects.
However, I think that most DeFi projects are community driven. Therefore, we also need to establish a good relationship with them.
Andrew Kang : I personally think that joining DeFi groups is an effective way to discover good projects. However, this does take a lot of time.
Miao Qi : Indeed, it is impossible to follow and view all DeFi groups. I found that the main sources of the project are white papers and official Twitter . However, when I want to pay attention to some hot topics such as YFI or have questions about some projects, I will join discord to ask some questions.
Arthur Cheong : I did join some DeFi groups. But it is impossible to read everything. For how to get useful information from multiple groups, I think there is no perfect solution. But I think it is very important to check some updated information frequently.
Host Jerry : Yes. Today we talked about the next trend of DeFi, the value of the community, the differences between East and West communities, and how to manage multiple groups. Thank you very much for your opinion output tonight. This concludes our activity today.
