Deng Chao, managing director of HashKey Capital, shares his insights in the field of digital financial investment from his investment practices in the past six years.
Speech: Deng Chao, Managing Director of HashKey Capital
On October 28th, on the second day of the 6th Blockchain Global Summit hosted by Wanxiang Blockchain Lab, Deng Chao, Managing Director of HashKey Capital, delivered a speech on “Digital Finance: A Perspective on Blockchain Investment”.
The following is the speech content:
Deng Chao, Managing Director of HashKey Capital
HashKey Capital is a professional blockchain investment institution established in Hong Kong. It has invested in more than 600 blockchain companies with domestic related topics, covering Ethereum, Polkadot, and Filecoin in the blockchain ecosystem, because the theme of digital finance is too grand Yes, I am going to talk about some understanding of the concept of digital finance from the investment practice of the past six years, and the sharing of some cases.
First, I will show a small animation. It is a small animation made by the Harvard Innovation Lab in 2014. It has taken from the beginning of using a computer, from a scene that everyone will use, from 1980 to 2014, everyone By comparison, it may feel quite shocking. What do you want to show by this factor? Following Dr. Xiao Feng’s trend of human digital migration, we see from offline to online, from physical to virtual, and from centralized to decentralized organization. Even after the emergence of blockchain technology, our organizational form and company entities are increasingly turning to community forms. To give a personal experience in physical form, since mobile payment has become popular, we will have an understanding that money is gone, banknotes are gone, and small vendors in remote mountainous areas and even beggars have begun to use QR codes to collect money.
Contact with friends in the traditional financial world, according to the latest data, the domestic shipments of ATM and POS machines have fallen off a cliff since 2016, which proves that the trend from physical to virtual is not only progressing, but also intensified. Let’s also cite a case from the organizational form. We all know that this epidemic has caused a lot of physical companies to suffer a great business impact. In the early days, especially in January and February this year, there were many friends from traditional industries. Will ask us, has your blockchain industry been hit hard? My answer is that there were certain challenges in the first two months, but from the back on, it has basically no effect on us. why? I believe that all of my colleagues here are direct or indirect participants in the blockchain industry. Our field has great characteristics, because the nature of blockchain technology is distributed. So for those of us involved in this field, take our company HashKey Capital as an example. Since its establishment, all teams have been distributed. From the first day, the collaboration model is cross-time zone, Cross-regional. This was the normal state of our work before the epidemic. The epidemic only highlighted the trend of distributed offices from offline to online, highlighting the trend and importance of the great migration. In terms of output effects, the progress of investment in the past year is greater than last year in terms of investment volume.
The lens has been straightened and pulled into the financial sector. The trend of digital migration has been going on. From the earliest traditional finance, I remember that when I was very young, the previous generation said that banks were on the system. At that time, the system was to turn the paper into an electronic version, and there were words such as electronic business and electronic government affairs. After 2000, there began to move traditional financial products online, which was a relatively simple move, such as moving the loan model from offline to online. Later, the combination of financial companies and technology companies opened up some new scene modes. The form of the product is very similar to traditional finance, but all scenarios are native to the Internet, such as the products of a major manufacturer. Later, with the birth of blockchain technology, new financial models based on distributed technology or distributed platforms have emerged. I wrote about DeFi here. What I want to clarify is that there have been a lot of discussions about DeFi in the community especially during Shanghai Blockchain Week and in the last one or two months. I found that the term DeFi is limited to liquid mining in the Chinese community. The term DeFi in a broader sense refers to all financial forms or financial activities based on distributed technologies and distributed networks. Based on the current situation, make a preliminary prediction. It is possible that in the future, with the emergence of more distributed network technology platforms, and the emergence of new technologies such as the Internet of Things, distributed finance will only become larger in the end. Part of the business system.
Let me share your understanding of the core composition of digital finance. Divided into two layers, technical layer and upper application. Everyone at the bottom knows that big data, cloud computing, and artificial intelligence have been mentioned before Internet finance and technology finance, and using it to improve the ability of data analysis and processing, and to provide you with investment decisions and investment recommendations, this has been achieved. After the emergence of the blockchain, the credibility of all financial activities and the threshold for participation have been greatly reduced, and the credibility has been greatly improved, that is, the cost of trust has been reduced. With the birth of the Internet, it is possible to turn financial activities into financial activities between people and things, things and things, and machines and machines.
The next level is finance. Although I am writing about traditional financial forms, if it is in digital finance, every financial form is the eye of traditional finance. It may be combined with the basic characteristics of the blockchain and the entire industry. For example, traditional financial insurance is life insurance, property insurance, etc., which are all implemented in a company way. In case of danger, report the danger, and finally investigate and settle the claim. In the blockchain, insurance can be done on the chain. This is what traditional insurance industry has done for so many years and has not done much, but it has been done with the blockchain. In addition, other extended tools and options can also be used to do insurance business on the blockchain.
In addition, in the payment field, there are also many business models that use blockchain technology. For example, two projects will participate in the round table later this afternoon. One is a South Korean project. They use stable coins in e-commerce payments, and the other is The Thai project uses blockchain technology in the field of cross-border transfers and cross-border payments, and it is very inclusive. It is not for large institutions, but for labor in Thailand. I made money from home and transferred to Myanmar and Laos. The cost was a quarter of the original cost, and the speed was basically within seconds or divided. It is equivalent to a Southeast Asian version of Libra.
Since the birth of blockchain technology, all financial activities on blockchain have been the exploration of digital finance in a distributed direction. My first activity in 2009 was the creation of BTC, which is a pioneering exploration. The exploration or attempt in the currency field with blockchain technology is the most successful attempt so far. The second is Ethereum, which started in 2015. This is an attempt at the operating system level with blockchain technology and distributed technology, and it is also a very successful attempt. In addition, in terms of communityization, DeFi, which is very hot recently, has cold-started the project and made a good attempt to quickly absorb users, but it did not consider the incentive mechanism and sustainability. The fourth aspect is commercialization, including the exploration of distributed finance by sovereign institutions and commercial institutions. DCEP, JPM Coin, and Libra advocated by our country are all cases. In addition, China and the United States have proposed digital transformation or asset Token A lot of effort must be made. These explorations can be viewed in two. All explorations have enthusiasm, but some of them are not considered during the exploration process. Originally, the blockchain field has changed very quickly. One trial and error failed, and the next time it can be improved.
Next, let’s talk about this trend. If distributed finance enters its heyday, or becomes part of distributed commerce, we will see the form of business or products from an investment perspective. As mentioned earlier, the platform category is going in the direction of the agreement, the centralized type is going to the distributed, and the closed type has become more open. From the appearance of the product, it will be very flat, basically reaching the level of inclusiveness. As long as it is technically operational, everyone can participate in these financial activities. From the perspective of product design, what you see is what you get, which is what I said earlier. There are many blockchain products, but they are not designed to be used by ordinary people and have not reached the product level. In terms of wallet, when I opened an account, every step was a challenge because I was not a technical background. When I wrote the mnemonic, I checked it several times. Every subsequent transfer of accounts was frightening. Is there a product that allows you to use it in the blockchain field as foolish as it is on the Internet. Don’t talk to me about technology. There is only choice in front of me. I just need to click on it. We saw similar items in the wallet. We invested in an Israeli wallet, which is mounted on Apple’s facial recognition system. Relatively safe and mature products. If blockchain products can go in this direction, it will be more convenient for attracting more users.
The third direction, because of the characteristics of the blockchain, I hope to see products that can reduce costs and improve efficiency. There are many cost reductions, including user costs, entrepreneurial costs, and development costs. There are also compliance. Now there are two directions in this field. One is extreme blockchain fundamentalism, hoping to go in another direction with traditional reality. One direction is for people in the traditional field to enter the blockchain, and what they hope to see is the combination of the traditional field and the blockchain field. If you want to see more large-scale funds enter this market, you must embrace an attitude of compliance.
Let me share with you the general direction of investment in this industry from the perspective of digital finance, especially from the perspective of blockchain. Because the big picture of digital finance has to be divided into many areas. I started from the lowest level of technology, such as in the blockchain field, the cross-chain and Layer2 fields that are currently being discussed, as well as secure multi-party computing, data on-chain, on-chain and off-chain data, and oracles used to process data . From a business perspective, expand further, all new technologies, such as distributed storage, distributed computing, and the Internet of Things, may have some new business models in every segment. Distributed finance only occupies a component in the middle, it is a component. There are many financial forms in distributed finance. In addition to the traditional financial model approaching the blockchain, there will also be many native financial models in the field of digital assets or in the ecological field native to the blockchain.
The following are some big logics that I have mainly seen from the investment in the past six years.
Product logic
There are tools, functions, products, businesses, and users. This is a series. We invest a lot of technology, not to invest in the technology itself, but to integrate this technology into the product. However, investing in a product is not about investing in the product itself, but for its function. The function is to attract more users. So there is a series relationship.
Take an example in the blockchain. For example, we invest in Dapp. There are many smart contracts in Dapp. We only regard smart contracts or certain technical elements as one of the components of Dapp. It’s not that we will vote for a certain item that is particularly good, but to see if the combination can achieve the final function. Uniswap has talked a lot recently. Let me share it from another perspective. Uniswap is currently at the forefront of user acquisition or promotion in blockchain or distributed finance. Compared with other various WAPs that take advantage of the flow, it basically revolves around the field of small liquidity mining.
Technical logic
The technology is better, this is what everyone thinks, we see different points, we will pay attention to the relationship between academic, engineering and products. In the past two or three years, there have been many academic papers in the blockchain. I hope to transform academic papers into a blockchain system, and I hope that in the blockchain system, they will finally make good products. There is often a gap between each stage. A well-written academic paper may not make a good system. The system is well developed and cannot make a good product. Therefore, scientists, engineers and product managers should be better integrated.
Economic logic
To comply with the trend of digital migration, a cross-regional and cross-entity trend has been established. It is also certain to improve efficiency and reduce costs. To focus on it, if you want to add digital assets, all digital assets now add up to 300 billion U.S. dollars in volume, which is just a fraction of the traditional financial market. If you do financial activities in these fields, you should be able to use traditional financial models as a reference and comparison. With a single point of economic value, it is hoped that all product users are not only users but also create value for this system.
Finally, to summarize, talk about two points of understanding and three investment perspectives.
- First, the next evolution stage of digital finance is distributed finance, which is an integral part of larger distributed commerce.
- Second, traditional finance and distributed finance symbiosis and complement each other and gradually merge. Distributed finance may have a certain impact on traditional finance, but more and more traditional finance has begun to embrace distributed finance. Traditional financial institutions now serve more institutional investors or qualified investors, while distributed financial services serve long-tail users. It is believed that the two will coexist and complement each other in a relatively long period of time, and will gradually merge like the theme of the summit.
There are three perspectives from the investment dimension.
- First, ecological thinking. Investing in the blockchain field is not just for investing in a certain track. There are many blockchain investment institutions that are subject-driven. We regard the blockchain as an ecology. The ecology of blockchain or distributed finance is an integral part of larger distributed finance.
- Second, end-game thinking. Now there are many hot spots and trends in the market at each stage. If we are just to follow the hot spots and trends, we don’t know where we will eventually go. We are going backwards to judge where distributed finance will go, what are the characteristics at that time, and use the reverse method to judge whether some projects are worth investing in.
- Third, embrace innovation. We will stay focused on the innovative attitude, welcome new tracks and new participants, and at the same time maintain a certain degree of rationality. The above is my sharing today. Thank you for your time.
