Huang Lingbo believes that there are roughly three investment opportunities in the blockchain field in 2021: core ecological development, DeFi and incremental markets.
Original title: “Huang Lingbo: Fenbushi Capital’s investment strategy and layout in 2021 | Non-consensus conference”
Speech: Huang Lingbo, Partner of Fenbushi Capital
On December 23, the “2020 Non-Consensus Conference and DeepChain Annual Impact Awards Ceremony” hosted by Shenzhen Chain Finance and co-organized by Thor Chain and HOLD was successfully held in Shenzhen Marriott Hotel. Huang Lingbo, a partner of Fenbushi Capital, was invited to attend and share the theme.
Fenbushi Capital has always been a domestic investment institution that has attracted much attention, and its investment direction also represents the future trend of the development of the industry. What exactly is Fenbushi Capital’s investment strategy and layout in 2021? At the event, Huang Lingbo made disclosure and interpretation for the audience.
The following is Huang Lingbo’s sharing record, edited by Shenzhen Chain Finance.
Hello everyone, I am Huang Lingbo, a partner of Fenbushi Capital. Today I will share with you the overall investment strategy of Fenbushi Capital and the overall investment direction in 2021. Thank you.
Let me first introduce Fenbushi Capital. Fenbushi Capital is the first domestic investment institution to invest in blockchain in 2015. Mr. Shen (Shen Bo) is our founder. About 70% of our investment projects are overseas projects. Distributed projects prefer to invest in blockchain infrastructure and technology projects. We have also been repeatedly rated by CBInsights as the world’s most active blockchain fund.
Next, I will introduce the primary market investment logic of Fenbushi Capital. For us, the primary market is divided into three categories: one is the original blockchain projects, including public chains, protocol layers, and Dapps; the other is industry ecological services Including media, wallets, mining-related, asset management, etc.; the third is blockchain enterprise service projects, enterprise service technical projects, mainly for institutions to do some alliance chains, regulatory technology, etc., which are mainly divided into BaaS, distributed Storage, privacy computing, edge computing, etc. I will introduce it in detail later.
Regarding native projects, our core focus is still on the balance of the entire ecology, that is, the balance of the impossible triangle. We still feel that decentralization is the most important bonus of our native projects.
Native projects include public chain, protocol layer, and application layer. The pattern of the public chain has tended to be relatively certain. We think that the more interesting public chains: one is cross-chain; the other is vertical public chains: everyone pays more attention to the protocol layer, including Web3 and Open Finance; and the third is the application layer. It’s relatively popular, but we always think that Dapps are relatively basic, the core is to make Internet products, and there is no good decentralized thinking. The core or decentralized basic protocol is still in its early days. For this type of project, in addition to focusing on how the project achieves decentralization from the perspective of technology, consensus mechanism and token incentives, on the other hand, we focus on the community of the project, including the technical community and the communities of other participants.
There are many contacts in industry services, and it is easier to understand including media, exchanges, wallets, and mining.
The media is relatively stable, and the media itself will have a certain degree of particularity, and it will be localized, but there will be outstanding media in a region.
The pattern of exchanges is also relatively stable. Originally, it was mainly spot exchanges. Now derivatives exchanges are relatively stable. We are now more concerned about the emergence of compliant exchanges.
Wallets, generally speaking, there will always be opportunities for wallets. Every time a relatively high-quality ecological project appears, there will be a batch of new flow wallets. Now wallet functions are expanding, not only limited to digital asset storage, but expanded to capital Control functions and distribution functions of application channels.
In terms of mining, we feel that this piece is inseparable from the development of public chains and other ecology. As long as there is a relatively new ecology, there will be new mining opportunities. Mining was initially a project type with relatively high technical barriers. As the overall technology and ecology stabilized, it gradually turned to a capital-intensive industry. In the future, it depends on whose capital ability is strong to expand derivatives, whether it is borrowing or asset management, including the scale of mines.
Technical service. After 1024 last year, domestic support for technical service projects is very large. For this type of project, we have two core points: First, we pay more attention to the depth of the team in the vertical scene, regardless of the supply chain. , Trade, finance, legal affairs, government affairs, the team all need to have a deep understanding of the industry, and have better resources, so that they can make better products and find customers to use. We found that the technical barriers for such projects are not the biggest core. The biggest barrier for native projects is technology, but technical services are not. The biggest barrier is the understanding of this industry and the amount of resources in this industry. , So as to provide this industry with better products. Second, we found that such products must be technologically integrated, including cloud services, artificial intelligence, etc., and need to provide integrated product services. So we will pay attention to the deep understanding of the team and whether there is stronger technical integration.
The general layout of our investment in 2021 may be an initial idea and may be adjusted in the future. In general, we believe that there are roughly three opportunities: one is the development of the core ecology, the other is DeFi, and the third is the incremental market.
First, the core ecology. Let me talk about Polkadot first. Polkadot has three types of builders. These builders are our potential investment targets, including chains, Dapps, and infrastructure. As far as we know, most of the current projects are mainly focused on the chain level. You can look at the project growth in the upper right corner of the graph below (Figure 1). The number of Polkadot ecological projects has grown relatively stable. The graph in the lower right corner is Regarding the distribution of project areas. You can see that the distribution is the most at the DeFi level, and the second most are infrastructure projects, including Oracle, stable coins, DEX, etc. In the past two months, consumer-level application-oriented projects have gradually appeared. This is the overall situation of Polkadot. Why are we optimistic about Polkadot? First of all, it is a cross-chain project, and cross-chain is very important in this industry.
figure 1
Secondly, Polkadot’s technical community is very good. Polkadot is far ahead of other blockchains in terms of technology and personnel, basically ranking in the top three (bottom left corner of Figure 1), and not only the number is relatively large, but the growth rate is also very good. This is also one of our optimistic about Polkadot. The big reason.
The second ecology is Filecoin, which focuses on the public chain of distributed storage. You can see that this is the general architecture of Filecoin (Figure 2). The public chain may expand the improvement of virtual machines, smart contracts and cross-chains in the future. Nowadays, more projects are in the third category—application layer projects, which are connected to various application scenarios of distributed storage. Such application scenarios have on-chain and off-chain. The main ones on the chain are NFT and DeFi, and cross-chain applications have begun to appear. Some use Filecoin for distributed storage, and some use Fil as an asset class of Defi. The projects under the chain are easier to understand. Now we have encountered at least hundreds of potential projects, most of which are overseas projects. The easiest to understand what the core does is Baidu Cloud for distributed storage or Thunder for distributed storage, Instagram for distributed storage, etc. This is the overall situation of the Filecoin application layer. It is relatively slower than Polkadot. The public chain just went live in October. In the past two months, the mining system is being stabilized and some of the problems are solved, including reducing gas fees. However, the official next year is likely to strongly support Filecoin’s ecological project.
figure 2
The particularity of Filecoin is that as a distributed storage application, it can be in line with traditional industries, including Chrome and Netflix have begun to use IPFS, Alibaba Cloud and AWS have also paid attention to this field, there are already business cooperation, it is possible Will use a further way to enter this field.
Let me talk about DeFi again. You may have heard a lot about DeFi today. Let me talk about how we think about DeFi. This is the company’s review of DeFi in 2018.
We believe that DeFi itself is a deconstruction and reconstruction of the functions of traditional financial institutions. Traditional financial institutions basically have eight major functions, including issuance, custody, payment, lending, asset management, trading, insurance, and sales. Our current DeFi agreement is some of these functions. These functions themselves can be broken down into various types of agreements. The original capital flow of traditional finance is in this function for circulation and liquidation. DeFi splits these functions into various protocols for different and further combinations to form a new financial form and product. Moreover, the blockchain itself has clearing functions, so it can reduce the original traditional Frictions within the financial system, so we think DeFi is a very important direction.
What I just talked about was deconstruction. Now I talk about refactoring. Refactoring is from a vertical and horizontal perspective. The bottom layer is a variety of public chains or storage levels. Among them are the DeFi and Web3 protocols. The various protocols of Defi are familiar to everyone. The Web3 system In fact, it is very important in the financial field. It is the core of risk control (credit reporting), mainly including identity, oracle, etc. After these agreements are combined, they may not have the same functions that everyone sees and traditional finance. We believe that his combination will be deeper and diversified, and there will be many new products and functions that are different from traditional finance.
The picture below can be seen more clearly. It is a horizontal combination of protocols to form new applications. These frames are some protocols that we think may appear. Of course, these are all decentralized. These agreements can actually be combined freely, which is why everyone has always said that DeFi is actually a set of smart contracts formed by modularity and composability.
To give a relatively simple example, the easiest to understand is the application wallet. The wallet can be composed of multiple protocols, including custody and asset management protocols, plus other protocols such as lending and dex. The functions of the entire wallet will be diversified. The expansion of this is completely different from the original concept of an account in traditional finance, which is why we have always been optimistic about DeFi.
This is the overall status of DeFi, and everyone knows it better. Similar to what we mentioned before, the bottom layer is the public chain layer and the technical layer, among which is the protocol layer, and the top is the application. Before, there were more agreements on lending and DEX. Now we are focusing on insurance, financial derivatives agreements, and clearing agreements. As mentioned earlier, DeFi has composability, so defi composability related projects are now appearing, which is also our concern. In addition, we will mainly focus on the technical and mechanism innovation projects of the defi protocol, such as uniswap.
It is worth mentioning that the composability of DeFi is still realized in a single ecosystem. If it can be called across ecological asynchronous contracts in the future, the potential of DeFi is very large. This core still lies in the improvement of the underlying technology, including Cross-chain etc.
What I said earlier is the status quo. Now let’s talk about why we are optimistic about them in the future from a data perspective. From a market perspective, DeFi has locked a total of 16.8 billion yuan, and the total market value of cryptocurrencies is 630 billion, less than 3%; from a user perspective, DeFi has less than 10,000 daily actives, while Ethereum has more than 1 million people; from a developer perspective, more and more Technical personnel have joined the DeFi field. There are now nearly 1,000 people, and this year has increased by 67%. The more high-quality talents enter this field, the faster the DeFi underlying protocol will be improved.
Finally, let’s talk about the incremental market. This is very important. The incremental market is a direction that will have a huge impact on this industry. As you can see, the incremental market has risen in the second half of this year, and the growth of Bitcoin this time is inseparable from the incremental market.
Incremental market includes the increment of capital and the increment of assets. The increase on the capital side is mainly due to the increasing compliance and diversification of legal currency capital entry channels for global institutions and individuals, including the emergence of various traditional financial institutions to issue licenses and do asset management. The big news recently is that PayPal has opened up its encrypted asset purchase service to US users, as well as the support of DBS. This is very important for the market expansion of the encrypted digital currency industry. The increase on the asset side, the original blockchain assets are mainly the investment attributes of encrypted currencies, and many other asset categories are missing, including housing property rights, intellectual property rights, accounts receivable, etc. Now, new assets are beginning to appear gradually. The government affairs, legal affairs, supply chain management, financial institutions, etc. we see are all digitizing the entire industry and assets on the chain. Although these are now on the alliance chain, they may be in the future. It has a certain connection with the public chain and provides new asset classes. In addition, there will be new asset classes that are different from this traditional asset. First, it includes data ownership, identity ownership, and various types of income rights. This kind of asset was originally difficult to be confirmed and traded, but blockchain technology Including smart contracts, it gives such a channel; the other is to combine the split and combination characteristics of the blockchain to derive new asset classes (derivatives) from the original assets. For example, the combination of DeFi assets and NFT. A single NFT is a type of asset. After splitting and combining, another asset can be formed. For example, “The Last Supper” can be used as an NFT. There are 13 people in it. NFTs can be made, these 13 NFTs can be disassembled or sold in combination, as long as there is demand, this is the level of collectibles. NFT’s Bond itself can also be split and combined, which is what we find more interesting.
The advent of the incremental market means that more funds, assets, and talents will enter the industry, so that the blockchain industry can reach a higher level.
