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The Convergence protocol and encapsulated securities assets allow DeFi users to invest in traditional financial assets, while bringing the liquidity, transparency and high efficiency of DeFi to real-world assets.
Written by: Cyrus Ip, Head of Marketing, Convergence Translation: Samuel
For institutional investors seeking high returns and high growth potential, investing in unicorn companies in the early stages is obviously a good choice. However, for ordinary investors, how to find reliable investment channels is a problem that cannot be avoided for this type of investment. Although there are some intermediaries or brokers that provide related services, it will inevitably bring some additional costs and ultimately Benefit greatly reduced.
The rapid popularity of DeFi allows individual investors to use tools such as the Convergence agreement to seize the potential growth opportunities of unicorn companies without the need to join their venture capital funds or involve any intermediaries. The blockchain technology behind the Convergence protocol also ensures the traceability of asset ownership records. The Convergence agreement may change the rules of the game and greatly shorten the distance between the traditional financial world and DeFi.
Despite the uncertainty, the venture capital sector remains strong
When we want to understand the growth potential of the unicorn field, it is easy to see the sentiment of venture capital firms on the market.
Uncertainty persists: the epidemic is still raging, the US presidential election in November 2020, Brexit, and other geopolitical events are frequent. However, venture capital firms still seem to be eager to invest in disruptive, promising private companies.
According to a report by KPMG, in the fourth quarter of 2020, venture capital firms have invested US$80.8 billion in start-ups and private companies, an increase of US$16.55 billion over the same period last year. The report pointed out that global venture capital companies have been focusing on unicorn companies and start-ups in the fields of logistics, healthcare, biotechnology, and financial technology.
Figure 1: The number of global venture capital transactions declined last year, but the transaction volume is still strong. Source: KPMG
Unicorn companies will lead the post-epidemic era economy
The COVID-19 pandemic may have brought severe damage to global growth, but it has also created new opportunities for global unicorn companies. China is a good example.
The survey also shows that among the companies that think the epidemic has a “significant/moderate impact” on their business, more than half of the interviewed companies believe that the positive impact is greater than the negative impact.
Figure 2: Picture of the impact of the new crown epidemic on Chinese unicorn companies, source: PwC China Unicorn CEO Survey 2020
PricewaterhouseCoopers believes that unicorn companies have shown considerable resilience during the epidemic. With the acceleration of digitalization and technological transformation and the enhancement of expectations for global economic recovery, unicorn companies will achieve significant growth in 2021.
Top private unicorns are important opportunities for investors
Top private unicorn companies are a major opportunity for investors. In early February 2021, after a new round of financing, Elon Musk’s SpaceX company valuation increased to 74 billion U.S. dollars, an increase of 60% from the last financing six months ago.
Analysts believe that SpaceX’s valuation is based on the company’s vision for the future. Some analysts even believe that SpaceX is paving the way to become a trillion-dollar company.
Canva is another unicorn startup that excites investors. Canva’s graphic design application raised $60 million in its latest funding round in late June 2020, pushing its valuation to $6 billion.
Canva said that the economic downturn caused by the epidemic may have threatened the macro economy, but it has greatly increased the activities of its users.
Private company investment is still a private club
Even if you are not a rocket scientist, you can understand that if you are one of the early investors in these private unicorn companies, the returns may be quite amazing. However, the investment of private companies has long been a playground for venture capital funds and institutional investors, and retail investors have no tickets at all.
Although some private equity trust funds are available on the secondary market, there are many restrictions, such as constant discount transactions and management fees.
In other words, for ordinary investors, investing in private companies through trusts may not be the best choice.
Convergence agreement brings the answer
A decentralized agreement like Convergence may be an ideal solution for both investors and private companies. The agreement allows real-world assets, such as the stocks of private unicorn companies, to be traded on the Convergence platform in the form of encapsulated securities tokens.
Figure 3: Convergence protocol links the traditional financial world and the DeFi space, source: Conv.finance
Why do asset holders (such as unicorns) want to use platforms such as Convergence?
Improve financing efficiency : Data shows that the total number of DeFi users has exceeded 1.6 million. Unicorn companies (and general asset holders) can reach this large group of active investors through DeFi and expand their investor base.
Price discovery : Today, the valuation process of unicorn companies remains a mystery to the mass market. The value of a company depends to a large extent on the few investors who can enter the market. This situation may not be in the best interests of the invested company, because the existing process lacks an adequate price discovery process, which makes the company easily underestimated or overestimated. Convergence connects the real world of assets with the DeFi space and its huge users, and enhanced interaction between buyers and sellers can significantly improve the price discovery process.
Digital ownership : The blockchain technology behind the Convergence protocol provides transparent and traceable asset ownership in a digital format. Records can be updated almost instantly, which adds convenience to both the seller and the buyer.
Figure 4a: A graph of the number of DeFi users, source: Dune Analytics
Figure 4b: Total monthly DEX trading volume, source: Dune Analytics
From an investor’s point of view, the Convergence agreement also brings unprecedented advantages in the market.
New opportunities : Through the Convergence agreement, individual investors can invest in assets that were previously impossible to invest, such as unicorn company stocks, private funds, pre-IPO financing, and even a small part of real estate projects.
A lot of liquidity : Low liquidity is still one of the main pain points of investing in private equity trust funds. Just like the stocks of unlisted companies, low liquidity means that serious problems may arise when investing in other private assets. And a decentralized protocol like Convergence may become a channel to connect liquidity from the Defi space. Data shows that in February 2021, the total monthly trading volume of all decentralized exchanges has reached a new high since January reached 58 billion U.S. dollars, breaking through 60 billion U.S. dollars.
Backed by real assets : Real-world assets will be traded in the form of encapsulated securities tokens on the Convergence platform. These securities tokens are backed by physical assets, and their ownership is legally recognized. This may be essential for some institutional investors.
The pace of innovation in DeFi has never been faster. Protocols like Convergence and encapsulated securities assets may change the way the traditional financial world interacts with the crypto world. On the one hand, the agreement brings DeFi’s liquidity, transparency and high efficiency to real-world assets, and on the other hand, it allows all DeFi users to invest in real-world assets. Convergence may be able to bring real disruption and create a win-win situation for all stakeholders.
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