Qianfeng Capital is an encrypted VC fund with a strong development momentum this year. It has created early and growth stage equity investment and an encrypted digital asset investment matrix of Alpha Strategy and Beta Strategy. It has attracted a lot of attention with its multiple high-quality research reports some time ago.
Among them, Qianfeng Capital co-founder Steven, who is in charge of Alpha Strategy, said that he is an early believer and long-term adherent of Ethereum. His long-term attention and investment in Ethereum has allowed him to perceive the potential value of some DeFi projects in advance and make advances. The layout has achieved multiple benefits in many currencies such as LINK and AAVE. This time the chain catcher had an in-depth exchange with Steven, during which he reviewed the entire process of investing in DeFi, and expressed his own views on the industry cycle, hot spots and next year's trends.
Author|Wang Dashu
01
Review of DeFi investment history
Chain catcher: A16z has summarized 12 key issues of investment in the cryptocurrency field. One of them is that investment needs to stand at each layer of the technology stack and at each stage of development to fund innovation. How does Qianfeng divide the technology stack in the field of investment ?
Steven: We still consider issues more from the fundamental perspective. Personally, I will mainly divide the technology development stack of ETH. For example, the earliest ETH is a token that miners can support by relying on simple consensus, which means that it has value for a period of time, which can be regarded as the first stage of technological development. Next, ETH opens the ICO platform and simple smart contract interaction. It came into being, but it was not a real application commercial landing, and it was regarded as the second stage of technological development; after that, the development of DeFi was the third stage of technological development, and smart contracts had a more complicated operation process and commercial landing logic.
I think after these three stages, what everyone really needs to consider is to improve user experience and technological innovation. So the next technological advancement should be that ETH2.0 can achieve the efficiency of 10000 TPS, which can realize the project landing in a real sense, and it will be more We need to look at the development of this market with traditional Internet thinking.
Chain catcher: DeFi can be said to be the hot spot before the agency cattle. I heard that your deployment of DeFi has made the team profitable. Can you review the logic and trading process behind your layout of the DeFi track?
Steven: The time when Qianfeng really intervened in DeFi’s layout was the second half of 2019. At that time, we observed that the number of transactions on Ethereum, the number of wallet addresses, and developers continued to expand. These developers started their businesses on EOS before, and later Realizing that EOS is not very friendly and the experience is poor, I chose to return to Ethereum.
At that time, the price of Ethereum was very low, fluctuating between 100-200 US dollars. We thought that the valuation of Ethereum should not be at this level, and we started to deploy Ethereum. At that time, the layout was relatively large, not only DeFi, but also traceability and cloud storage.
In March of this year, we observed that the trading volume of DeFi products such as Kyber and Loopring Protocol invested in 2019 began to increase week by week, and the growth rate basically remained at about 50%. This data makes us feel that the entire decentralized exchange may change God, so in the first half of 2020, we decided to increase our bet. At the beginning, we caught the Kyber exchange that started trading volume, and later we caught AAVE because it moved from the original order book form to the fund pool docking model, which was relatively successful. Reforms.
In general, the logic is very simple. The micro point of view is whether the project is doing something. The macro point is still attributed to value investment. Value investment requires us to constantly observe the data of a certain public chain. Look at the moving projects above. Stay sensitive to the data to make the layout as soon as possible.
Starting from this logic, I will slowly look at stable coins, oracles, etc. In fact, the oracle is quite interesting. What everyone may not know is that the largest oracle provider before 2020 is MakerDao. They are the largest players. At that time, it had only 5 or 6 nodes in the world, although we know it is Specially centralized solution, but we know it will not do evil.
But when I went to Hangzhou for a meeting in January this year, I met the CEO of Chainlink giving a speech there, and then I communicated that they had hired more than 70 nodes at that time, and at the same time, some exchange projects started using their products. We Begin to realize the importance of the oracle track. When the whole track is seen, only Chainlink can compare with MakerDao. Then MakerDao is a particularly centralized solution, and the business focus is not here. In comparison, ChainLink is particularly good Imaginatively, at that time, the Link price was 2-3 US dollars, we started to deploy, and when it rose to 18 US dollars, that is, before reaching the top, we withdrew.
The reason for choosing this point to exit is because it should not have such a high value. The market is very strange. Although it is very imaginative, it is only a service provider. Its value has surpassed the overall value of all B-end users being served. , This is an impossible phenomenon. Like China's Wind, the total value exceeds 70% of the value of financial institutions. This is an unhealthy state, but this is something later.
It was the same process, we invested in projects such as AAVE, Kyber and Chainlink.
In fact, like another 0X, this is an old project that started in 17 years, but we studied their annual report this year and found that their team is very low-key and has not raised funds. It is purely an expansion of the second layer of Ethereum, and this solution I used it on my own exchange and made a decentralized exchange. You can see that ZRX transaction volume can probably rank in the top three, and the value should be underestimated so far, so we basically choose these items with this logic.
My investment logic is very simple, not as complicated as everyone thinks, because I have been a firm supporter of Ethereum since 2017. Because I firmly supported Ethereum, I missed the entrepreneurial boom of EOS in 2018, which caused many projects to fail. If you didn't vote, looking back at it now, you can hardly say that this kind of trade-off is not worthwhile, because for me, there is no way to have faith in EOS.
Chain Catcher: The foundation lies in the underlying cognition. What is more curious is how do you value the above DeFi projects, and which criteria are used to make specific decisions?
Steven: The valuation of DeFi is relatively easy. First of all, these products have a certain cash flow, which can be calculated using traditional PE and PS economic models. For example, we can clearly see that the annualized income of DeFi is about 300 million yuan. It can calculate its annual inflation rate, and the corresponding valuation can be calculated.
If it is specific to a single currency, we mainly look at the fundamentals, and the fundamentals mainly cover four points.
First, can the integrity of the team continue? Like the original well-known project AE, but the scary thing is that their founding team has been replaced again and again. This is a particularly bad signal. If the integrity of the founders cannot be continued, there is a high probability that problems within the project will occur.
Second, whether the development capability can be continued. It depends on whether the community developers continue to do things and whether they are following the previous roadmap.
Third, can the community's popularity continue? Look at the degree of community discussion, whether the new fan curve is healthy, or what everyone is paying attention to and discussing. If you have been talking about the currency price, and scolding the team when the currency price drops, it is unhealthy.
Fourth, whether financing can continue. The most intuitive thing is that old-brand projects such as Maker, AAVE, and Compund will still have large institutions investing money for them this year. The resources of these institutions alone can make this project not limited in the future. These are our considerations based on continuity. Of course, we will also use our own more objective FCCS quantitative standards and Alpha rating methods.
Chain catcher: The annual DeFi project such as AAVE is actually the first batch of lending agreements. Now that the currency price is rising, I once again entered the perspective of investors and observed that you have also included it in your investment portfolio. Can you share how you discover value? Old project?
Steven: It's quite complicated. As early as 2017, we did research reports on the two concurrent projects of Salt and ETH-lend. Although the latter has its cleverness, in comparison, the Salt user experience is better, so it is ambush Salt. Until the second half of 2019, DeFi slowly improved, and ETH-lend also quietly reformed. The model changed from the original order book to a pool-style lending model, which greatly liberated the original liquidity of funds and made certain on the platform. Fund precipitation.
At the same time, when we experience the product, we feel that its overall interface and user experience have undergone very big changes, including the name changed from the low-key ETH-lend to the more detached form AAVE (ghost), and the launch of the innovative mechanism lightning loan. A series of very imaginative things.
After paying attention to it again, we saw that the loan balance began to gradually exceed that of similar products, and the Matthew effect was likely to occur, so we began to lighten up the position in stages, and finally got a relatively high return. Generally speaking, it is a change from negation to attention to A process of liking slowly.
However, I thought afterwards and felt that investment still has to embrace changes. For example, when you see innovative places, you have to see whether the innovation meets the needs of users. If they are all established, then see whether users pay or not, and see if the Matthew effect is possible. The prediction is yes, then bet gradually.
Chain Catcher: Compared to DeFi's portfolio, you only have KSM in the Polkadot Ecological Portfolio. I am curious that there are so many Polkadot Ecosystems. Why choose this one?
Steven: Although Gavin also came out of Ethereum, Polkadot itself is cross-chain, so first of all, we have to look at the necessity of cross-chain. Currently, the largest cross-chain project is WBTC; secondly, it is against the developers of Ethereum ecology. In terms of quantity and quality, it is obvious that Ethereum is in a monopoly position. In the face of such a platform, other platforms must have higher characteristics if they want to develop. Obviously Polkadot has no way to prove it to everyone.
And Polkadot has been online for so long, is there a real strategic project? Including the fact that many A-level projects encounter the popularity of Polkadot, they will give a valuation of 100 million or even higher. This is something I can't understand, so we are more cautious about its ecological projects.
My intuition always feels that Polkadot’s state is very similar to EOS at the time. In fact, many investors who participated in EOS ended up dismal, so everyone is still cautious and avoid entering the second EOS.
Chain Catcher: You have also invested in many projects in the past. In summary, what are the commonalities of failed projects?
Steven: To put it briefly, the commonality is that some teams have very good fundamental data, but they are too obsessed with fundamental construction and rarely do the market. In the end, the market does not price them high, which naturally makes investors passive. . I feel that investing in the blockchain industry cannot be too idealistic, let alone insist on value investment, especially from 18 to 19 years. Many people were killed because of this idea.
02
Transition to a market dominated by institutions
Chain Catcher: Investment cannot be separated from the personal knowledge system and cycle. What cycle do you think the current blockchain industry is in?
Steven: We are in the transitional stage from the barbaric era to the traditional A-share market. On the one hand, we have seen this year's data. The people who can make money are basically institutions, and most of the retail investors still lose money. This is a common phenomenon in the stock market. For unicorns like Uniswap, if ordinary investors do not rely on professional institutions, it is difficult for ordinary investors to reach them on their own. On the other hand, the bull-bear exchange of the entire currency circle is faster than in other industries, and the opportunities for speculation have become less and less in the early days. It is almost impossible to invest thousands of times and ten thousand times.
Chain catcher: In fact, in the past, the industry generally believed that primary market investment was more certain than secondary market investment, and it was easier to get low-cost bargaining chips. How does Qianfeng as a primary and secondary linkage hybrid encryption investment fund view this view?
Steven: Good question, but the facts are just the opposite. The secondary market is more certain than the primary market. The reason is that most of the primary market projects in the blockchain industry do not have a clear business model. They will not have a cash flow for a long time. Once you cast out, you will encounter uncertainties such as the track is not hot or the founder has problems. , It is impossible to value it at all, let alone transfer the equity out. But the secondary market investment is different. Even if the risk control is bad, as long as you are slightly more sensitive to the information, you can cut the meat in time and withdraw the surplus value.
Chain catcher: Ethereum 2.0 is the most concerned topic in the industry recently. Many opinions believe that various variables will be generated during the transition from POW to POS, especially because of the large size of Ethereum now. The industry has brought a lot of shock. You have been paying attention to Ethereum since 2017. Can you analyze the potential risks?
Steven: Frankly speaking, I didn’t expect that the amount of ETH2.0 deposit contract lockup would be so high before , but no matter how high it is, it will take at least 1-2 years for the assets to be pledged before they can be released. For such a long period, if the return cannot be guaranteed. , The risk is still very high. After all, time is too important for investors. Just like Gao Ling Zhang Lei said, it is "assets" that deepen the moat over time. The longer time, the more detrimental to business is "expenses." Many secrets are hidden in time, and time will give birth to everything.
Of course, for ordinary investors, there is no risk. If you have to say it, I think it may only be the risk of running short. Recently, many people think that ETH has risen many times this year, and the future growth space may be lower than BTC. But I think this is a small probability event, whether it is from the technical side or the development trend of Layer2, ETH is all looking good. But for developers, the risk may be higher, because they have to choose the technical framework. If it is a more confused developer, they can wait and see the next stage results before making a choice.
Chain Catcher: Are there any things or phenomena that you cannot understand since you have been in the industry for so long?
Steven: Probably in August and September, YFI/YFII/YFII led to this kind of annualized income of over 10,000. At that time, many of our friends all entered this Farming, and some were even technically backgrounded. It's really magical.
In fact, the so-called machine gun pool or income pool is the building blocks above. The bottom layer is the income of MakerDao, AAVE, Compound, but their income is only 3-15%, so no matter how you use leverage to enlarge it It can't reach a thousand times or ten thousand times of income. The reason why it is achieved is entirely because the top building blocks are sucking the blood of the bottom foundation. It can even be said to be a pure illusion, just like the ICO in the past.
Chain Catcher: The last question. Everyone is making predictions at the end of the year. What do you think will be the trend next year?
Steven: I think the first is the Layer 2 of Ethereum, which has two directions: Opitmistic rollups and ZkRollup. If you are interested, you can do some medium and long-term injections; the second is the potential and development of DEX in the derivatives market. There are now a large number of futures. DEX is in the roadshow, financing; the third is anonymous currency , regardless of the market cycle, anonymous currency is just needed, there is a high probability that there will be independent market, so you can go to the anonymous currency track and study your favorite coins .
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