From the bull market detonated by DeFi to the institutional bull market today, the blockchain industry has ushered in two outbreaks in 2020. Both the large-scale emergence of DeFi applications and the continuous increase of mainstream crypto assets by overseas institutions are all signs. It shows that the industry has stepped out of the barbaric stage and entered the key node of development.
Multicoin Capital, as a research-driven crypto fund that has been established for three years, has a solid logic in laying out infrastructure and exploring potential projects. This time the chain catcher took a series of questions and conducted in-depth exchanges with Mable jiang, the executive director of Multicoin Capital. Hope to inspire you.
Author|Wang Dashu
01
Industry cycle and innovation
Chain catcher: Any industry has a cycle. After the huge changes in the industry in recent time, what cycle do you think the blockchain industry is in?
Mable: The industry cycle as a whole has reached a very critical turning point, which is reflected in two aspects.
On the one hand, the market's perception of Bitcoin has changed. The most obvious is that overseas institutions have announced their positions in Bitcoin for several months. Although these positions currently account for only a small part of their asset allocation, everyone knows that Bitcoin was born under the background of the 2008 American financial crisis. Its founding block also contained challenges to the existing financial system of capitalism, including the rescue of large institutions and the release of water.
Therefore, in the next trend of economic release, the status of institutional holdings should be more and more, and the ratio may be higher and higher.
On the other hand, the industry's perception of the blockchain itself has changed. Now everyone’s awareness of Web3.0 has reached a certain level. We have observed that more and more people are aware of the risks of centralized platforms, and more and more companies will choose to learn and understand decentralization. The company and a decentralized network are inherently contradictory.
So in the long run, I think the company system will face the challenge of a decentralized organization system. After all, it is difficult for Internet giants to be revolutionized in the short term, unless they revolutionize themselves.
Chain catcher: In fact, the current blockchain industry seems to have experienced weak innovation. Many projects are harvested everywhere under the guise of innovation. As an investment institution, how do you view innovation?
Mable: Innovation does not happen overnight. In fact, looking back at the development of the Internet in the past 30 years, innovation has always been a spiraling process. The infrastructure of the previous stage gave birth to the next stage of APP, and this stage of APP will become the foundation of the new stage. Setting may give birth to other new applications, so it is a process of gradual upward movement.
Going back to your question, I think that resources will always have a Matthew effect. Not everyone can innovate, and innovation cannot be required to always be there, especially the underlying public chain. It is unlikely that every chain will run out, and it may be left behind. There are only 2-3 items, but many applications or middleware may be derived from them, but these applications are also products based on existing infrastructure, rather than innovations that exist outside of a completely independent ecosystem. As mentioned above, it is a spiral process.
Chain catcher: Ethereum 2.0 is currently receiving widespread attention. How do we understand the next development of ETH2.0?
Mable: I am personally more cautious. First of all, PoW is good enough, and the actual energy consumption is not as much as many people say.
Secondly, the PoS system is very unfriendly to the guardians of the valuable network. There are many miners around the world who have been maintaining this value network. PoW is also a guarantee for more decentralization. PoS lowers the threshold and makes centralization easier.
Finally, compared with 1.0, Ethereum 2.0 has a lot of work, but the performance improvement is not very good, so if you simply solve the performance of Ethereum, 1.0 plus Roll-up may be able to last for a while ( Assuming roll-up is not delayed too long).
02
DeFi trends and problems
Chain Catcher: I have translated a research report of yours before. It mainly analyzed the 3 major risks and 8 solutions of the DeFi market from the perspective of the technology stack. Many readers are rethinking DeFi. Then back to the actual operation, you are What are the criteria for judging capture value?
Mable: There are actually two standards. One is that if a project needs to interact with many external protocols, in this case, if the team's own security and engineering capabilities are not strong, we will treat it more carefully. The second is also assuming that a project needs to rely on many external agreements to obtain liquidity, and if these external liquidity will disappear due to the withdrawal of external agreements, we will also put a question mark on this project.
In essence, it is a double-edged sword for a project to obtain liquidity through external agreements. On the one hand, external agreements can help you do various things; on the other hand, relying too much on external agreements has high risks and cannot help yourself. Casting core competitiveness, so this is very detrimental to value capture.
Chain catcher: Uniswap can be said to be the most popular DeFi product this year, but it seems to be in the dilemma of whether to continue to provide liquidity for mining. Public opinion also generally believes that Uniswp is standing at a crossroads. What problems do you think are hidden behind this label? ?
Mable: Liquid mining is a very good token distribution mechanism, especially for UniSwap shareholders. They need this decentralized distribution mechanism, but the distribution of UNI is relatively centralized. It does not mean that most of the Mining output. In essence, Uniswap or Compound needs to distribute the tokens through the mechanism of liquidity mining, otherwise the tokens will become a stand-alone game for large players.
Of course, the "fairness" of the liquid mining activities of those community projects is more of a rhetoric. In the final analysis, the real problem is that those retail investors who only participate in liquidity mining do not have much decision-making power. One of them is worthless when they are gathered together.
This is also a question that I have been thinking frequently recently-how do the governance tokens of the DeFi protocol capture value? It is not a question of 0 or 1, that is to say, it is not a question of whether one vote of governance is worthwhile, but the governance right (the number of votes) can only change the result after reaching a threshold. A single governance vote is for a single For the holder, the value is close to zero.
Chain catcher: Yes, behind the governance of tokens is more the issue of governance itself. I believe there will be more discussions on this issue in the future, but from the current point of view, what do you think are the important directions and perspectives in the DeFi track? Ignored?
Mable: One is the brand effect, and the other is the security and interactivity of the protocol itself. The brand effect is well understood, and the community complements the brand. Frankly speaking, a community needs to have currency holders who benefit from it in the early stage, and everyone can breed the brand together, so that a strong consensus can be erupted in the future, thereby inspiring the price of the currency.
The security and interactivity of the protocol is about the formation of the super protocol matrix. For example, a typical AMM service provider Curve. It stands to reason that anyone can do this kind of service, but users still use it more because it has been completed and The interactive integration of various protocols, the more they are integrated, the harder they are to be replaced.
Chain catcher: The concept of super matrix has not been mentioned much, but it seems that this logic is imperceptible. For example, a series of M&A (merger & acquisition) released by the founder of the YFI project some time ago is somewhat similar to this logic. .
Mable: At first, I was not sure how to capture the specific value of their series of M&A. For this reason, I communicated with AC, and he explained that this series of "mergers" is to coordinate the developer team of each agreement, reduce friction in the combination process, and improve development efficiency.
For example, a smart contract and another smart contract require some specific adaptation work. If they are merged, everyone's interests will be more consistent to directly advance this matter. Everyone's time is limited, and it is impossible for a DeFi protocol to specifically adapt to another protocol that has no interest. But having a super matrix is different, peer-to-peer collaboration must be more efficient.
I still agree with his statement, because when I invested in dForce earlier, my understanding of DeFi is that when all on-chain lending protocols such as Compound and AAVE reach the end, the fee rate will be infinitely compressed. The reason is that anyone can provide lending services. From a single mining perspective, whoever gives high returns will go to whomever has liquidity.
And the code is also open source. Developers can do lending business as long as they have the ability to attract liquidity to their own agreements. It is difficult to charge high fees for lending agreements. Even if everyone only recognizes Compound and AAVE today, once they charge a high fee, or too much money in a pool, liquidity will lose the place with better returns, so DeFi ultimately needs to capture the ecology through the protocol matrix The value of internal circulation is also the direction of the long-term development of DeFi.
03
Investment review and forecast
Chain catcher: I learned from public information that Multicoin Capital's investments in the past three years mainly involved public chains, distributed storage, and open finance. Can you review your investment logic in the past year?
Mable: Generally speaking, our investment logic is still based on the basic laws of the development of things, starting from the bottom, and building the underlying infrastructure to invest in the superstructure. The previously invested distributed storage and public chains belong to Web3.0, and are basically based on the technology stack.
The theme of 18 or 19 years must be infrastructure. The basic idea is how to make Ethereum better. After laying out the public chain, I began to consider middleware like The Graph. The consideration two years ago was any one. On-chain applications will have a need for data indexing, so when DeFi is up this year, The Graph is also up.
The most investment direction this year is the DeFi protocol. We have seen dYdX and Compound in the early days, but we did not participate in its equity investment at that time, because we believe that currency issuance is a necessary part of value capture. But in the second half of last year and this year, the market timing has matured. We have invested in a lot of basic applications for trading and lending. These layouts are also in the lower layer of the DeFi stack, and the upper layer is derivatives.
Chain catcher: But even if you use the technology stack to make investments, you still need to face the huge noise of the industry. I am curious how do you filter the signals from it?
Mable: One is to refer to the logic of traditional investment. I think the growth law of Internet products is still very useful in the blockchain industry, and your perspective will be limited by the current growth of head products, but the prerequisite for investing is to think about how far the track has developed and how it will be presented. Will there be a new wave of trends in China’s competitive situation.
For example, FTX, when it entered the market, the exchange competition was already fierce, but why is it possible to outperform these old exchanges? At this time, relying on the traditional investment thinking framework- a track will have two or three iterations of product forms before forming a real giant pattern, which may better penetrate the essence.
The other is to keep learning, keep developing one's own tentacles, have an open mind to all new things, keep breaking the previous prejudices, admit their mistakes, and iterate on cognition.
Chain Catcher: After all, it is still through continuous learning to build a systematic cognitive system. Can you share how you build your own cognitive system?
Mable: This differs from person to person. For example, as an investment institution, you must first clarify what you are good at and which types of investment are more profitable. This needs to be discovered through continuous review. Some people have a strong sense of macro judgment and may rely on Bitcoin to make money on the band. Some people may have a good grasp of the characteristics of early projects and can find the best projects out of more choices.
Back to Multicoin Capital, our core lies in the timing resumption of various decisions, but the premise of resumption is to ensure that all previous investment decision-making processes and corresponding thinking are retained, so that we can clarify whether we are doing long-term investment or trend trading.
Chaincatcher: In the past two years, the industry has been more primary market investment, but in the past year there have been fewer and fewer good projects. Now everyone is basically investing in the secondary market. How did you find high-quality projects under such circumstances?
Mable: One is conventional BD, which is mainly for networking; the other is to output content through writing, so as to reach thinking entrepreneurs, such as the DeFi stack article you previously translated. Many people will have it after reading it. Enlightenment wants to find us to communicate. In this process, many interesting ideas can be interacted, which is very helpful to reach good projects.
Chain Catcher: Everyone is making predictions at the end of the year. In your opinion, what will be the trend in 2021?
Mable: I think the app will continue to explode in the future. For example, the derivatives track in the DeFi field, because many projects are still in the exploratory stage, similar to the stage of Compound in the middle of 19 years, it has a little achievement but still has a lot of room for development.
The other is the ecosystem of various AMMs themselves. Because a high-performance public chain like Solana will support Serum, there may be a lot of order book transactions on the chain.
If you think more divergently, I think there are many opportunities for synthetic assets. Synthetic assets include not only native on-chain assets, but also stocks that can be bought on decentralized derivatives exchanges. In addition, there are some phenomenal opportunities, such as the application of currency issued by Internet companies.
It is worth checking out:
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