What are the hot spots and tracks worth paying attention to in 2023?
Moderator: boyangg, Founding Partner of Assembly Partners
Guests: Flipping Auntie (Business Director of Bitget Chinese Region), 0xleon (Co-founder of CrossSpace), Zixi (Matrix Partners investor), Warren Fang (ArkStream Capital)
Edited by: aididiaojp.eth, Foresight News
Host: Please ask each guest to briefly introduce themselves and share the main hot spots and tracks for 2023.
Guest Tumbling Auntie: There may be few hot spots that last for a long time in 2022, including some head NFT or blue chip NFT hot spots, which only lasted for a short time and then faded away. One of the hot spots I am paying attention to in 2023 is the development of the BAYC Bored Ape community.
Guest 0xleon: I have been working in Hong Kong for more than ten years. I have been in the traditional hedge fund industry before. I started to enter the Web3 industry at the beginning of last year. I worked in the community before, and later on the community management platform.
From my perspective, what unmet needs are there in this circle or this industry? These needs also mean opportunities. When I first entered this circle, I learned that there are three types of projects in this industry that are more valuable: one is infrastructure, one is products close to money that can provide liquidity and other services, and the other is products close to users with sufficient traffic.
The next cycle may not be about simply relying on leverage and deleveraging to achieve profitability. On the one hand, regulation will catch up, and on the other hand, everyone will become cautious after experiencing some painful lessons. So in my opinion, the next cycle may be about how to solve the problem of user stock, how to attract more people and more mainstream funds to enter this industry, and how to use some truly valuable applications to attract more people.
When I entered this industry last year, I chose to work in a field that is closer to users based on my own strengths and the stage the industry was in.
People entering the Web3 industry have some common characteristics. For example, users are all centered around communities. Whether through Twitter, Discord or Telegram, everyone is constantly doing things around community consensus.
We found that because the industry has new organizational forms and organizational cultures, and it is a decentralized anonymous collaboration on a global scale, there are many new demands in the industry. If we still use Web2 tools to manage community cooperation or accumulate content, we will find that they are very difficult to use, so we directly chose to build the infrastructure at the application layer. The new community management tools and social platforms break through the barriers between Web2 and Web3, and then break through private and public traffic, and emphasize individuals more, it does not just emphasize a community and a company. We plan to start promoting our community management platform on a large scale as soon as possible.
Everyone is familiar with Hong Kong's recent policies. We have had some in-depth cooperation with the Hong Kong government, local investment institutions, media and universities, and have done a series of cooperative projects. I think more and more people are interested in this industry, including some offline coffee shops and listed companies who want to explore the combination of the metaverse and the physical industry, so Hong Kong in 2023 may be a breakthrough point.
Moderator: Regarding the sharing just now, I would like to raise two questions. The first is what are the specific aspects of Hong Kong’s favorable policies, and the second is about specific suggestions for the Web3 social track in 2023.
Guest: 0xleon: The virtual asset declaration of Hong Kong on October 31 last year was led by the entire government. Whether it was the Securities and Futures Commission or the Hong Kong Economic and Trade Authority, including some senior officials from the government, finance, finance, financial services bureau, and the Treasury Bureau, they all stood up and said that they hope to build Hong Kong into a virtual asset center. This is also the first statement in recent years, which is relatively positive for this industry. Although there are still a lot of supervisions, and the supervision is mainly at the level of exchanges and funds, many other levels have not yet begun to supervise, but from the attitude of industrial development, the government has a top-level support, and of course more details and support policies will be implemented later.
Whether it is from the support of visas to attract talents, local resources, or a large amount of funds, resources will be tilted in this direction. This support can be seen at the micro level of various industries, and the government departments and parks are actually full of curiosity and trying some explorations. This year, there will be more licenses to allow more compliant exchanges to conduct business in Hong Kong, and retail investors will also be allowed to trade on compliant exchanges, and then including the issuance of ETFs. I think there will be a series of more advanced and bold explorations. So I think Hong Kong will be a good soil.
Hong Kong's policies are relatively stable. Once they provide policy support, they will not change overnight, so I think there will be some time to enjoy the short-term dividends of this industry.
Second, I think a bear market is a good opportunity. If you want to do search, you must do a good job in product and operation. There is no shortcut. So I think good social products can be born in a bear market. Because the projects that can really survive must be those that find the real pain points of users and satisfy them. I think it is ineffective to rely on the token economy model in a bear market. Real products can solve problems.
A bull market doesn't give you time to do things slowly, but I think a bear market gives you enough time to do something. So I personally feel that a bull market cannot produce phenomenal products, but a bear market does have opportunities.
Guest Zixi: I am Zixi, the head of Matrix Partners China Singapore. In the less than one year since I joined Matrix Partners, I have invested in nine projects, nearly 13 million US dollars, including 5 lead investors and 4 follow-up investors. Our fund layout includes traffic track, security audit, data analysis, blockchain games and other tracks, and this year we will still focus on lead investment.
We believe that leading projects are still mainly B-side projects, and we will focus on leading projects in the future. We rarely invest in C-side products because they are iterating too fast. But we may lay out some traffic tracks, including blockchain games and social tracks, after the sentiment turns bullish next year or in the second half of this year.
In this bear market, people may think that the US economy has not collapsed yet. In 2023, there is a consensus that the US economy will collapse, the US stock market will collapse, including the Fed's continued interest rate hikes, and the peak should be between 5% and 5.5%. So everyone is actually quite pessimistic, so raise more money when you can, because you don't know what will happen next.
Guest Warren Fang: I am a partner of ArkStream Capital. We are a fund that focuses on the primary market. We started to enter this field in 2017. From 2020 to now, we have invested in more than 80 projects, covering infrastructure, middleware, protocol layer and application layer. We have offices in Shenzhen, the United States and Singapore.
We have done a lot of research on the application layer and the protocol layer. We should be one of the first Asian funds to participate in the DeFi wave in 2020. I think after a cycle of exploration, DeFi may focus on two aspects in the future: one is how to attract users from centralized institutions and centralized financial institutions in the circle, and the other is how to attract some non-bank users, that is, those in the third world.
The collapse of Luna, the explosion of Three Arrows, the explosion of FTX and the subsequent series of stampedes in May of this year have caused many users to question our industry, and they believe that the Web3 industry has no constraints and no rules.
The cornerstone of the last bull market was supported by the entry of Wall Street institutions, which also became the culprit of this crash. However, after the FTX crash, the trading volume of DEX quickly doubled. People's panic about centralized institutions gradually turned into trust in decentralized financial protocols. So this industry is not without rules. We believe that only code is the rule, code and law. We don't need to trust any centralized institution. We should believe in the sense of security that open source code, open source code and smart contracts can bring us.
So one of the next round of narratives is that DeFi will replace the existing centralized financial institutions. In 2020, liquidity mining, through token incentives, allowed DEX's trading volume to account for about 15% of centralized exchanges. Then after two rounds of declines, it once fell to 5%. But we can see that DEX's trading volume has recently rebounded to about 15%. DEX is in line with the development curve of emerging technologies. That is, after the bubble subsides, more and more people use DEX as a daily trading place to replace CEX. In fact, I am one of them. I used to have this more extreme idea that CEX is no longer used. The fact is that centralized exchanges still occupy the vast majority of this market, so DEX still has a lot of room to grab that share, and what I just said is the proportion of spot transactions. If we put this proportion into derivatives, the trading volume and handling fees of derivatives are actually the main source of profit for many exchanges, but the current derivatives trading experience of DEX is far inferior to that of centralized exchanges.
So I think this is a problem to be solved in the next cycle, and it is also possible that there will be a lot of growth. We will also invest and deploy in some Layer 2 expansion solutions, asset cross-chain solutions, account privacy protection and new liquidity solutions.
Another thing worth noting is the development direction of Dubai, that is, how to develop low-threshold products in third world countries with low financialization. Because China bypassed the development of credit cards and directly rolled out mobile payments. DeFi may also be like this, to help many third world regions in Asia, Africa and Latin America develop, bypassing bank accounts, credit cards, third-party payments, etc., and directly using digital currency for daily payments.
If you go to some African countries now, you will find that they accept Bitcoin payments. Even though Bitcoin fluctuates greatly, the legal currency in their countries is more volatile. In addition, they do not have bank accounts to deposit money because they do not have trustworthy banks. Due to the lack of financial services such as lending, it is difficult to effectively utilize resources. Therefore, Dubai may be able to help some places without trusted centralized financial institutions to establish a new financial order. But this is not an easy task. It is necessary to consider the establishment of a stock credit mechanism, local promotion issues, user education, and local community building.
In addition to these, NFTFi is also worth paying attention to.
Moderator: The second question I would like to ask the guests is what products or protocols are worth paying attention to in terms of underlying technology? What are your expectations for the currently popular Ethereum account abstraction?
Guest Warren Fang: ERC-4337, which has been talked about a lot recently, is not a particularly new concept or a particularly new technical point. In fact, it had already appeared in the roadmap shortly after Ethereum was established in 2015. Flow, a project that has been committed to out-of-circle applications, more or less involves concepts such as account abstraction and smart contract wallets.
Everyone is particularly looking forward to it because it may bring about several changes. One is that users can use contract accounts to initiate transactions. In fact, its core is to lower the user threshold. We have also seen many wallet products developing new solutions.
We actually prefer SBT to bring network effects purely through on-chain social interaction and then verify the authenticity through on-chain data. However, there is actually no conclusion in this area, and we are still exploring. I think the most likely scenario to be realized is dating social networking. We think it is anonymous social networking. In the beginning, there may be some gray scenarios that people may not be willing to talk about, such as stranger social networking.
We have done a lot of research on game projects. We have looked at hundreds of games in the past year, but we have invested in very few of them. Instead, we may invest in some metaverse projects that are narrative-oriented. Why games can make money is because they can make people happy. Blockchain games are no exception. The entertainment of games is greater than the economics, but if you want to take both sides into account at the same time, it is very difficult. We rarely see such games and teams. Moreover, the life cycle of games is very short, its cost is high, and its life cycle is short. Then you have to take all the factors into consideration. It is extremely difficult to create a successful project under all these conditions.
The two directions I prepared today are games and social networking. I think there is no self-consistent logic for these two. For example, the self-consistent logic is that a situation will occur in 2023 or at the latest in 2024.
Guest Oxleon: The first question we need to think about is whether Web3 has new social needs? You replace the economic model with the original business. This is a pseudo-demand, which may be more of a hype than a new product that solves the needs. Two important solutions include DID and SBT. I think DID will be more important. DID is like a game login account, and SBT is the equipment you get in the game. The experience of the social platform is like the game itself. The three of them are indispensable. These things together can solve new needs.
So I have seen many projects, and the technical barriers of many projects are not very high. What is really difficult is the application scenario.
In addition, the community is the best game. Social interaction can give you a great experience and scenario. A large number of interactions around the community take up a lot of people's time and also generate a lot of useful data.
Moderator: The third question is about the old public chain and the new public chain. Do you think the old public chain is still worth our effort to study and hold their tokens?
Guest Fan Gun’s Aunt: From the perspective of the secondary market, retail investors like to buy public chain tokens, and then exchange or pledge them on their ecosystem. However, the public chain needs to be driven by capital, and it itself has an impossible triangle, a trade-off between security and speed.
The second point is that the whole narrative may repeat itself in a new cycle with sufficient liquidity, such as APTOS, which was very popular last year. However, we now see that its user base and ecosystem are also average. Under the current situation, there may not be too many developer users to participate in it. I think this is also a weakness of the capital-driven supply chain. In terms of horizontal comparison, I think the number of developers on Ethereum is still far greater than other public chains.
I read the narrative of the entire roadmap for Shanghai's upgrade a few days ago. In fact, you can understand it as a constantly advancing civilization. I am still optimistic about the development of Ethereum.
Moderator: From the perspective of early beneficiaries or industry participants of funds, I think Ethereum is definitely supported. But from the perspective of some people who have not yet made money, we still need to look at new trends, because new trends will bring new opportunities. In comparison, Ethereum is still too expensive. Now my suggestion may be that everyone should pay more attention to some new technologies.
Guest Zixi: As a fund, it is a very dangerous thing to go all in on a public chain ecosystem, such as the recent examples of FTX and Solana.
Guest Oxleon: Regarding the issue of public chains, I personally pay more attention to the Layer 2 track on Ethereum.
Guest Warrenfang: In fact, many excellent products in the industry did not find a clear positioning at the beginning. In fact, they have been constantly adjusting according to the development of the industry, including Ethereum itself, which has been thinking about new solutions and new scenarios. In addition, new public chains or underlying infrastructure must have new application scenarios, rather than just solving the TPS problem, and this problem itself can be solved by Ethereum through the expansion of Layer 2.
From the perspective of first-level investment, we will consider the odds more. We have already laid out decentralized storage, because decentralized storage must be a problem that needs to be solved in the bull market. For example, social networking and games, which we just talked about, all these things need a storage medium, and you can't always store them on Amazon Cloud or Google Cloud. In addition, we will also pay attention to privacy protection, modular public chains, etc. As an investment institution, we may think about whether there are some new breakthroughs.
