Dialogue with Binance's Vice President of Investment, Ling: Analyzing Binance's Investment Methodology

This article is an original piece by Chain Catcher, authored by Wang Dashu.

Binance is one of the most important investors in the current cryptocurrency market. On one hand, it invests widely across various project tracks; on the other hand, through multiple acquisitions, it controls traffic entry points and enhances its core competitiveness, seemingly developing into the "Tencent" of the crypto world, opening up infinite possibilities for the market.

Upon closely observing Binance's investment landscape, we can't help but wonder what the supporting points behind Binance's investment strategy are. How has Binance's investment team operated over the past three years since its establishment? How does it view current market hotspots? To address these questions, Chain Catcher recently conducted an in-depth conversation with Ling, Vice President of Binance Investments, who elaborated on the underlying logic and methodology of Binance's investments from multiple perspectives, hoping to inspire you.

1. Discussing Investment Strategy

Chain Catcher: Ling, please introduce yourself and your role in Binance Investments.

Ling: Sure, I mainly oversee Binance's investment team. I joined Binance Labs, the initial investment incubation institution of Binance, in early 2018. Currently, our investment angles include M&A (strategic investments and acquisitions), Binance Labs, Launchpad, Launchpool, and the BSC seed fund, among others. Since Binance began investing over three years ago, we have invested in more than 100 companies across over 15 countries and regions.

Chain Catcher: Investment institutions often have their unique investment strategies. For example, DCG has focused on middleware projects in the past year. From the perspective of tracks and logic, what is Binance's investment strategy?

Ling: We can discuss this from two major investment directions. The first major direction is strategic investment layout around Binance's ecosystem, mainly including three sectors.

The first is emerging markets. Since the second half of 2019, we have made many investments and acquisitions that align with the expansion into new markets. For example, we acquired WazirX, the largest P2P trading platform in India at the time, which has now become India's number one blockchain trading platform. We also invested in Tokocrypto, the first compliant trading platform in Indonesia, and incubated the wallet Bundle in Africa, which is now the top wallet in Nigeria.

The second is new products and business lines. Binance's overall business expansion is very rapid, and during this process, we cannot self-generate and grow all products and business lines. Therefore, investment and acquisition are efficient ways to quickly lay out more business lines through capital. For instance, one of the teams we acquired launched Binance Cloud as an enterprise-level product. Additionally, we acquired Swipe.io in early 2020, which became the leading team for our Binance Card and crypto debit card business.

The third is new traffic and users. For instance, early investments in big data platform Dappreview, derivatives exchange FTX, and the world's largest consulting market platform CoinMarketCap, as well as in the travel sector with Travala, were all focused on early user growth in new tracks and fields.

Moreover, the wallet sector has always been a key area of focus for us. In addition to acquiring Trust Wallet in 2018, we have also invested in various types of wallets like SafePal, Mathwallet, and Bundle.

The second major direction is around the entire industry ecosystem. To date, we have invested in over 100 companies, most of which are early-stage funding focused on the industry ecosystem. From the entire investment cycle perspective, we can provide end-to-end value-added support. For very early projects, we will support them through the BSC seed fund or Binance Labs incubation.

As projects grow to a certain stage, we will further increase our investment or explore acquisition opportunities based on business integration with Binance. When projects further grow to the next stage and need to enter the market, we will assist them in choosing the right path to the next stage through Launchpad or Launchpool.

Additionally, we will build a strong founder network around existing investments. This not only allows the invested companies to have more business interactions with Binance but also enables good mutual cooperation and ecological interaction among the invested companies.

Chain Catcher: The declaration at the establishment of Binance Labs was to help startups help startups, entrepreneurs help entrepreneurs, and blockchain believers help blockchain believers. What do you think constitutes a blockchain believer?

Ling: Everyone has different criteria for judging blockchain believers. Personally, I believe a basic characteristic of a blockchain believer is whether they adopt a currency-based understanding and judgment of value rather than a fiat currency-based one.

For blockchain entrepreneurs, there are several aspects to pay more attention to: first, whether they have reasonable expectations for market cycles, while maintaining their commitment to the products they want to create and the services they provide during fluctuating market cycles, and staying true to their track.

Secondly, whether the team or founders have a sufficiently reasonable and sustainable incentive mechanism design, achieving delayed gratification and being confident in growing stronger.

Finally, whether the entrepreneur's personality, background, beliefs, experiences, and expertise can support them in persisting in the industry for 5 to 10 years.

Chain Catcher: Binance has invested in many projects, many of which have become industry leaders and can continuously capture value from the outside. How do you generally value these early projects?

Ling: Whether in a bull market or bear market, we mainly use three key indicators to value early projects. First is to look at the industry, meaning what problems the industry needs to solve and whether the corresponding pain points or market size exist; second is to look at the product, meaning whether the product or service created by the entrepreneur can match the market, find the established user group, and gradually formulate reasonable market strategies to stimulate user growth; third is to look at the team, meaning whether the team's background, experience, and advantages can support what they want to achieve.

In addition, Binance also has a type of funding investment. For example, when there are only two founders and an idea in the early stages, we cannot determine whether this can be developed, but we still want to support it. We choose to fund it through Binance X's developer fund or BSC's seed fund, in the form of Gitcoin or donations. If the founders later clarify the project goals and specific execution strategies and plan to raise funds, we will reassess and consider further investment.

Chain Catcher: Based on your experience, how do you judge whether these early projects are reliable?

Ling: Early projects can be divided into two categories: foundational infrastructure and upper-level architecture. In terms of foundational infrastructure, we have focused on public chains, Layer 2, and other critical infrastructure tracks since 2018. For example, we invested early in Matic, Celer, Harmony, Marlin, and Oasis.

In terms of upper-level architecture, we have paid considerable attention and investment in various application fields, such as OpenFinance, NFTs, and blockchain games, including Terra, Band, Mobilecoin, and Contentos.

Generally, when assessing foundational infrastructure, we focus on the team's technical background and capabilities to see if they can complete the technical blueprint promised in the white paper on time; when assessing upper-level architecture, we pay more attention to the commercialization, scalability, and marketability of the application, as well as the team's ability to implement it in business.

Chain Catcher: The industry often says that project parties hope to lean on Binance as a big tree, as being listed on Binance will have more advantages. Therefore, the Binance investment team can easily obtain shares in popular projects. In a bull market with a continuous influx of new projects, what methods do you use for selection?

Ling: We do not change our selection criteria just because of a bull market. Generally, it still relates to the investment strategies mentioned earlier. Binance will make different layouts in different tracks.

Additionally, we closely collaborate with leading investment institutions in the industry to communicate about more projects. For example, we recently announced an investment in Multicoin Capital. The reason for this collaboration is that since 2018, we have had very close project cooperation with Multicoin Capital, and their investment performance is well recognized.

Of course, we also leverage the Binance entrepreneur ecosystem. The more than 100 companies that Binance has invested in will gradually form a strong entrepreneur ecosystem. These entrepreneurs have a strong sensitivity and can identify equally strong entrepreneurs around them. Some of our better investment cases have been recommended by founders within the entrepreneur ecosystem, which gives us more opportunities for selection.

Chain Catcher: From project matching, internal discussions to finalizing investments, what processes and timelines do you generally require?

Ling: This depends on the situation of each case. Generally, larger acquisitions take longer, often several months, such as investments from BSC or Labs. In faster cases, the due diligence (DD) to decision-making can be as quick as about two weeks. For more complex projects, the DD process may take longer, sometimes one to two months.

Since our team members are spread across regions like Singapore and Taiwan, we can see them online at any time in any time zone. We also do not want to waste the valuable time of entrepreneurs, so we try to complete due diligence and evaluations quickly, thus advancing investment decisions.

Chain Catcher: You have rich experience in post-investment management of projects. What are the main tasks of post-investment management for blockchain projects currently? What level of support does Binance provide to invested projects?

Ling: Generally speaking, we participate more in the post-investment management of M&A. The main content is to maintain close tracking and service for the acquired projects. However, for early projects invested by Binance Labs, post-investment management usually involves regular communication with the projects about the support needed for product development in the next phase, as well as providing them with support, such as market promotion, PR, new rounds of financing, and brainstorming for product innovation, etc.

Chain Catcher: Besides these supports, does Binance Investments provide assistance to invested projects at the upper level?

Ling: There is a misconception that we never promise to list projects when investing.

First, internally, investment and listing are two independent teams with independent evaluation standards. Whether it is the personnel involved in the evaluation or the evaluation models and standards, they are very independent.

Secondly, as added value for investors, we can provide more advice to invested projects on the entire early token model design based on past projects and experiences.

Finally, during the due diligence process for listing, we provide more strategic support and guidance, including improving scheduling or prioritization, enhancing token models, product iterations, etc. However, regarding the outcome of listing, Binance Investments will not intervene or influence it.

Chain Catcher: With so many projects invested, which has a higher proportion, token investment or equity investment?

Ling: We allocate our investment power fairly evenly between these two areas. However, for some projects, we may invest in equity initially, but when they mature, they will issue their own tokens. So, in terms of results, token investments are still more prevalent.

Chain Catcher: It's inevitable to miss out on investments. Looking back now, which missed projects do you regret the most? Why didn't you invest at that time?

Ling: Regrets or misses are viewed from the perspective of wealth returns. From our perspective, there are many ways to support project growth, and early investment is just one of them. If we believe a project has great potential, we are willing to provide corresponding support at different stages of its growth.

For example, with Chiliz, Binance invested in it early on, but we did not invest in its fan tokens at that time. Later, we believed that this type of social token would have a long-term place, so we allowed Binance users to participate in the mining of fan tokens through Launchpool.

Another example is BTCST. Binance has not made any investments in the mining sector to date and has not made any in-depth layouts in the POW field. Therefore, earlier this year, we made a very good attempt by collaborating with Binance Pool and the BTCST project to bring the computing power token to Launchpool, allowing more Binance users to understand what computing power tokens are and what POW mining is.

2. Discussing Tracks

Chain Catcher: With various Ethereum scaling solutions emerging, Binance has invested in the ZK Rollup research institution Matter Labs. Does this mean Binance is more optimistic about the Rollup route?

Ling: From a technical perspective, the performance issues of blockchains represented by Ethereum have always been one of the biggest barriers to the prosperity of the entire industry. Therefore, our goal has always been to promote the upgrade of underlying technologies, allowing more users to conveniently use digital currencies for on-chain transactions. This is also why we supported various scaling solutions early on.

We have also supported many Layer 2 solutions like Plasma and Matic in various ways and have been a driving force behind their market launch. The recent attention on Rollup solutions in the Layer 2 space is mainly due to their good verifiability and security with Layer 1.0 data, leading people to view them as a more versatile solution. Our investment in Matter Labs continues our consistent goals and paths.

Overall, we believe that there will be more different solutions emerging in the Layer 2 track. Currently, BSC can also be broadly considered a Layer 2, as it offers relatively low gas fees, fast transaction confirmation times, and a smooth user experience, which indirectly indicates that BSC effectively addresses the temporary limitations of Ethereum, providing users with a better experience.

Chain Catcher: From collectibles, crypto art, fan tokens to the recently popular crypto games, NFTs have been trending for a while. Binance has also invested in Chiliz. What are your insights and thoughts on the NFT track?

Ling: NFTs are a very interesting field. If DeFi attracts native users with activation products, NFTs are new products that attract more users from outside the circle into the blockchain industry. Currently, we are mainly considering and laying out the NFT track from the following three aspects:

First is asset generation. This stage is mainly supported by underlying technology + good IP. On the technology side, Ethereum and FLOW have been well-known public chains for NFT issuance, and now BSC is gradually becoming a popular underlying architecture for NFT projects. On the IP side, we can categorize it into four types: sports IP, collectible IP, art, and games. Binance Investments is currently seeking good targets and partners in the market for these four types of IP.

Second is asset accumulation. NFTs differ from many tokens in that they have technical requirements. When users acquire NFT assets, they have demands for services related to how these assets are presented, stored, and transferred in wallets. These demands will feedback into adjustments and upgrades in the wallet track. Therefore, founders of wallets like Trustwallet, SafePal, and Mathwallet, which Binance has invested in, are discussing how to better store and transfer NFT assets in the wallet space.

Third is asset circulation. We can see that NFT trading platforms like OpenSea have performed very well, primarily due to their first-mover advantage and persistence over the years. Naturally, when there is a demand for trading or auctioning NFT products in the market, they will be prioritized. Therefore, we are not only looking at NFT targets on BSC but also at platform-type targets that can support NFT trading on public chains like Ethereum and FLOW.

So far, BSC has invested in about 10 NFT trading markets, some of which have been announced while others have not. Additionally, we have supported the issuance of related NFT projects through Launchpad and Launchpool, such as MyNeighbourAlice, AlienWorlds, Sandbox, and Axie Infinity.

Chain Catcher: Many practitioners believe that the popularity of NFTs is more due to meme economics. How do you understand this viewpoint, and what do you think the next explosion point for NFTs will be?

Ling: I personally believe this viewpoint is not comprehensive. The core issue is that the greatest value and application scenarios of NFTs have not truly arrived. Looking back at 2018, NFTs were merely driven by the craze of CryptoKitties, and most NFT entrepreneurs were focused on gaming, which generally faced issues of unsustainable traffic and heat, with insufficient wealth effects.

However, this wave of NFT popularity was primarily ignited by NBA Top Shot. The key reason is the explosive growth of the trading card market in the U.S. in the second half of last year, which generated a strong wealth effect. However, the art collection market remains niche; while it has sufficient wealth effects, it does not have a sufficiently low barrier to entry. Therefore, I believe the next real explosion point for NFTs will definitely be a combination of wealth effects and traffic input, such as products that integrate NFTs as a foundational form with DAOs and DeFi, providing further carriers and trading scenarios for non-standard assets.

Chain Catcher: Speaking of the combination of NFTs and DAOs, the DAO track seems to struggle to generate FOMO effects.

Ling: Everyone has different understandings of DAOs. For example, Dego on BSC essentially links the project financing process with the community, allowing the community to participate deeply from a very early stage. Similarly, Binance's Launchpad or Launchpool is essentially a 0.5 version of a DAO, which is a semi-decentralized DAO. Through Launchpad or Launchpool, users can participate in early project investments and support, while projects can gain the community support needed for development.

Overall, I do not believe the DAO track is struggling to generate FOMO effects; it is merely that the timing is not yet mature. Once you empower the community with more opportunities to participate in early project investments, the FOMO effect will easily arise.

Chain Catcher: The crypto market is becoming increasingly crazy, with many new projects quickly achieving valuations of tens of millions of dollars. Many people believe that there may be bubbles and risks inflating within this. Do you think there are bubble components in the current primary market? After the bull market in 2017, the primary market was left in ruins. Is it possible for this situation to happen again?

Ling: There are bubbles, but this bull market is very different from the one in 2017. On one hand, after the market cycle of 2018-2019, a large portion of speculators has been filtered out, leaving many serious and reliable entrepreneurs and increasingly rational investors who are more patient in driving the industry's development over the next decade.

On the other hand, more and more traditional VCs are entering the market, bringing more standardized investment methodologies and rational investment styles into the blockchain industry, which is a very positive phenomenon. Therefore, I remain optimistic.

Chain Catcher: What do you think is the most important question for the blockchain industry to consider in the next five years?

Ling: From a macro perspective, I believe that in the next 5 to 10 years, the most important question for practitioners to consider should be how to gain mainstream societal recognition for the blockchain industry. Whether it is entrepreneurship, investment, product development, or user service, the blockchain industry is still constrained by the concept of "inside the circle and outside the circle." The next challenge is how to enable more mainstream users to seamlessly and unconsciously use various blockchain products and enjoy the changes and impacts brought by blockchain, which should be a question every practitioner needs to think about.