Bixin Ventures: 2022 Annual Review and Outlook

Author: Bixin Ventures

Preface

The cryptocurrency industry experienced DeFi Summer in 2020, Bitcoin and Ethereum reached all-time highs in 2021, and then NFTs exploded into the mainstream, leading everyone to have high expectations for blockchain in 2022. However, looking back from this moment, we find that the cryptocurrency industry has faced many challenges over the past year.

At the beginning of 2022, in response to inflation, many countries around the world began to tighten monetary and fiscal policies, and the macroeconomic environment continued to deteriorate. The cryptocurrency sector could not remain unaffected; the Terra ecosystem collapsed rapidly in the middle of the year, and several large institutions (such as Three Arrows Capital, Celsius, BlockFi, etc.) faced chain liquidations and bankruptcies. The recent FTX/Alameda incident has caused significant losses for many customers, and the blockchain market has continued to experience turbulence.

Despite the severe macro environment, industry practitioners have demonstrated admirable perseverance and fighting spirit. Developers continue to drive innovation, and Bixin Ventures, along with other investors, is constantly exploring excellent projects and investing substantial funds to support industry development. As this challenging year comes to an end, Bixin Ventures will review its recent investment portfolio, further solidify its investment principles, and remind itself not to forget its original intention and mission to promote industry development.

Our Investment Declaration

Adhering to the investment principles of "decentralization," "permissionless," and "autonomy." We believe that decentralized technology can enhance individual ownership of assets such as data. With technological advancements, governance and decision-making power will shift from centralized participants to a broader decentralized population, fully incentivizing individual creativity and participation.

Based on our core principles, we focus on the following directions:

• Infrastructure projects that promote large-scale applications of Web3 networks

• Innovative tools and applications with sustainable economic models that can attract billions of active users

As an investment firm, we will grow alongside founders while leveraging our expertise and resources in the Asia-Pacific region to help entrepreneurial teams develop, including global expansion.

The Most Exciting Events of 2022:

▐ Blockchain Infrastructure

Blockchain infrastructure is vast and rich in connotation, but ultimately, it aims to achieve one goal: how to abstract the underlying blockchain infrastructure so that end users do not feel its presence. Applications will drive blockchain usage among large-scale users, while the goal of blockchain infrastructure is to ensure that it can meet the various needs of these applications.

L1s

Layer one (base layer public chains) serves as the foundation for all other applications and will continue to attract our interest in the future. Over the past year, we have invested in:

(1) Two public chains supporting the Move language: Aptos and Sui, with teams from the technically deep-rooted Diem team. We incubated the first POW consensus public chain, Starcoin, which adopted the Move language, gaining valuable experience to deploy and allocate developer resources to support the development of these two ecosystems.

(2) The privacy public chain Mina, which is building a secure layer with privacy features for Web3 while reducing the computational requirements for node participants, thus increasing decentralization.

(3) We also participated in the financing of Scroll, an L2 ecosystem based on ZK-rollup technology. We believe that zero-knowledge proof technology will be key to achieving trustless privacy.

(4) To scale data availability layers, we invested in Subspace Network, a highly scalable modular blockchain that provides a shared infrastructure layer for cross-ecosystem builders.

We are also committed to researching various L1 blockchains to help us understand this subfield; you can learn more through the hyperlinks above.

Considering the different emphases in the design of each blockchain, we recognize that there are many different methods for blockchain scaling:

(1) Ethereum L2 provides a cheaper and faster alternative to L1 while retaining decentralization attributes; of course, users can choose to settle directly on L1 if they wish.

(2) Cosmos blockchain design focuses on interoperability, giving rise to an application chain ecosystem where each application chain runs its own set of validators to manage economic security while connecting through the Inter-Blockchain Communication (IBC) protocol.

(3) The emergence of Alternate Layers in Solana, Avalanche, and Luna in 2021, along with investors' strong interest in the new public chains based on the Move language, Aptos and Sui, also indicates the industry's demand for high-performance, high-throughput, and low-cost blockchains.

Middleware

With the development of underlying blockchains, we foresee that new trends will emerge, potentially bringing opportunities in the following subfields:

(1) Network states will grow, requiring more management.

(2) Increased on-chain economic value with greater security.

(3) Stronger connections with the Web2 world will facilitate more convenient data transfer from off-chain to on-chain.

(4) Users will want to securely transfer value across different blockchains, increasing the demand for interoperability.

(5) Better self-custody of personal assets.

Therefore, we believe that decentralized storage solutions, decentralized staking solutions, permissionless oracles, trustless bridges, and non-custodial wallet solutions will play significant roles in these trends.

As a result, we invested in:

(1) Arweave, a decentralized storage network that utilizes idle disk space.

(2) Swell Network, a permissionless, non-custodial, and liquid ETH staking protocol.

(3) Switchboard, a permissionless oracle that allows the creation of high-performance data sources from any API.

(4) Layer Zero, a full-chain interoperability protocol supporting cross-chain communication.

(5) Gnosis Safe, a digital asset management platform that allows multi-signature schemes.

(6) Meson Network, a bandwidth marketplace on Web3, focusing on low-cost integration of idle bandwidth resources from long-tail users and monetizing them.

(7) Safeheron, a provider of multi-party computation (MPC) and trusted execution environment (TEE) technologies to enhance custodial security.

(8) Bitkeep, a decentralized multi-chain digital currency wallet dedicated to providing users with secure and convenient one-stop digital asset management services.

(9) BloXroute, a high-performance, globally distributed blockchain transmission and content delivery network. Similar to a CDN, BloXroute has innovated BDN technology to provide on-chain transaction acceleration services for DeFi traders on Ethereum and BSC.

We have also further incubated:

(1) OneKey, an alternative hardware wallet solution to Ledger and Trezor.

(2) Openblock, an MPC wallet that allows users to recover accounts through social means without managing seed phrases.

Another area worth noting is on-chain data processing projects, such as indexing services and API calls, which are crucial for application developers.

▐ Application Layer

Returning to the application layer, we believe that user-centered design and value addition should be core to the underlying logic. Similar to how Web2 consumer applications gradually achieved mass adoption after iterating their product UI/UX, we believe that Web3 applications need to make the user experience as seamless and direct as possible. For example, the pain points in the experience process for a new user may include: acquiring crypto assets, the application registration process, and the need for multi-signature verification. Most notably, the inability to interact with most applications on mobile devices is a significant pain point, leading to incompatibility with existing user bases.

DeFi

The first wave of DeFi Summer demonstrated the actual demand for such products, but mass market availability remains a key unresolved issue.

DEX

Undoubtedly, the demand for decentralized exchanges is increasing, especially after the collapse of centralized exchanges. Currently, most trading volume occurs on CEXs simply because they offer higher availability. In this context, the next wave of DeFi products needs to have similar or higher availability to attract more users, especially non-crypto native users.

As a result, we invested in:

• Drift protocol, a high-performance decentralized exchange on Solana that will replace how people execute trades and swaps on CEXs. The upcoming Drift v2 version will include several new products, such as spot swaps and lending.
• Pontem, a development studio on Aptos, launched products such as Liquidswap, the largest AMM model DEX on Aptos, and Pontem Wallet, a consumer-centric wallet that not only offers a great user experience and low fees but also seamlessly integrates with most applications in the Aptos ecosystem.

Derivatives

Similarly, we believe that the on-chain and decentralized nature of derivatives is the future. The potential issue is that the current lack of mature infrastructure prevents these applications from thriving like centralized applications. As mentioned above, advancements in the infrastructure layer may become a turning point for the development of decentralized derivatives.

As a result, we invested in:

• Arrow Market, a decentralized financial market options protocol on Avalanche, aimed at democratizing the entire options trading channel (from market making to brokerage to clearing and settlement).
• Rage Trade, the most liquid ETH perpetual trading platform and stablecoin farm on Arbitrum. Notably, Rage Trade is supported by Layer Zero, allowing them to unify liquidity across multiple chains.
• Struct Finance, a derivatives platform that provides users with a way to customize interest rate products and combine them with other available products in the ecosystem to build high-quality structured products.

Stablecoins

A decentralized economy requires decentralized stablecoins. The collapse of LUNA not only marked the end of algorithmic stablecoins but also further emphasized the market's demand for truly decentralized stablecoins. Although there are varying degrees of decentralization in stablecoin models currently, we believe the industry will continue to innovate and strive to achieve this ultimate goal.

As a result, we invested in:

• Thala, an over-collateralized, yield-stable stablecoin protocol backed by a basket of on-chain assets. Its liquid staking derivatives, liquidity pool tokens, deposit receipt tokens, and diversified collateral of RWA ensure its decentralized and censorship-resistant nature without compromising capital efficiency.

Gaming

Having experienced the previous wave of P2E games supporting cryptocurrencies, we believe the next wave of games will focus on leveraging blockchain technology to enhance gaming experiences, whether in terms of asset ownership, interoperability, or even in the esports arena.

As a result, we invested in:

• Shrapnel, an upcoming AAA first-person shooter game based on Avalanche. The game is supported by next-generation community-driven tools built on blockchain to provide true ownership.
• Star Atlas, a next-generation gaming metaverse that integrates cutting-edge blockchain, real-time rendering, multiplayer video games, and decentralized finance technology.
• Midnight Evergreen, a platform for a range of AAA self-made and third-party games tailored for different users. They attempt to integrate NFTs into classic gaming experiences in a way that enhances the experience.

NFT

We are still in the early stages of the NFT development cycle, with the first real NFT craze starting with PFPs in 2021. NFTs will enter fields such as art, music, sports, pop culture, and branding, while driving the next wave of mainstream consumer adoption, and the importance of decentralized digital asset ownership will be more widely accepted.

As a result, we invested in:

• Few and Far, a next-generation Web3 experience platform that will encompass NFTs, DeFi, gaming, and other projects in the NEAR ecosystem.

Social

Now is the best time for Web3 social to replace current social media platforms. Data ownership, portability, transparency, and censorship resistance are making leading projects in the Web3 social space increasingly attractive. Moreover, allowing users to truly own content will change the power dynamics between current platforms and content creators.

We invested in:

• Solcial, a decentralized social network based on Solana. Solcial allows anyone to share content in a completely permissionless manner, avoiding censorship and rewarding users and content creators fairly.
• Planet, a free open-source tool for publishing and tracking web content. Planet does not rely on centralized servers but uses IPFS for peer-to-peer content distribution.

Life and Entertainment

Web3 can help people creatively integrate life scenarios into entertainment applications. Having such data will unlock new application scenarios, and applications aimed at end users will also see new developments.

We invested in:

• Gritti, a Web3-based lifestyle social application that helps users achieve their fitness goals and maintain a healthy lifestyle.

Here are some of our research efforts in 2022:

Thematic Research

“The Future of Solana Pay and Web3 Payments”

“In-Depth Study of Avalanche and Subnets”

“The Next Hard Battle: The Race to Scale Ethereum”

“The Importance of Staking Aggregators in the PoS Era”

“Cosmos Insights: Focused on Interoperability”

“The Future of Stablecoins”

“The Long-Term Viability of Solana”

“Comprehensive Analysis of the Move Language: The Javascript of Web3”

“The Censorship Resistance of Bitcoin and Ethereum”

“GenesysGo: The Crucial Infra Provider on Solana You Don’t Know About”

“In-Depth NFT Market Data, Mining New Trends in the NFT Market Iteration”

Portfolio Deep Dives

“Bixin Ventures: Why We Invested in Mina”

“The Game Changer in Perpetual Trading: Drift Protocol”

“Portfolio Analysis: Sui Led by Mysten”

“Structure.fi: Bringing TradFi Assets into Blockchain Through Tokenization”

“Bixin Ventures: Why We Invested in the Next Generation New Public Chain Aptos?”

“Portfolio Analysis: Switchboard”

Review and Outlook

Bixin Ventures began actively investing with its own capital about 18 months ago and now has over 20 employees distributed across China, the United States, Singapore, Eastern Europe, and other regions. We stand alongside excellent founders and participate in their financing. As the market enters a downturn and entrepreneurial teams focus on application development, we hope to continue supporting more entrepreneurial teams. We are also proud of the development of our internal research team, which has made us better investors in this field.

Looking ahead to 2023, we hope to provide more targeted assistance to our existing portfolio and will actively seek and hire post-investment managers for internal support.

Column Author Bio:

Focusing on investing in early projects that accelerate Web3.0 innovation (https://bixinvc.com/).

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