ArkStream Capital: 2024 Q1 Investment and Dynamics

Investment Project Summary

ArkStream Capital invested in a total of 6 projects in the first quarter of 2024. We will announce the project details and explain why we invested in these projects. Project Introduction

XION is the first modular universal abstraction layer, specifically built to enable a seamless user experience for ordinary users to facilitate consumer adoption. XION's universal abstraction layer includes multiple protocol-level abstractions such as accounts, signatures, Gas, interoperability, pricing, devices, and payments. By abstracting all the complexities of cryptocurrency, XION eliminates the main barriers for new users while helping developers avoid fragmentation challenges. Its signature-agnostic infrastructure supports a wide range of existing cryptographic curves and can easily adapt to future developments, which not only expands its market coverage but also ensures its long-term viability and interoperability across different blockchain protocols. By abstracting interoperability, XION can provide a seamless experience for native applications as well as services for applications built on connected chains.

Why Invest in XION

According to different statistical standards, the current number of users in the crypto world is between 100 million and 200 million. ArkStream believes that during the upcoming bull market cycle, this number will increase tenfold to reach 1 billion, which requires the infrastructure of the crypto world to be user-friendly enough, and the abstraction layer is a feasible path to achieve Mass Adoption. ArkStream's first encounter with the XION team was in 2021 when they were still building an NFT marketplace based on Solana. ArkStream participated in the first round of investment, but then the bear market arrived, and the NFT market did not perform as expected. The project team made the difficult decision to pivot to building an abstraction layer L1, ultimately taking a step closer to their ideal vision of Mass Adoption.

Once proposed, XION's universal abstraction solution gained widespread consensus in the market. By early February, just half a month after the testnet launch, the number of accounts exceeded 100,000. Two months later, this number reached 1.3 million, with a total of 15 million transactions and over 340 WAU. Their hackathon attracted over 400 startup teams, and many of their more than 100 ecosystem projects are giants that influence the crypto industry, such as Circle, Axelar, Injective, IBC, and Babylon. All these data showcase XION's influence and indicate that they will eventually bring exponential users into Web3. Project Introduction

UniCross is an L1 asset minting, trading, issuing, and cross-chain platform on BTC L2, supporting the minting, trading, cross-chain, and issuing of L1 assets across different Bitcoin L2s. Users can mint, trade, and issue L1 BRC-20, Runes, BRC-420, ARC20, and other protocol assets on L2 through UniCross, and it supports cross-back to L1. The platform's asset payment supports the use of multi-chain assets such as BTC, BRC-20s, and ETH.

Why Invest in UniCross

The race for Bitcoin Layer 2 began in Q1 2024, which was previously just theoretical. After the launch of the Merlin mainnet, this competition reached a fever pitch. Through L2 Watch (https://l2.watch/), we can see that nearly 100 BTC Layer 2s are poised to launch or have already gone live, but the solutions vary widely. Different solutions such as sidechains, Rollups, and EVM compatibility have all proposed their own cross-chain solutions, ultimately dispersing users' BTC across various custodial/non-custodial wallets. However, we found that most sidechains' official cross-chain solutions do not include other native BTC assets, and the priority of the inscription army is placed behind the BTC hoarders, unaware that they are the most vibrant group in this ecosystem. These native assets such as BRC-20, ARC-20, and Runes that are stranded on the BTC main chain urgently need to regain their glory on Layer 2, especially after the mainnet Gas Fee far exceeding trading value after the launch of Runes confirms this need.

UniCross's proposed cross-chain solution effectively addresses this issue. The UniCross team, born from the second-largest inscription tool IDClub, possesses strong market awareness and iteration speed within the Bitcoin ecosystem. ArkStream is well aware of the team's product capabilities in this rapidly developing market and decided to participate in UniCross's investment at the very beginning of the project, hoping that in the future BTC Layer 2 battle, UniCross can capture the market with its unique positioning. Project Introduction

Polyhedra Network enhances computational capabilities using advanced zero-knowledge (ZK) technology, aiming to accelerate Web3 adoption by removing the limitations of traditional computational power. Polyhedra's flagship product, zkBridge, is a universal ZK interoperability protocol that simplifies the integration of Web2 and Web3. This protocol has helped traditional financial institutions smoothly transition real-world assets across various networks, completing tens of millions of cross-chain transactions and generating over 40 million ZK proofs. Through collaboration with Google Cloud, Polyhedra launched Proof Cloud, a ZK proof platform for developers, designed to simplify application development and deployment. To further enhance its technical capabilities, Polyhedra aims to integrate zero-knowledge proof capabilities into the Ethereum blockchain and expand its applications on Bitcoin, enhancing interoperability among major blockchain ecosystems like Ethereum and Solana.

Why Invest in Polyhedra

Since the birth of the first altcoin, how to conduct cross-chain exchanges has been a common goal for developers. Initially, developers tended to use atomic swaps to address this issue with relatively centralized solutions. The emergence of Polkadot and Cosmos aimed to create a unified standard, allowing all public chains to be built according to that standard, enabling seamless cross-chain exchanges for compliant assets. However, in a decentralized world, it is difficult to form a unified standard, and the market ultimately chose relatively centralized cross-chain bridges as a temporary solution until the emergence of cross-chain interoperability protocols. In the past two years, Wormhole, LayerZero, and Polyhedra have formed a three-way competitive landscape, each launching representative cross-chain bridge products: Portal, Stargate, and zkBridge, and building their own cross-chain interoperability protocols based on these.

Compared to the other two companies, Polyhedra has targeted the vacant market of the Bitcoin ecosystem this year. With zkBridge and zero-knowledge proof technology, Bitcoin can now securely transmit its current and historical data to over 20 networks, including Bitcoin Layer 2, Ethereum, and Ethereum Layer 2, and is compatible with innovative protocols such as Ordinals, BRC-20, and Atomicals. This allows smart contracts on other blockchain networks like Ethereum and Bitcoin Layer 2 to access Bitcoin data and protocols without trust and implement various computational logic, with security guaranteed by zero-knowledge proofs. Additionally, Polyhedra collaborated with EigenLayer to design and implement Bitcoin AVS, a system that allows other blockchain networks to securely write data to Bitcoin and transfer assets. Currently, key players in the Bitcoin ecosystem have partnered with Polyhedra, including but not limited to OKX Wallet, Unisat Wallet, Babylon, Merlin Chain, BitLayer, Bsquared, BEVM, and Particle Network, many of which are also part of ArkStream's portfolios. ArkStream believes that investing in Polyhedra is an important part of its Bitcoin ecosystem layout, which will help ArkStream further seize core resources in the Bitcoin ecosystem and assist more portfolios in their growth. Project Introduction

BEVM is a decentralized and EVM-compatible Bitcoin Layer 2 network that uses BTC as Gas. BEVM is based on the technologies brought by the Taproot upgrade, such as the Schnorr signature algorithm, allowing BTC to cross-chain to Layer 2 from the Bitcoin mainnet in a decentralized manner. Since BEVM is EVM-compatible, it allows all DApps that can run in the Ethereum ecosystem to operate on BTC Layer 2.

Why Invest in BEVM

In 2017, the SegWit upgrade allowed Bitcoin blocks to accommodate larger data, and the Taproot upgrade in 2021 not only allowed the expanded space to contain more complex data but also introduced the Schnorr signature algorithm, making decentralized Bitcoin multi-signatures a reality. This, in turn, made decentralized Bitcoin cross-chain operations possible, ultimately leading to the realization of decentralized BTC Layer 2. BEVM is the best example of decentralized BTC Layer 2. The SegWit and Taproot upgrades have revitalized Bitcoin, evolving it from the 1.0 era to the Bitcoin 2.0 era, showcasing a richer Bitcoin ecosystem. The explosion of token launch protocols like Ordinals on Bitcoin in 2023 is a result of the SegWit and Taproot upgrades. This has shown the Bitcoin community that issuing assets based on Bitcoin is possible. Issuing assets is just the first step; a richer and more diverse application ecosystem needs to be established on BTC Layer 2. Therefore, BEVM was born.

For the past six years, the BEVM team has been dedicated to exploring the development of BTC Layer 2. In 2018, the team's first product, ChainX, achieved over 100,000 BTC in cross-chain transactions. In 2023, the explosion of the Bitcoin ecosystem demonstrated to their team the arrival of a new era in the Bitcoin ecosystem, prompting them to start developing the new product BEVM. The solutions for Bitcoin Layer 2 can be roughly divided into two types: one represented by Merlin, which integrates various solutions and is more market-oriented in its initial approach, not constrained by whether the cross-chain solution is sufficiently decentralized; the other, like BEVM, emphasizes the native nature and decentralization of BTC, persisting in its development over the past few years. Both solutions have their advantages, and ArkStream hopes that the philosophy of Bitcoin ecosystem development can extend to every corner of the crypto world, which is why they have invested in the most promising teams across various categories. ArkStream looks forward to BEVM attracting more members from the native Bitcoin community to join in the development of Layer 2. Project Introduction

Merlin Starter is the first Launchpad platform on Merlin Chain, primarily incubating local projects and providing promising projects and asset support for the Merlin Chain ecosystem. Merlin Starter offers a combination of single-pool and multi-pool IDO formats, including oversubscription, lotteries, and first-come-first-served methods.

Why Invest in Merlin Starter

Asset issuance has always been at the core of the crypto industry. Whether it's Ethereum's smart contracts or emerging protocols like Ordinals on Bitcoin, the development of the crypto world has always been accompanied by the issuance and distribution of assets, from one-click mining to one-click token issuance, and then to one-click chain issuance and one-click inscription. The first stop to attract users is always assets, and the rise of every emerging ecosystem is accompanied by asset issuance and distribution. ArkStream believes that the large TVL of Merlin Chain after its mainnet launch needs more reservoirs to accommodate it. In addition to the traditional DeFi trifecta of lending, exchanges, and yield farming, Launchpad and IDO platforms are essential. MerlinStarter stands out in the ecosystem, seizing this strategic position and further attracting quality projects to issue on its platform through the issuance of benchmark projects and significant ecological funding attention. Project Introduction

Nubit is a scalable, efficient, Bitcoin-native data availability (DA) layer, deeply engaged in the Bitcoin ecosystem and actively expanding Bitcoin modularization. Nubit’s DA layer services can effectively expand Bitcoin's data capacity, supporting and providing modular services such as Ordinals, decentralized indexers, Layer 2 solutions, and price oracles, thereby supporting the expansion and efficiency improvement of the Bitcoin ecosystem.

Why Invest in Nubit

In the past two years, many Bitcoin Layer 2 projects based on Rollup architecture have begun to shine. However, given Bitcoin's non-Turing complete scripting language characteristics, for most Rollup-type Layer 2 solutions, although academic papers like BitVM attempt to inherit Bitcoin's security through simulated on-chain fraud evidence circuits, choosing a specialized local data availability solution aligns better with market development pace. ArkStream believes that the modular blockchain architecture and data availability layer (DA) proposed by Celestia provide a good reference that can also be applied to the Bitcoin ecosystem.

As one of the few DA projects in the Bitcoin ecosystem, Nubit occupies a crucial position in the entire ecosystem with its unique technical architecture and product solutions. Nubit is led by a professor from the UCSB Computer Science Department, with a core team consisting of top researchers in the blockchain and security fields from academia, as well as advisors like outstanding scientists from Chainlink, the former CTO of Facebook Diem Blockchain, top scholars in blockchain consensus Dahlia Malkhi, and the founder of BRC20, domo, boasting a strong academic and technical development background. Notably, Nubit has partnered with domo to jointly establish industry standards, and the developed Modular Indexer has been integrated with major wallet dApps.

Nubit is also committed to leading the Bitcoin Season 2 narrative in collaboration with top projects in the Bitcoin ecosystem, having already partnered with many well-known projects, such as the highly regarded EVM-compatible Layer 2 project Merlin Chain, Bitlayer, the Bitcoin Staking PoS chain BounceBit, leading projects focused on Bitcoin Staking and Restaking like Babylon, and liquidity protocols like Yala Finance that achieve native Yield. These well-known collaborative projects and Nubit are jointly promoting the steady development of the Bitcoin ecosystem, and through in-depth cooperation with these quality projects, Nubit can further refine and enhance its technical solutions, and more importantly, consolidate and elevate its influence and competitiveness within the entire Bitcoin ecosystem.

ArkStream Capital's investment in Nubit not only recognizes its outstanding technical capabilities and broad market prospects but also reflects a firm belief in the future development direction of the entire Bitcoin ecosystem and the broader technology field. As pioneers and supporters of the industry, we not only see Nubit’s potential value but also the infinite possibilities and opportunities it brings. Company News/Member Updates

Position Changes

Chung TszChung, promoted to Investment Partner

Educational Background: Bachelor’s degree from the University of Hong Kong; Master’s degree from the Norwegian School of Economics; MBA from Lagos Business School, Nigeria.

Before entering the crypto industry, Chung served as the only Chinese member at the African Export-Import Bank and later worked in risk management at Allianz in Germany. Chung has been with ArkStream Capital for 3 years, mainly responsible for project investments, currently residing in Chongqing. During his tenure, he has followed up on investments in several high-quality blue-chip projects, including SEI, IO.NET, LINERA, etc.

Chung excels at building relationships and regularly communicates with teams during the months-long investment process for individual projects, effectively helping projects grow and receiving unanimous praise from multiple project teams. Many of ArkStream's portfolios have actively invited Chung to represent ArkStream as a team advisor, providing advice on development directions and connecting cooperation resources, with some project team members even flying to Chongqing specifically to meet with Chung.

Chung has established a rich network of overseas first-line capital and has closely collaborated with international emerging crypto VCs such as Symbolic Capital and MH Ventures. He has helped ArkStream expand numerous overseas resources from 0 to 1, making an outstanding contribution to ArkStream's globalization efforts.

New Members

Ren Wang, EIR /Investment Director

Master's degree from Bournemouth University, UK; Bachelor's degree from the University of Southampton, UK, majoring in Cognitive Neuroscience. Previously worked at the Cognitive Science Research Institute of the University of Southampton, focusing on human learning and eye movements.

Ren is the first entrepreneur to join ArkStream. He previously served as Vice President at the leading dollar fund Northern Light Venture Capital and Vice President at Qingsong Fund/A8 Group (00800.HK). Wang Zhaoqian is an academic investor who adheres to research methodology, specializing in early and growth-stage investments in Web3, AI, and TMT fields, dedicated to bridging Web2 & Web3, with a cumulative investment amount exceeding 200 million USD. Representative cases include J&T (01519.HK), Zongmu Technology, Feibu Technology, and Dianjiang Technology. He has been recognized as a Forbes U30 VC investor and one of the best emerging investors by Lieyunwang.

Research Reports

Arkstream Capital: Nine Alpha Prediction for 2024

https://arkstreamcapital.medium.com/arkstream-capital-nine-alpha-prediction-for-2024-60562b637408

Arkstream Capital: How to Fortify the Security Defense of Merlin Chain's $3 Billion TVL

https://arkstreamcapital.medium.com/deep-analysis-of-merlin-chain-how-to-fortify-the-security-defense-of-3-billion-tvl-19a8d7c5edfe

Arkstream Capital: Why We Invest in IO.Net

https://arkstreamcapital.medium.com/arkstream-capital-why-we-invest-in-io-net-3a1757b68ef6

Hosted and Attended Events

Offline Events

Token 2049, Dubai

https://twitter.com/Chungtszchung/status/1781798521823244570

Streams with Degens, Hong Kong

https://twitter.com/ark_stream/status/1777737600184484174

The Private Dinner, Hong Kong

https://arkstreamcapital.medium.com/arkstream-capital-leads-discussion-on-web3-mainstreaming-at-private-dinner-in-hong-kong-1e5f9c49281a

MIT & Harvard Blockchain Course, Boston

https://twitter.com/HBSCryptoClub/status/1768016988905910769

ETHDenver, Denver

https://twitter.com/ark_stream/status/1765559025616257105

https://twitter.com/BSCNews/status/1763035681524265060

Online Events/ Twitter Space

[When the Wind Rises] Episode 3: MEME, a Crypto-Native Political Movement

https://twitter.com/ark_stream/status/1781244482366968006

[When the Wind Rises] Episode 2: Merging AI and DePIN in Web3's Tapestry

https://twitter.com/ark_stream/status/1770695953194025023

[When the Wind Rises] Episode 1: Exploration and Breakthrough of Bitcoin Layer-2

https://twitter.com/ark_stream/status/1767158809552904649

AMA with GateUS

https://twitter.com/GateUS_Official/status/1772677357037330663

CMCLive: How Fastest Growing Layer2 Shapes the Space

https://twitter.com/CoinMarketCap/status/1750035931623813173

ArkStream Capital is a crypto fund founded by native cryptocurrency individuals, encompassing primary market and liquidity strategies, investing in the most native and cutting-edge innovations in web3, dedicated to promoting the growth of web3 unicorns. The ArkStream Capital team has been involved in the cryptocurrency field since 2015, coming from institutions such as MIT, Stanford, UBS, Accenture, Tencent, and Google. The portfolio includes over 80 blockchain companies, including AAVE, Filecoin, FLOW, Pocket, Manta, Sei, Polyhedra, etc. Website: https://arkstream.capital/ Medium: https://arkstreamcapital.medium.com/ Twitter: https://twitter.com/ark_stream