Niu Fengxuan of Yunjiu Capital: We are still on the eve of the outbreak of Web3.0

1. The development of the Web3 industry from the perspective of an entrepreneur

I would like to share my understanding of the development of the Web3 industry from the perspective of entrepreneurs, because I am more suitable to be defined as an entrepreneur than an investor. I started my business at the end of 2014. The first venture was a SaaS tool in the traditional Web2 industry, but it was not very successful. It only operated for two years and closed the company in 2017. In the same year I started my second venture in the Web3 industry, founding the data company DappReview.

In the four years from 2017 to 2021, I have felt a lot. When I first got into Web3 in 2017, we were basically pioneers. At that time, in addition to Ethereum, there were some other chains and development tools on the chain. Even the infrastructure of some developer ecosystems, such as the basics and wallets, is not perfect, let alone applications. Although everyone was already imagining some scenarios at that time, including finance, games, identity, social networking, etc., the industry was still basically barren at that time.

After a four-year cycle, we can see the gradual completion of infrastructure, which I describe as, from "dirt road" to "asphalt road" Changes to - vehicles can be driven, but aircraft have not yet been allowed to pass. Four years ago, it was very difficult to take this path. Entering as a developer and entrepreneur, many things could not be done. On the contrary, if you compare Web2 entrepreneurship, developers of mobile APPs do not need to worry about network, storage performance, computing performance and other issues; Just keep up. But in the Web3 industry, the infrastructure has many limitations, and we need to know what can and cannot be done. In the past four years, I have also seen the explosion of the middle layer and the protocol layer from 0 to 1, and the application layer also ushered in the first explosion under the background of the completion of the infrastructure, realizing the transformation from 0 to 1, today in Go from 1 to 100 or even 100 to 1000.

Several other tracks, including games, NFT, Metaverse, etc., I personally think are still in their early stages. At the same time, the situation in the previous cycle gave birth to many current top projects, such as OpenSea, Sandbox, Uniswap, Aave, Axie, etc. These projects were established between 2017 and 2019, at the end of the last bull market and the beginning of the bear market Not all of them were born in the bull market of last year and the year before.

These companies have been through a lot. I met members of Sandbox and Axie when I was doing DappReview in 2017 and 2018. The bear market was particularly difficult, and they couldn't raise enough funds for a while. At the end of 2019, Axie and Sandbox were financing at the same time. At that time, their valuation was 15 million US dollars, and they only raised 1.5 million to 2 million US dollars. And now Web3 projects start at $20 million to $50 million.

In this market cycle, I have witnessed many interesting things as an entrepreneur, and I will share some of them below.

2. What value does blockchain technology bring?

In the past four years, I have been asking myself: What kind of benefits can Web3, which uses blockchain technology as the underlying infrastructure, bring? value? This is also a question that many people will think about. I started to do DappReview in 2017. At the end of 2019, DappReview was acquired by a trading platform. After that, I made personal investment for a period of time, and then I joined Cloud Nine Capital to invest in Web3. Over the past four years, I have repeatedly thought about this question through entrepreneurial practice and investment experience. I think the answer is two points:

First, composability, namely interoperability. Composability is essentially permissionless combination and invocation at the code level. For example, if you write code on the blockchain with smart contracts, other people can call the code and interface without permission, and build new things on this ecology. And digital assets (whether homogeneous or non-homogeneous) can interoperate across applications and natives. In many payment applications of Web2, the money in one application cannot be used in another application; or the props and equipment in the game cannot be used in another game. However, the characteristic of building applications based on blockchain technology as the bottom layer and going to the upper layer is that real-time cross-application calls can be realized with only assets. This is something that used to be difficult to do. In addition, due to the composability of the code (we call it Lego logic), it is like stacking blocks, I made blocks, and others can build other things on my Lego blocks, which makes the entire industry develop very fast. Looking at the entire development of DeFi in 2020, in just two or three months, the track has explored countless possibilities. On top of the most pillar applications such as the underlying lending and trading, we have built various aggregators and other interesting products.

The second point is a unified database. A unified database refers to connecting all the data behind the massive Web2 applications. For example, if a user reads and writes all data in five applications in the same place, and only needs one address to log in to each application, then the value of this database will be huge.

Today, most of the top projects are bred in the bear market, and the infrastructure is the top priority. Without roads, cars cannot be driven; without airports, planes cannot be driven.

Next are two investment themes that we think are more important and interesting:

The first is the investment theme of data. As mentioned earlier, one of the values brought by the entire blockchain is a standardized and unified database. In this database, we believe that the data on the chain is actually a "gold mine": everyone has an address, which is your unique identifier. If you use this address in multiple applications, all your relevant data will be recorded on your data dashboard and recorded in the transaction flow under this address. We can put various labels on the address and analyze it. Data is no longer an island. In the past, we left data in various apps such as WeChat, and those data would only exist in each company's own database. This is a data island, because large companies will not share data with other companies. But it’s different now. All the data on the entire Ethereum is publicly visible. Although it is anonymous, there is no way to know the owner of the address, but the past behavior of the address, the used DeFi products, the used Game-Fi products, and what has been done Such information can be captured seamlessly, and more comprehensive and efficient data analysis and mining can be done. Based on this set of logic, from the underlying data source to the upper layer for data cleaning, analysis, indexing, and node services; and then to the upper layer, after data analysis, there are various There will be many ToB data tools, ToC data Kanban and data applications for some protocol layer projects.

In the three layers listed above, each layer has a unicorn It is a beast-level company, and it has real income. We are very optimistic about this track. Because the data processing now is different from the past in that you can see all the data behaviors under the address more comprehensively, and these data behaviors are all verifiable. We have invested in some companies, such as Galxe (formerly known as Project Galaxy) and CyberConnect, which are actually doing social graphs on the chain and user data aggregation.

I have observed that it is very interesting that when recruiting people in the industry, they will ask him which applications he has used. Although the resume will write the products that have been used and the products that have been researched, but this is not necessarily true. And as long as you have the address he provided, you can see whether the address has actually performed the behavior he said, such as participating in a DeFi project, buying NFT, and verifying all his past behaviors and operations on the chain. consistent with his own claims.

The second part is the application layer. We believe that the next cycle, that is, the next three to four years, will be a stage of large-scale explosion of the application layer. In the last cycle, in fact, DeFi in the application layer has completed the accumulation of users and value from 0 to 1, and some very basic DeFi applications have survived, and users will use them even in a bear market. But looking at some other tracks, whether it is games, social networking or NFT, although they had certain hype and bubbles in the last bull market cycle, when the bear market came, the users of these tracks were lost, which means that they are essentially I haven't found my own way to open it yet, and I'm still in the early stage of pathfinding. The killer application of Web3 is not to simply superimpose a wallet login on today's Web2 application, but to combine the underlying characteristics of the blockchain, that is, a database that is composable and standardized. In some specific scenarios, through innovative mechanisms and The gameplay unlocks new ways for users to interact, thereby creating actual value. DeFi has a similar example. Many early DeFi projects, such as Swap, are not the current AMM (Automatic Market Maker) mechanism, but the order book mechanism.

Because everyone thinks that the centralized trading platform is an order book. trade. But in the end, it proved that this model is not suitable for on-chain applications and on-chain DeFi, and in the end, the swap of the AMM mechanism won. In fact, lending was originally a P2P lending method, and in the end it was not verified. The earliest Aave model was Ethlend, which was actually a P2P loan, but it was unsuccessful. The final compound was actually to make the DeFi lending agreement reach its current scale through a pool. From it, we concluded that there will be a new way of playing in a specific scene. This new mechanism must be different from the current model, and it will open up some new ways of interaction. The tracks we are optimistic about in the next cycle will definitely have new mechanisms, scenarios and gameplay, which is also our focus on new projects. If we just change the existing model, or apply Web2 products plus wallet login mechanically, we think it will be difficult to succeed. Only by finding a new way of playing can it be possible to stand out.

3. What can entrepreneurs do?

Finally, it is about what entrepreneurs can do. I am also an entrepreneur myself, and I also survived a bear market in the last cycle. In my opinion, first of all, you need to reserve enough funds to deal with the bear market. The bear market may last for two years, three years, or even longer; the bear market may also be very short, and the bull market will start next year. But I personally suggest that every team can prepare funds for at least 2-3 years to persist until the bull market breaks out.

In a bear market, the team needs to find the real product demand and target users carefully, instead of following the trend to chase the hot spots of the bull market and paying too much attention to the price under the false prosperity Or virtual users, thus ignoring the essence of the product. In the last cycle, projects such as Axie and Sandbox were actually products and teams that survived the bear market. At that time, there were at least 20 teams, and the products were similar, whether it was a product like Axie or a metaverse product like Sandbox. The difference is that other teams did not survive, and many of them issued a statement to stop operations at the end of 2019 or early 2020. Therefore, being able to persist longer than other entrepreneurs and survive the bear market is a very important thing in itself.

For prospective entrepreneurs, I hope you will become believers first and then builders. The industry is very scary when it is in a bear market. In 2018, many entrepreneurs entered the industry, but after a year of doing it, some people couldn't bear to leave without positive feedback. Do another year, until 2020, especially March 12, 2020 is a historic day in the industry, because the price of the entire industry fell a lot on that day, and even many practitioners in this industry for many years Shaken and questioned. Therefore, if there is no strong belief and true love for the industry, it will be difficult to persist in the bear market.

The second important point is to put aside the burden of history, immerse yourself in the industry for a period of time, and then think about what to do. In fact, the Web3 industry was still an era of grassroots entrepreneurship in the last two cycles, but today, there are many outstanding engineers from major manufacturers who have brought outstanding product development capabilities, management capabilities, and team building capabilities into this industry. But this industry needs a period of immersion to understand and recognize, because it has just changed from a "muddy path" to an "asphalt road", and there are still many imperfections in it. After some former Web2 entrepreneurs came in, they felt that our products were too simple, and he could do very complicated things, but this thing is actually not so easy to do. So you need to immerse yourself in the industry for a period of time before thinking about what you can do and what limitations you have, rather than aiming too high. Many excellent people want to show their strengths as soon as they come in, but in fact, the infrastructure of the industry is not enough for them to manufacture these things.

4. Round table communication

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Q: What is the biggest difference between the investment in Web3 and the investment in other industries before?

First of all, relatively speaking, I have less experience in investing in Web2. In Web3 investment, my intuitive feeling is that it is more difficult to do some in-depth DD (due diligence). Some project teams may be in the United States, some are in the UK, some are in Singapore, etc. It is even said that we have not seen the teams offline when investing in many projects. Therefore, for some decentralized office projects, there are still challenges from an investment perspective. But some projects of this kind still have to be voted on. For example, two days ago, the CEO of Nansen tweeted that several of their co-foudners met offline for the first time. Nansen is already a project with a valuation of nearly 1 billion US dollars, and its revenue last year was about tens of millions of US dollars. When I invested in Nansen, I didn’t meet the CEO. I just thought the product was good. Therefore, the DD and reference to the team and founder of the Web3 project are actually more complicated.

At the same time, the investor structure of Web3 investment is more complicated. A round of financing in a traditional industry is attended by at most three or four institutions, but it is very common for a round of investment in Web3 to have as many as a dozen institutions. Each organization can help projects in different regions or fields, providing some resource support and some value add services. Whether the institution can provide this added value is also the threshold of whether it can invest in this project. Because there is no shortage of money in the market, but a lack of good projects, which is also caused by the current market supply and demand environment.

Q: Which fields of Web3 do you value most, and which type of entrepreneurs do you prefer?

At this stage, we will focus more on infrastructure and middleware, because we feel that the underlying development environment and infrastructure are not enough Perfect, so attach great importance to this one. At the application layer, we are optimistic about more innovative gameplay, mechanisms, and designs. Compared with the team, the track, and the product, we want to see creative products. In fact, many homogeneous products have been seen in many tracks, and we think that they will most likely fail to succeed. We prefer some innovative cases with relatively high odds.

As far as the team is concerned, in addition to some infrastructure and technical directions, there are certain thresholds and requirements for the hard power of the team itself. In addition, for some protocol layers and Regarding the application layer, we still believe that ideas are more important than the configuration of the team itself. Our requirements for the team will be relatively weak, and we will focus more on observing whether these ideas are creative. The type of entrepreneurs we are more optimistic about is that they must first pay close attention to the industry, and should know more than we do in the track, instead of talking about things I already know in general. We prefer talents who are involved in fields we don't know. We think he pays more attention to this industry, and his mentality is not just to do projects. On the contrary, entrepreneurs with the mentality of "holding a hammer to find a nail" are not the type we particularly like, because I think the industry is still early enough to still have the opportunity to make revolutionary innovations, rather than just organizing a group of developers to raise funds Make products.

We hope that the entrepreneur really believes in this industry. Whether he is looking for needs or proposing interesting ideas, he must aim to do great things.

Q: What is the biggest pitfall in this industry? Can you give some tips to entrepreneurs new to Web3?

I think the next obvious problem is that many people are full of confidence and want to make great achievements after entering the industry. There are no users, or there are actually very few active users, and these users are basically based on fleece - if the project cannot give some incentives, users may leave. I think this is a phased problem in the industry. There are multiple factors behind it, including the unsound industry infrastructure and the product itself not meeting the rigid needs of users. That's why I mentioned in my sharing earlier that entrepreneurs should settle for a period of time after they come in, and then think about what I want to do, understand what can be done, find out the status quo of the industry, and then start a business. I think the biggest pitfall of the industry is that the actual experience inside the industry is different from the appearance outside the industry, and you cannot know without practicing it yourself. It's like crossing a river. The small river seems shallow, but when you cross the river, you find that the water is very deep. This is a relatively big challenge for entrepreneurs.

Q: In addition to funds, what kind of value and help can you provide entrepreneurs?

The core competitiveness of funds investing in Web3 lies in bringing additional value to the invested projects. As I see it, it's divided into business and resources. In terms of business, first of all, many early Web3 projects need business and product support, and even deep participation and advice. For example, the Uniswap V3 white paper was actually released by the Uniswap team and the Paradigm research team, so the top funds actually have their own research teams to deeply participate in the project, and this is also a manifestation of creating value for the project. We have been trying to provide more suggestions for portfolio products and directions, share ideas with them, and they can always come to us when they need it. Some projects are in the process of product development and transformation, we will meet with them very intensively, even once a week.

Other help, I believe that most investors will actually do it, such as token economic model design, resource docking, and other project cooperation . But I think it is more important to provide business support, because in fact, the cooperation between industries is very open, and the docking of resources is actually relatively easy. There is also recruiting. We recruited some people for the portfolio, and I believe this is what everyone will do. So the core is still, we hope to understand the product direction of our investment companies, provide more insights and attention on the direction, and help them go on the right path and go to a higher stage and a wider market.

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