ArkStream Capital: 2024 Q1 Investment Review

24-04-26 17:28

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Original title: "ArkStream Capital: 2024 Q1 Investment and Dynamics"
Original source: ArkStream Capital

Summary of investment projects

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

Project Introduction

XION is the first modular universal abstraction layer, specially built to enable seamless user experience for ordinary users to promote 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 cryptographic complexities, XION eliminates the main barriers to entry for new users while circumventing the challenges of fragmentation for developers. Its signature-agnostic infrastructure supports a wide range of existing cryptographic curves and can be easily adapted 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 not only provide a seamless experience for native applications, but also provide services for applications built on connected chains.

Why invest in XION

According to different statistical calibers, the current number of users in the crypto world is between 100 million and 200 million. ArkStream believes that in the next bull market cycle, this number will double 10 times to 1 billion, which requires the infrastructure of the crypto world to be sufficiently user-friendly, and the abstraction layer is a feasible path to achieve Mass Adoption. ArkStream first met the XION team in 2021, when they were still building an NFT marketplace based on Solana. ArkStream participated in the first round of investment. Then the bear market came, and the NFT market did not grow as expected. The project team made a difficult decision and switched to the abstraction layer L1. In the end, they took a step closer to the ideal vision of Mass Adoption.

XION's universal abstraction solution gained widespread market consensus as soon as it was proposed. In early February, just half a month after the launch of the test network, the number of accounts exceeded 100,000. Two months later, this number reached 1.3 million, with a total of 15 million transactions and 340+ WAU. The hackathon they held was attended by more than 400 startup teams, and most of its more than 100 ecological projects are giants that affect the development of the crypto industry, such as Circle, Axelar, Injective, IBC, Babylon, etc. All these data show the influence of XION and indicate that they will eventually bring exponential users into Web3.

Project Introduction

UniCross is an L1 asset minting, trading, issuance and cross-chain platform on BTC L2, supporting minting, trading, cross-chain and issuance of L1 assets on different Bitcoin L2. Users can mint, trade and issue L1 multi-protocol assets such as BRC-20, Runes, BRC-420, ARC20 on L2 through UniCross, and support cross-back to L1. Platform asset payment supports payment with multi-chain assets such as BTC, BRC-20s, ETH, etc.

Why invest in Unicross

The competition for Bitcoin Layer2 began in Q1 2024. Before that, it was just talk on paper. After the launch of Merlin mainnet, this competition has reached a white-hot stage. Through L2 Watch (https://l2.watch/), we can see that nearly 100 BTC Layer2s are ready to go or have already been launched, but the solutions are very different. Different solutions such as sidechain, Rollup, EVM compatibility, etc. have come up with their own cross-chain solutions, and ultimately dispersed users' BTC into different custodial/non-custodial wallets, but we found that the official cross-chain solutions given by most sidechains do not include other BTC native assets. The priority of the inscription army is placed behind the BTC hoarding party, but they are the most dynamic people in this ecosystem. These native assets such as BRC-20, ARC-20, and Runes that are stranded on the BTC main chain are in urgent need of reproducing their glory on Layer2, especially after Runes went online, the mainnet Gas Fee, which is far higher than the transaction value, confirms this.

The cross-chain solution proposed by Unicross effectively solves this problem. The Unicross team, which was born out of the second largest inscription tool IDClub, has a strong market perception and iteration speed in the Bitcoin ecosystem. ArkStream is well aware of the team's product capabilities in this rapidly developing market. It decided to participate in Unicross' investment as soon as the Unicross project was established, and hopes that in the future BTC Layer2 war, Unicross can capture the market with its unique position.

Project Introduction

Polyhedra Network uses advanced zero-knowledge (ZK) technology to enhance computing power, with the goal of accelerating the adoption of Web3 by removing the limitations of traditional computing power. Polyhedra's flagship product zkBridge is a universal ZK interoperability protocol that simplifies Web2 and Web3 integration. The protocol helps traditional financial institutions smoothly transition real-world assets between various networks, has completed tens of millions of cross-chain transactions, and generated more than 40 million ZK proofs. In partnership with Google Cloud, Polyhedra launched Proof Cloud, a ZK proof platform for developers, a cloud-based platform designed to simplify application development and deployment. To further enhance its technical strength, Polyhedra aims to integrate zero-knowledge proof capabilities into the Ethereum blockchain, expand its application on Bitcoin, and enhance the interoperability of major blockchain ecosystems such as Ethereum and Solana.

Why Invest in Polyhedra

Since the birth of the first altcoin in the crypto industry, how to conduct cross-chain exchange has been a problem that developers have been committed to solving. At first, developers tended to use atomic swaps to solve this problem with a more centralized solution. The emergence of Polkadot and Cosmos is committed to forming a unified set of standards so that all public chains can be built according to their standards, so that assets that meet the standards can be exchanged across chains without barriers. However, it is difficult to form a unified standard in the decentralized world. In the end, the market chose a more centralized cross-chain bridge to temporarily solve this problem until the emergence of the cross-chain interoperability protocol. Wormhole, LayerZero and Polyhedra have formed a three-legged situation in the past two years, launching three representative cross-chain bridge products, Portal, Stargate, and zkBridge, respectively, and building their own cross-chain interoperability protocol based on this.

Compared with the other two companies, Polyhedra has targeted the vacant market of the Bitcoin ecosystem this year. Through zkBridge and zero-knowledge proof technology, Bitcoin can now securely transmit its current and historical data to more than 20 networks, including Bitcoin Layer2, Ethereum and Ethereum Layer2, and is also compatible with innovative protocols such as Ordinals, BRC-20 and Atomicals. This enables smart contracts on other blockchain networks such as Ethereum and Bitcoin Layer 2 to access Bitcoin data and protocols without trust and implement various computing logics, with security guaranteed by zero-knowledge proofs. In addition, Polyhedra has worked with EigenLayer to design and implement Bitcoin AVS, a system that allows other blockchain networks to securely write data and transfer assets to Bitcoin. At present, the core players in the Bitcoin ecosystem have cooperated with Polyhedra, including but not limited to OKX Wallet, Unisat Wallet, Babylon, Merlin Chain, BitLayer, Bsquared, BEVM, Particle Network, etc., many of which are also ArkStream's Portfolios. ArkStream believes that the investment in Polyhedra is an important part of its Bitcoin ecosystem layout, which will help ArkStream further seize core resources in the Bitcoin ecosystem in the future and help more portfolios grow.

Project Introduction

BEVM is a decentralized and EVM-compatible Bitcoin second-layer network that uses BTC as Gas. BEVM is based on technologies brought by the Taproot upgrade, such as the Schnorr signature algorithm, allowing BTC to cross-chain from the Bitcoin mainnet to the second layer in a decentralized manner. Since BEVM is compatible with EVM, it allows all DApps that can run in the Ethereum ecosystem to run on BTC Layer2.

Why invest in BEVM

In 2017, BTC's SegWit upgrade enabled Bitcoin blocks to accommodate larger data, and the 2021 Taproot upgrade not only allowed the expanded space to contain more complex data, but also introduced the Schnorr signature algorithm, making decentralized Bitcoin multi-signature a reality. This in turn makes decentralized Bitcoin cross-chain operations possible, and ultimately, decentralized BTC Layer2 becomes a reality. BEVM is the best example of a decentralized BTC Layer2. SegWit and Taproot upgrades have revitalized Bitcoin, evolving Bitcoin from the 1.0 era to the Bitcoin 2.0 era, and allowing us to see a richer Bitcoin ecosystem. The explosion of Token launch protocols such as Ordinals on Bitcoin in 2023 is the result of Bitcoin's SegWit and Taproot upgrades. This showed the Bitcoin community that it is possible to issue assets based on Bitcoin. Issuing assets is only the first step; a richer and more diverse application ecosystem needs to be established on the second layer of BTC. Therefore, BEVM came into being.

For the past six years, the BEVM team has been committed to exploring the development of BTC Layer2. In 2018, the team's first product, ChainX, achieved a cross-chain of more than 100,000 BTC. In 2023, the explosion of the Bitcoin ecosystem showed their team the arrival of a new era in the Bitcoin ecosystem, and they began the development of a brand new product, BEVM. There are two types of Bitcoin Layer2 solutions. One is represented by Merlin, which integrates solutions from all parties. In the early stage, it is more market-oriented and is not constrained by whether the cross-chain solution is decentralized enough. The other is BEVM, which emphasizes the nativeness and decentralization of BTC and has been built over the past few years. Both solutions have their own advantages. ArkStream hopes that the concept of Bitcoin ecological development can be expanded to every corner of the crypto world, so it has bet on the most promising teams in various categories of solutions. ArkStream expects BEVM to attract more people from the native Bitcoin community to join the development of Layer2.

Project Introduction

Merlin Starter is the first Launchpad platform on Merlin Chain, which mainly incubates Merlin local projects and provides promising projects and asset support for the Merlin Chain ecosystem. Merlin Starter provides projects with a combination of single-pool and multi-pool IDO formats, including oversubscription, lottery, first-come-first-served, etc.

Why invest in Merlin Starter

Asset issuance is always the core of the crypto industry, whether it is Ethereum's smart contracts or emerging protocols such as Ordinals on Bitcoin. Looking at the development of the crypto world, from one-click mining, to one-click coin issuance, to one-click chain issuance, and one-click inscription, the first stop to attract users is always assets. The rise of each emerging ecology is accompanied by the issuance and distribution of assets. ArkStream believes that after the launch of Merlin Chain's large amount of TVL on its mainnet, more reservoirs are needed to undertake it. In addition to the three major traditional DeFi components of lending, exchanges, and Yield Farming, Launchpad and IDO platforms are indispensable. MerlinStarter stands out in the ecosystem and has taken the lead in occupying this bridgehead. Through the issuance of benchmark projects and great attention from ecological funds, it has further attracted high-quality projects to issue on it.

Project Introduction

Nubit is a scalable, efficient, Bitcoin-native data availability (DA) layer that deeply cultivates the Bitcoin ecosystem and actively expands Bitcoin modularization. Nubit's DA layer service can effectively expand Bitcoin's data capacity, support and provide modular services such as Ordinals, decentralized indexers, Layer2 solutions, and price oracles, thereby supporting the expansion and efficiency of the Bitcoin ecosystem.

Why invest in Nubit

In the past two years, many Bitcoin Layer2 projects based on the Rollup architecture have begun to shine. However, given the non-Turing complete scripting language characteristics of Bitcoin, for most Rollup-type Layer2 solutions, although academic papers such as BitVM attempt to inherit Bitcoin's security by simulating gate circuits of on-chain fraud evidence, choosing a professional local data availability solution is more in line with the market's development pace. ArkStream believes that Celestia, the proposer of the modular blockchain architecture and the data availability layer (DA), provides a good reference idea that can also be applied to the Bitcoin ecosystem.

As one of the few DA projects in the Bitcoin ecosystem, Nubit occupies a pivotal position in the entire ecosystem with its unique technical architecture and product solutions. Nubit is led by a professor from the Department of Computer Science at UCSB. The core team is composed of top researchers in the blockchain and security fields in academia. It has Chainlink's outstanding scientists, former Facebook Diem Blockchain CTO, Dahlia Malkhi, a top scholar in the blockchain consensus field, and BRC20 founder domo as consultants, with a strong academic and technical development background. It is worth mentioning that Nubit and domo have joined hands to jointly develop industry standards, and the Modular Indexer they developed has been integrated with major wallet dAPPs.

Nubit is also committed to leading the Bitcoin Season 2 narrative with top projects in the Bitcoin ecosystem, and has already cooperated with many well-known projects, such as the highly respected EVM-compatible Layer 2 projects Merlin Chain, Bitlayer, etc., Bitcoin Staking PoS chain BounceBit, Babylon, a leading project focusing on Bitcoin Staking and Restaking, and Yala Finance, a liquidity protocol that implements native Yield. These well-known cooperative projects and Nubit are jointly promoting the steady development of the Bitcoin ecosystem, and through in-depth cooperation with these high-quality projects, Nubit can not only further improve and perfect its technical solutions, but more importantly, consolidate and enhance its influence and competitiveness in the entire Bitcoin ecosystem.

ArkStream Capital's investment in Nubit is not only a recognition of 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 the potential value of Nubit, but also the infinite possibilities and opportunities it brings.