2022 End of the year review — Bixin Ventures

Preface

With Bitcoin and Ethereum hitting all-time highs in 2021, along with DeFi summer and the subsequent NFT boom, the outlook for 2022 was arguably optimistic. Alas looking back, it has been a tumultuous year for crypto to say the least. The year started with a bleak macro outlook as global monetary and fiscal policies began to tighten to combat inflationary pressures. Within crypto alone we have seen the spectacular unwinding of the Terra ecosystem, cascading liquidations and insolvencies from some of the largest industry participants such as Three Arrows Capital, Celsius, Blockfi etc., and the recent FTX/Alameda implosion that also took customer funds.

Despite the doom and gloom, the stakeholders are showing resilience — builders continue to bravely push new innovations, and investors like ourselves are resolute and will deploy capital to back quality founders. As this tough year comes to a close, we at Bixin Ventures want to reiterate our core thesis and the investments we made to remind ourselves why we are all here in the first place.

Our Investment Manifesto

Our core investment principles revolve around decentralization, censorship resistance, and self-sovereignty. We believe in shifting authority, autonomy, and decision-making from limited centralized players to a widely dispersed network while preserving individual freedom in owning personal assets.

These beliefs have directed our investments to:

1. Infrastructure projects that cultivate and facilitate mass adoption of permissionless and decentralized networks

2. Innovative tools and applications that appeal to billions of new users while developing sustainable economic design

As a company, we continue to deliver guidance and leverage our expertise in Asia to operate alongside founders and assist them with global expansion.

What we are excited about

Blockchain Infrastructure

Although blockchain infrastructure can be a broad category, the vision is a simple one: how do we abstract away the underlying blockchain infrastructure so the end user does not even have to think about it? Applications will drive user adoption and the goal for blockchain infrastructure is to ensure it can suitably handle the needs of these applications.

L1 Blockchains

Starting with layer one blockchains, which form the base for every other application to build off, and will continue to be of interest to us. In the past year, we invested in:

  • Both Move-enabled blockchains in Aptos and Sui, led by extremely capable and technical teams out of Diem. We intend to deploy developer resources to support both ecosystems, by leveraging on our incubation experience with the first Move enabled, Proof of Work Chain blockchain Starcoin.
  • We also invested in Mina who are building a privacy and security layer for Web3 while maintaining low computational requirements for anyone to run a node, thereby increasing decentralisation
  • We also participated in the funding round for Scroll, a L2 ecosystem based on a ZK-roll up. We believe that zero knowledge proofs will be key towards trustless privacy.
  • In order to massively scale the data availability layer, we invested in Subspace Network, a highly scalable modular blockchain that provides a shared infrastructure layer for builders across ecosystems

We have also devoted research capabilities towards various L1 blockchains that have helped us navigate this sub-vertical that you can read more about through the hyperlinks above. Given the trade-offs which come with every blockchain design, we are cognisant that there are many different approaches to blockchain scaling:

  • Ethereum L2s provide a cheaper and faster alternative to the L1, but retains decentralisation as its North Star, giving users the option to settle directly on the L1 should they choose to do so.
  • Cosmos blockchain design is centered around interoperability, which leads to an ecosystem of application chains, each running their own set of validators to manage economic security, while being connected by the Inter-Blockchain Communication (IBC) protocol.
  • The emergence of the alternate layer ones in Solana, Avalanche and Luna in 2021, coupled with strong investor interest in the new Move-based blockchains Aptos and Sui, have also signaled the appetite for performant, high throughput and low-cost blockchains.

Middleware

As underlying blockchains scale, we foresee a few trends that will play out that can lead to opportunities within this sub-vertical:

  • Network state will grow in size that will need to be managed
  • Increased economic value on-chain which emphasize the need for greater economic security
  • Greater linkages with Web2 that will require facilitation of data from off-chain to on-chain
  • Increased need for interoperability for users to transfer value across different blockchains safely
  • Better awareness to take self custody of own assets

Therefore we think that decentralized storage solutions, decentralized staking solutions, permissionless oracles, trustless bridging and non-custodial solutions will have a greater role to play in addressing the trends respectively.

This has led us to invest in:

  • Arweave, a decentralised storage network that utilises idle disk space
  • Swell Network, a permissionless, non-custodial, and liquid ETH staking protocol
  • Switchboard, a permissionless oracle that allows creation of high performance data feeds from any API
  • Layer Zero, an omnichain interoperability protocol that enable cross-chain communication
  • Gnosis Safe, a digital assets management platform that allows for multi-signature schemes
  • Meson Network, a bandwidth marketplace on Web3 that focuses on consolidating and monetizing idle bandwidth from long-tail users at a low cost
  • Safeheron, a provider of multi-party computation (MPC) and a trusted execution environment (TEE) technology to enable increased custody security
  • Bitkeep, a decentralized multi-chain crypto wallet dedicated to providing safe and convenient one-stop digital asset management services to users
  • bloXroute, a Blockchain Distribution Network and a global content distribution network of high performance servers for blockchain scalability.

We have also further incubated:

  • OneKey, a hardware wallet solution alternative to Ledger, Trezor
  • Openblock, a MPC wallet that does away with the need to secure your own seed phrase, that also enables the ability for social recovery.

Another area that deserves attention would be those that work with on-chain data, in terms of indexing services, serving API calls, which are all key to an application developer.

The Application Layer

Moving onto the application layer, we think that on a fundamental level — user-centered design and value accrual should be the core focus. Similar to how Web 2 consumer applications gradually gained mass adoption over time after iterating their product UI/UX, we believe Web 3 applications need to enable user experience to be as seamless and straightforward as possible. Take for instance, the user journey of a brand new user — pain points include on ramping of crypto assets, application signup process, the need for multiple signature verifications etc. Most notably, the inability to interact with most applications on a mobile device is a massive pain point and incompatible with modern users.

Defi

The first wave of Defi summer demonstrated the actual demand for such products but mass market usability is still a key unsolved problem.

DEXes

There is undoubtedly an increase in demand for decentralised exchanges especially in the wake of the collapse of their centralised counterparts. Majority of transaction volume occurred on CEXes simply because of their higher usability — in that vein, the next wave of Defi products need to have a similar/higher level in order to draw more users especially the non-crypto native ones.

This has led us to invest in

  • Drift protocol, a high-performance decentralised exchange on Solana that will replace how people execute trades and swaps instead of CEXes . The impending launch on Drift v2 will encompass several new products such as spot swaps and borrow & lending.
  • Pontem, a development studio on Aptos that has launched products such as Liquidswap, the biggest DEX AMM and Pontem Wallet, a consumer focused wallet that is not only cost-efficient to use but also seamlessly integrates most of Aptos applications.

Derivatives

In a similar sense, we believe in an on-chain decentralised future for derivatives. The underlying problem was the lack of a mature infrastructure that allows these applications to thrive as opposed to their centralised counterparts. As discussed above, the progress made in the infrastructure layer will likely result in a tipping point for decentralised derivatives.

This has led us to invest in

  • Arrow Market, a decentralized financial market options protocol on Avalanche intended to democratize entire options trading pipeline, from market making to brokering to clearing and settlement
  • Rage Trade, the most liquid ETH perpetual trading platform and stablecoin farm on Arbitrum. Notably, Rage Trade is powered by Layer Zero which allows them to unify liquidity across multiple chains
  • Struct Finance, a derivatives platform that offers a way for users to customize interest rate products and compose them with options available in the ecosystem to construct superior structured products

Stablecoins

A decentralised economy requires a decentralised stablecoin. The implosion of LUNA not only spelled out the end of algorithmic stablecoins but also further underscored the need for a true decentralized stablecoin. Even though at the moment there is only varying degrees of decentralisation when it comes to stablecoin models, we are confident that the industry will continue to innovate and strive towards that end goal.

This has led us to invest in

  • Thala, an over-collateralized, yield-bearing stablecoin protocol backed by a basket of on-chain assets. Its diverse collateral base of liquid staked derivatives, liquidity pool tokens, deposit receipt tokens, and RWAs ensures its decentralized, censorship-resistant nature without compromising capital efficiency.

Gaming

Now that we are comfortably past the previous wave of crypto-enabled games — the play-to-earn meta, we are confident that the next wave of games will be focused on how the blockchain technology can enhance the gaming experience — be it in-game asset ownership or interoperability or even e-sports.

This has led us to invest in

  • Shrapnel, an upcoming AAA Extraction FPS built on Avalanche powered by next-gen community-driven tools, built on the blockchain to offer true ownership
  • Star Atlas, a next-gen gaming metaverse emerging from the confluence of state of the art blockchain, real-time graphics, multiplayer video game, and decentralized financial technologies
  • Midnight Evergreen- a platform building a slate of AAA first and third-party games across platforms and genres for diverse audiences. They are at the forefront of trying novel approaches to integrate NFTs into classic game experiences in ways that enhance the experience, not get in the way of it

NFT

We are still very early in the entire development cycle of NFTs — after all the first wave of the NFT boom really only started in 2021 with PFPs. NFTs will evolve to include art, music, sports, pop culture, brands etc. and will help to push the next wave of mainstream consumer adoption as the importance of decentralised digital asset ownership continues to gain tailwinds.

This has led us to invest in

  • Few and Far, the next-generation platform for experiences in Web3, including NFTs, DeFi, Gaming, and much more on the NEAR ecosystem

Social

The time for web 3 social to disrupt the current lineup of social media platforms has never been more ripe. Web 3 social champions for data ownership, portability, transparency and censorship resistance have been gaining prominence. Furthermore, truly owning your content will change the power dynamics between current platforms and content creators.

This has led us to invest in

  • Solcial is a decentralised social network built on Solana. Solcial allows anyone to share content in a fully permissionless way, avoiding censorship, and rewarding users and content creators in a fair manner
  • Planet, a free and open source tool for publishing and following web content. It doesn’t rely on a central server or service, and instead uses IPFS for peer-to-peer content distribution

Lifestyle & Entertainment

Web 3 can help to augment how people interact with lifestyle and entertainment applications in a creative fashion. Ownership of such data will unlock new use cases that will push consumer applications to new frontiers.

This has led us to invest in

  • Gritti, a Web3-empowered lifestyle social app that actively assists its users to achieving their exercise goals and maintaining a healthy lifestyle

Here are some research we’ve conducted in 2022

Thematic Research

Solana Pay and the future of payments

Deep Dive on Avalanche and Subnets

The Next Big Narrative: The Race to Scale Ethereum

The Importance of Staking Aggregators in the PoS Age

Deep Dive on Cosmos: The Focus on Interoperability

The Future of Stablecoins
The Long Term Viability of Solana
Move: The Javascript of Web3?

Censorship Resistance in Bitcoin & Ethereum
GenesysGo: the crucial infra provider on Solana you don’t know about
The road ahead for the NFT marketplaces

Portfolio Deep Dive

Why we invested in Mina Protocol
Evolution of Perpetual Trading: Drift Protocol
Portfolio Insights: Sui By Mysten Labs
Structure.fi: Bringing TradFi assets into blockchain through Tokenization
Portfolio Insights: Aptos

Portfolio Insights — Switchboard

Assessing where we are

Bixin Ventures began actively deploying about 18 months back from our proprietary capital, and has grown to about 20 people globally distributed across China, United States, Singapore, Europe and more. We managed to be part of various raises alongside fantastic founders, and we hope to continue supporting more of them as we enter the quieter, builder-focused phase of the market. We are also proud to have developed our in-house research team that has helped educate ourselves to become better investors in the space. Going forward into 2023, we are looking to provide more dedicated support for our existing portfolio, and will be actively looking to hire post-investment managers to build out this internal capability.

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