IOSG – Unicorns for the long-term goal of the Crypto market
How to find the “unicorns”? The article provides you with extremely useful information about the Crypto market.
IOSG Ventures is an investment fund focused on economic breakthroughs inspired by the combination of finance and open source code, focusing from the infrastructure of the entire Web3.0 to DeFi and cross-chain.
Today, from the fund’s perspective, I will share with you how to find value investments that can change the decentralized economy.
How to find the “unicorns”?
There are 3 keys to do this: “Looking at people, looking at actions, and looking away”.
I hope that when the cycle and the time comes, I can find the right people and help them make the best products to serve the needs of the market.
In short, the elements that you need are:
- Right time.
- Products are in line with market needs.
- Founder has leadership qualities so that the open source project is not fragmented by the community.
Next you need to look at the past, present and future.
What events shake the market? How many years on average is the cycle for the tech, medical, biological, blockchain, etc. boom?
- A history of the blackouts of US stock exchanges, the 2000 internet bubble, the 2008 mortgage crisis.
- 10-year cycle: Hardware era > Software era 1990 to 1999 > Internet era 2000 to 2008 > Mobile Internet era in the coming years.
Each cycle creates unimaginable growth and world-changing giants such as: Microsoft, Apple, Google, Wechat, …
So what will the next cycle be the era of ?
An interesting fact is that DeFi took only 3 years to achieve the results that traditional finance with outdated technologies took decades to achieve.
DeFi will gradually transform traditional finance into decentralized finance. And that change will be huge.
Read more: Learn about DeFi
What we are and will do?
IOSG was founded in 2017 and has invested in a series of DeFi projects such as MakerDAO and DDEX.
A few examples of why we invest:
- 1inch: A great decentralized trading platform that aggregates transaction data.
- tBTC: the important bridge connecting Ethereum and Bitcoin.
- UMA: Create templates for Smart Contracts, anyone can issue their own synthetic assets.
- Gelato: Helps users automatically liquidate their assets.
Next I will categorize each specific branch so that you can easily study.
Part 1: Web 3.0 & DeFi
Why need web3.0?
Because with web 3.0 users will have control over their identity and data, and they can share that data without having to go through third-party monitoring or censorship.
Maybe replacement costs, network effects, and user experience are what’s stopping the giants from moving toward web 3.0. This may be true in the short term, but as more and more users move towards the benefits of web 3.0, change is inevitable.
Web3.0 has many components, but I am currently seeing many opportunities in middleware because that will be the gateway connecting the entire infrastructure and application layers, thereby making blockchain usable use and increase user acceptance.
Part 2: DEX & AMM
There was a time when Uniswap, the largest AMM DEX exchange, had a trading volume that surpassed Coinbase. With the outstanding growth rate, we can say that DEX will be a big trend.
But when you compare the current trading volume of DEXs of only about $57 billion with centralized spot exchanges of $3.7 trillion and the derivatives market of $6.5 trillion, we can see the potential for growth. The growth of DEX will be huge.
So how far have DEXs evolved?
From the first exchanges like IDEX > Automated AMM exchanges like Uniswap, Balancer > Flexible AMM exchanges like DODO > General trading platforms. We can say that the current growth rate of DEX is very impressive.
AMM uses oracle like DODO for many times more efficient than conventional AMM in terms of intelligence and accuracy. And I believe in the future AMM will have more applications.
The ultimate goal of a DEX is to completely eliminate the middleman, reduce the majority of transaction costs, and maximize the benefits for users.
Part 3: NFT
NFT has attracted a lot of attention from the community in recent years, but most people still don’t really understand about NFT and its potential.
People think scarcity is what makes NFTs valuable, but that’s just the tip of the iceberg. Unlike the past when NFTs were only limited to in-game items or collectibles, now with the combination of DeFi (lending, insurance, ..) and social tokens, NFT is really booming. capable of realizing its true potential.
According to our analysis, NFT trading volume will increase from $13 million at the moment to $100 million in the not too distant future.
Part 4: Layer 2
To summarize a bit about Ethereum’s expansion plans, we divide them into 3 categories:
- Transaction package roll up.
- State channel Plasma.
- Other integrated solutions, including side chains.
The two most popular solutions currently are ZK Rollup and Optimistic Rollup:
- ZK Rollup has faster processing speed but poor support for smart contracts => Suitable for centralized exchanges and payment transactions.
- Optimistic Rollup, on the other hand, supports smart contract logic, making it very suitable for complex DeFi applications.
Plasma and roll up have important differences that are:
- Roll up for on-chain transaction data.
- Plasma processes data off-chain and only delivers results on-chain ⇒ creates restrictions on data access, and requires trust between users.
State channels and public or side chains each have their own pros and cons. Dapps with high latency requirements will choose state channels, but many current public/side chains also offer powerful processing capabilities with low transaction fees.
We predict that in the future, most of the DeFi ecosystem will use Roll up as its technology solution.
Part 5: Traditional Finance
As you know, what DeFi lacks the most right now is users. And if it is possible to attract users from the outside (actually there are a lot of traditional assets that can be brought into the DeFi sphere) then that will be a big stepping stone for DeFi.
For example, Centrifuge and Persistence both use supply chains from traditional financial assets to connect to DeFi.
Part 6: Insurance
Next is a topic that I am most bullish on.
Decentralized insurance covers 4 main categories as follows:
- Insurance for smart contracts: as Nexus Mutual insures projects with code errors.
- Real-life risks: Arbol, for example, offers compensation if rainfall is not enough.
- Risks from financial products: like Opyn providing options to hedge against the price of Ethereum.
- Risks from events: Augur – prediction market, bets on presidential election results, soccer results, ..
DeFi is booming but reliable insurance products are still lacking. There are three risks that traditional insurance cannot provide:
- Risk from Oracle: KRW price on Synthetix is faulty.
- Smart contract risk: bZx is stolen.
- Price risk: Black swan event.
We predict the insurance market will reach $1.4 to $4.5 billion by 2022 and $2.5 to $15.2 billion by 2025.
Do a simple calculation TVL’s current market is $10 billion. Let’s say 10% of them buy insurance with a premium of 5%/year => Market size is now around $52 million with $2.5 million in revenue.
I am also optimistic about the future of DeFi insurance in two directions: General insurance, like 1inch that aggregates AMMs, and reinsurance projects to protect against systemic risks.
Part 7: Bridge BTC – Ethereum
DeFi is currently worth around $15 billion (equivalent to almost a quarter of Ethereum’s market cap) ⇒ the growth potential that Ethereum brings to DeFi is very limited.
The market needs something to break down the barriers between blockchains and create a larger common market. So we think bringing Bitcoin into DeFi is a great opportunity for DeFi to continue to grow.
If a project can create a path for Bitcoin to penetrate DeFi, it will certainly be a unicorn that completely changes the DeFi ecosystem.
Currently most bridge projects are centralized, a serious breach of decentralized finance. So a decentralized cross-chain project for Bitcoin is the way to go and that’s why we invest in tBTC.
We believe, decentralized cross-chain projects for multi-assets will be a guideline leading the development of the market.
Part 8: Wallet
As a gateway to increase user traffic, self-managing wallets combined with smart contracts is the core factor for projects to develop.
However, the first thing is to put the element of asset security that needs to be put first. Next the project must have a simple, easy to use interface combined with a “one click” experience; Users do not need to exit the wallet to find out what DeFi project they are interacting with in that wallet.
Wallet is also an array where IOSG focuses and pays attention to the number of users.
During the past few years, we have invested in about 70 companies including many unicorn projects, typically projects like Near Protocol, Avalanche, Oasis Labs,.. in 2017.
However, money alone is not enough in the Crypto world, we have received a lot of help from the community and also partnered with many organizations to share different suggestions, providing more value only one investment.
Source: IOSG Insights