Krypital Group 2020 Review and Outlook
2020 has probably been a very special year for everyone. The world’s situation is constantly changing, and the pandemic’s effect on many countries is also fluctuating. The intense economic recession this year forced individuals, businesses, and governments to take various measures to strive to survive in the midst of adversity. During this period of rapid change, the global economic landscape has also undergone tremendous changes. These changes make it necessary for investment institutions to re-examine their own situation, gain insight into new developing trends, and look for new investment opportunities.
Looking back at the bull market in 2017, the crypto market has also experienced a severe bear market for nearly three years. Although this is a very difficult period for all investors, there will be a light at the end of the tunnel. The blockchain industry in 2020 has not been knocked down by difficulties. Instead, the industry has been full of energy, retaining its strength like never before. At the end of 2020, BTC’s price took off again as expected, reaching a record high not seen since 2017.
Krypital Group was founded in 2017. As an investment institution focusing on investment in the blockchain and digital assets, we have been active in the field of global blockchain venture capital. So far, we have invested in hundreds of projects, while facing many difficult challenges together that have helped us grow. During the special year of 2020, as an industry leader under the baptism of the blockchain industry, Krypital Group has not forgotten its original intentions. We adhere to our beliefs, especially by laying out the DeFi track in advance, investing in Injective Protocol, Oasis, Reef, Kira, Woo, Unifi, Unilend and many other superb projects.
DeFi Layout
Injective Protocol — Decentralized Derivatives Exchange
Injective Protocol is the world’s first Layer2 derivative DEX protocol. Injective’s peer-to-peer decentralized derivatives protocol can implement fast and secure permanent swaps, futures, leverage, and spot transactions on Ethereum. It can also integrate a verifiable delay function (VDF) to prevent cheating and decentralization of poor transactions. Besides Krypital Group, Injective has also received the support of many institutions such as Pantera Capital, one of the world’s top crypto venture capital companies, Finance, the leading crypto exchange, and Hashed, South Korea’s largest blockchain fund.
Injective Protocol has accurate insights into the needs of DeFi users and has a firm grasp on innovative financial products. With strong product development capabilities, it has released the Solstice testnet in the past six months, and has established partnerships with other high-quality DeFi projects around the world, such as Polkadot, Chainlink, Orion, Stafi, etc. Moreover, Injective Protocol actively carried out various activities in the community. As a high-quality DeFi representative project selected to log on to Binance, its performance has been excellent since its listing. Due to its outstanding secondary performance and solid technical development, INJ has successively launched many top digital currency trading platforms such as Gate, Upbit, Poloniex and other exchanges. Injective has not only created an in-depth community and a decentralized derivatives exchange focused on developers, but has also established a new DeFi derivatives trading platform that future users can look forward to.
Krypital Group started investing in Injective during its early development stage and has accompanied the growth of the project for a long time. Krypital Group has also given constant strategic support regarding key points of its development, including funding, community growth and token listing.
A Private and Transparent Computing Layout
The first scalable blockchain with a privacy protection function
Created in 2018, Oasis is a blockbuster project in the field of privacy computing. The Oasis Network is designed for the next generation of blockchain. It is the first scalable and privacy-protected blockchain that can maintain its data’s privacy and confidentiality. The Oasis team is composed of leading researchers, security experts, and privacy advocates. The founder, Dawn Song (Song Xiaodong), has won numerous awards in the computing field and is known as the “Godmother of Computer Security”. The other core members of the team are from world-class companies and world-renowned universities, such as Google, Apple, Amazon, Massachusetts Institute of Technology, Harvard, Stanford, etc. In addition to Krypital Capital, Oasis has also raised $45 million from top crypto investment institutions including A16z, Binance Labs, Pantera, and Polychain since June 2018.
The Oasis Network has established partnerships with industry giants and innovative start-ups, including Binance’s CryptoSafe alliance, privacy-first genomics company Nebula Genomics, and Fortune 500 healthcare companies and other industry-renowned projects. At the same time, Oasis has been listed on top-tier exchanges such as Binance and also has very good secondary market performance.
Follow Polkadot’s public chain ecology
A one-stop solution from liquidity aggregation to DeFi
Reef Finance is the first cross-chain DeFi operating system based on Polkadot. Reef is designed to provide users with an intelligent liquidity aggregator and revenue engine through a seamless user interface. It also enables traders to obtain liquidity transactions from CEX and DEX, while providing intelligent lending through the personalized Reef Yield Engine driven by AI, lending, mortgage, and mining services. With the support of Polkadot, it shares its security model with the ecosystem and realizes cross-chain integration across top DeFi protocols. Reef’s technical threshold is extremely low, allowing retail investors to enter the DeFi field. At the same time, Reef can expand its decision-making process according to each user’s level of risk.
Reef officially stated that the team will successively complete important plans such as smart asset management, multi-ecological support, construction of the DAO governance model, and deployment on Polkadot in the first quarter of 2021. Thereafter, Fiat gateway integration and the launch of Reef’s mobile app products will be promoted.
There are many reasons why we invested in Reef. As we all know, due to scalability and Gas Fee issues, Ethereum’s current DeFi development is bottlenecked. However, Reef’s concept allows us to see a new possibility. At the same time, we have been actively following the development of Polkadot and its ecosystem, and believe that Polkadot is a good public chain for experimenting with cross-chain asset transactions and solving scalability issues. Since Reef was based on Polkadot, we think this is a DeFi project worthy of attention and investment. Second, Reef has a superb team with a solid background in smart contract development and practical experience in Polkadot development. We believe that such a team will be able to build a successful product.
Follow Cosmos’ ecological layout
Super cross-chain DEX releases pledge liquidity
The Kira network was built using Tendermint and the Cosmos SDK. It is the first decentralized solution that protects and powers DeFi applications through liquid staking. With its novel consensus, Multi-Bonded Proof of Stake (MBPoS), Kira aims to allow users to generate income by collateralizing any cryptocurrency, stable currency, digital legal currency, and even NFT, while maintaining full liquidity through natively supported derivative quality staking. Kira’s Interchain Exchange Protocol (IXP) will become the first DeFi application driven by the liquidity of pledged assets. With IXP, users can conduct asset mortgage and transaction at the same time.
The Kira liquidity auction was successfully completed on November 26. The auction contract contributed a total of 2,597.18 ETH, and the liquidity auction participants purchased 4 million KEX. Kira’s next steps include: Uniswap’s liquidity reward program, the announcement of the list of major partners, the release of a testnet, and the recruitment of node validators.
In August 2020, Kira completed the seed round and private sale round one after another. The seed round was funded by private equity institutions like Ascensive Asset Management and Alphabit Fund. The private sale round has 2.2 million US dollars in total invested by Krypital Group and other institutions such as BTC12 Capital , NGC Ventures, Axia8 Ventures, TRG Capital, and Origin Capital.
As an investment institution that supports industry innovation and in-depth exploration of value, Krypital Capital is always looking for industry practitioners and projects with both innovative spirit and pattern-seeking abilities. At the end of 2020, we look back on the past and look forward to the future. In the new year, we will continue to contribute our strength in the blockchain field and look forward to discovering more innovative high-quality projects while creating more value for the industry.
Next, we will divide our discussion into 4 different sections. Let’s talk about our understanding and views on the current market investment logic, while also talking about our judgment on future investment trends.
1. Bitcoin
2. DeFi’s Rise
3. ETH 2.0, Polkadot & Cosmos
4. Privacy computing
5. Stablecoin and infrastructure
1. Bitcoin
“Bitcoin’s price has risen by more than 700% this year”
In 2020, we experienced sharp price falls around March, 12th. After that, we witnessed Bitcoin’s rise from 3,700 to today’s record high of almost 30,000. The overall market value exceeded 300 billion. After three years of dormancy, we finally turned around from the previous bear market cycle and started a new bull market. Although the COVID-19 pandemic that is raging around the world this year has shocked various countries, industries, and companies around the world, for Bitcoin, this year’s pandemic made Bitcoin seem to have more attributes in common with safe haven investments. Bitcoin’s characteristics such as scarcity, verifiability, and not being directly affected by government monetary policy make Bitcoin safer compared to traditional investments.
In the US market, more than 30 million people own Bitcoin, accounting for 11% of the total population. Not only that, traditional investment institutions are also entering the market in large numbers. According to data, Grayscale has increased its holdings by more than 1 billion in the third quarter of this year. Its total assets under management exceed 2.7 billion, of which the number of bitcoins held is as high as 560,000 bitcoins. As more and more institutions enter the market, the price of Bitcoin in 2021 can be said to be increasing in the future.
In addition, some survey data also show that the crypto revolution is largely driven by a new generation of well-educated young investors as the main force. As this generation of digital natives grows, they are likely to switch to using and holding more digital currencies, because this is a natural transfer of ideas and values.
Bitcoin has come a long way in the past ten years, and its growing momentum shows that the brightest days of crypto assets are yet to come.
2. The Rise of DeFi
“The total value of locked assets (TVL) in DeFi has increased by 2100%”
For DeFi’s development, 2020 is certainly a notable year. In a broad sense, DeFi is a transfer of value. It combines the scarcity of digital assets and programmable incentive mechanisms to form a global liquidity pool. DeFi directly moves traditional finance and models into a highly integrated and easy-to-combine ecological environment. There have been various protocols on its core infrastructure, such as stablecoins, lending, wealth management, insurance, derivatives, and other financial concepts related products.
Liquidity is king in any financial or capital market. Due to the popularity of Yield Farming in the 2020 DeFi wave, the total value of locked assets (TVL) in DeFi has increased by 2100%. This structure has truly changed the way people used to think about the capital structure and incentive structure of the generalized crypto world in the past. At the same time, due to the rapid rise in the price of various DeFi assets, there has been a lot of congestion on Ethereum. Furthermore, transaction gas fees have also been pushed to their highest point in history.
Through the issuance and distribution of governance tokens through liquidity mining, the DeFi projects not only give participants economic incentives, but also give participants certain governance capabilities. Automated market makers (AMM) took the lead in driving the total trading volume of decentralized exchanges (DEX) to 47 billion US dollars. The decentralized stablecoin DAI has grown by more than 500% this year. Moreover, the issuance of Dai has surpassed the centralized stablecoins BUSD and PAX. Uniswap is even more dominant in this upward force, with a quarterly growth of 2000% in trading volume. In addition, its trading activity is even comparable to some top centralized exchanges such as Coinbase.
DEX
With the enormous growth of Uniswap, Balancer, and Curve, DEX’s trading volume in the third quarter was 4 times its historical trading volume. Uniswap has shown its dominance with a market share of 50%. During this period, it also encountered “Vampire Attacks” from its fork project SushiSwap. We believe that all kinds of decentralized DEX will also continue to develop and iterate. They will surely become a very strong competitor to centralized exchanges in the future.
Derivatives
This year’s decentralized derivatives trading market has also seen tremendous growth. In the third quarter of 2020, the total value of the locked assets of derivatives TVL increased by 169%. In today’s centralized financial world, the volume of derivatives transactions is very huge. According to the latest data from the Bank for International Settlements (BIS), in the first half of 2019 alone, the total market value of all contracts in the derivatives market was approximately US$12 trillion. The total notional value of the expiring contracts is estimated at US$640 trillion. Therefore, we believe that there is huge room for growth in the decentralized derivatives market.
Non-Ethereum DeFi
Although the activeness of most Non-Ethereum DeFi projects needs to be improved, in addition to Ethereum, the main battlefield of DeFi, many other public chain projects such as Polkadot and Cosmos are also working hard to create and deploy their own DeFi ecosystem.
The current situation that DeFi faces is that it is both empowered by and restricted by Ethereum. There is still a long way to go in terms of scalability and interoperability. As the DeFi ecosystem develops and becomes more and more complex, DeFi’s market infrastructure will require higher configurability and versatility to meet various complex requirements. Only after solving these problems can we provide a truly seamless trading experience for the phenomenal asset volume we imagined. We believe that the upcoming Ethereum 2.0 will undoubtedly have a significant impact on the entire DeFi industry. The richness of derivative products, the diversification of underlying assets, the introduction of physical assets, etc. will further expand DeFi’s world. Centralized financial infrastructure will continue to seek new ways to combine with DeFi components. The development of cross-chain will bring about more discussion and imagination to the DeFi ecosystem.
Looking to the future, there will be a transition between CeFi and DeFi, and we have seen the beginnings of this transition this past year. In 2021, we believe that DeFi will further occupy the share of traditional finance, which is also the main direction we will focus on in future investment.
3. ETH 2.0, Polkadot & Cosmos
ETH 2.0 will expand Ethereum’s throughput by more than 1,000 times without sacrificing decentralization. In the initial stage on December 1, 2020, the blockchain’s “world computer” Ethereum will switch from PoW to the consensus mechanism of PoS. To see the final effect, we have to wait until the second phase, which is about to start in 2021/22. At that stage, we will see sharding become fully functional and compatible with smart contracts. This also involves adding Ethereum accounts, enabling transfers and withdrawals, enabling cross-shard transfers, and contract calls. These will build an execution environment for scalable applications built on Ethereum 2.0. It is believed that the ETH 2.0 upgrade process that lasts for several years will affect every blockchain practitioner.
The launch of ETH 2.0 is just one of the many exciting things in the crypto field. In addition to ETH 2.0, Cosmos and Polkadot are currently considered to be the main competitors of Ethereum 2.0. Both provide blockchain interoperability and meet the needs of diversified applications. As the applications of DeFi and blockchain grow rapidly, these large-scale underlying public chain projects will still maintain high demand. The difference in these projects lies in their consensus and modules. However, they also hope to provide faster and safer transactions for communication between various blockchains.
Polkadot’s blockchain, founded by former Ethereum CTO Gavin Wood, has integrated some of the functions of Ethereum 2.0. Polkadot’s design principle is that scalability and interoperability require shared verification logic to create a trustless environment. As more and more blockchains are developed, their security must be cooperative, not competitive. Therefore, Polkadot provides cross-chain shared verification logic and security procedures, which can interact with each other under the premise that their interlocutors execute under the same security context.
Cosmos was jointly created by the Interchain Foundation and the Tendermint team. Starting in 2020, the Cosmos Hub has been running in test mode. The Cosmos network uses a bridge-hub model to connect chains with independent security guarantees. This means that inter-chain communication will still be subject to the trust constraints of some receiving chains on the sending chain. Both systems focus on achieving maximum architectural integration and flexibility, as well as minimizing restrictions on participation in the blockchain.
The above three are excellent projects in the blockchain field, with their similarities and differences. Please note that this article is not intended to be an in-depth technical comparison list, but to provide some insight based on some of the most important concepts we believe in. We believe that although the cross-chain field will still be in a highly competitive environment in the short term, there will not be a platform that can rule all markets. However, this will not affect the development of the entire ecology. We look forward to seeing more and more high-quality projects that can build on these large public chains.
4. Privacy computing
In today’s Internet, the amount of information and data are growing at an exponential rate. Our social networks, medical data, financial data, etc., are all controlled by major companies and institutions.
The existence of the centralized database is the bottleneck of data privacy protection. The development of blockchain challenges this centralized paradigm, indicating that data records should be distributed on thousands of computers, each computer uses a password to verify the accuracy of the data history. A few years after Bitcoin’s birth, it also inspired the development of dozens of privacy protection financial products, such as Monero and Zcash, that can conceal user identities.
Everyone usually thinks of blockchain as simply a distributed ledger. However, this is an incomplete view of what blockchain really is. Blockchain is not just a ledger, it also has a natural computing function. Privacy computing can be used as a very important module, organically integrated into data sharing and interaction. Moreover, enterprise-level applications really need privacy protection. In order to make the DeFi field more extensive, especially the development of blockchain DApp applications that can carry more sensitive information, a decentralized, powerful, and scalable computing platform capable of processing and maintaining data privacy is particularly important. Without the premise of privacy protection, it is unrealistic to hope that blockchain technology can be widely used in financial transactions on a large scale. The combination of distributed blockchain architecture and privacy protection technology can effectively solve the centralized data ownership problem, so we are also paying close attention to progress in this field.
5. Stablecoin and infrastructure
In 2020, stablecoins have grown rapidly, breaking through the 20 billion U.S. dollar mark. The main contribution of this has come from DeFi’s rapid development. The application scenarios of stablecoins have also changed. Previously, DeFi was mainly used for transaction settlement between exchanges. However, in 2020, stablecoin lending, payment, and OTC transactions have also developed rapidly. Through stablecoins, institutions can obtain higher returns than funds placed in traditional banks.
Stablecoins still have great potential in the future, especially in the markets of some developing countries. For example, in Latin America, the financial infrastructure of these markets is not perfect. In particular, countries such as Argentina and Venezuela, which are suffering from severe currency inflation, have strong demand for currency value stability, value preservation, and cross-border transfers. There are also a large number of users in these markets eager to have more convenient, fast, safe, and compliant deposit, withdrawal, and transaction channels. We believe that the construction of necessary and important infrastructure such as stablecoins is like the development of highways and railways. Moreover, this will welcome the entrance of larger-scale crypto trading users and institutions in the future. Krypital Group also began to explore the Latin American market as early as 2019, investing and incubating the Mexo exchange. Krypital will continue to pay attention to and support the development of underlying financial facilities in the future.
Conclusion
At the end of 2020, although today’s blockchain industry has gone through decades of development, it is still in its early stages. In the past year, there have been incidents of exchanges being hacked, or related regulations that were not conducive to the development of the industry which have been introduced. Even criminals have used the concept of blockchain and digital currency to commit fraud. Despite this, the inspiring thing is that the overall development of the industry is rapidly advancing in a more mature and healthy direction. We can see that more and more market participants maintain an optimistic attitude towards the future, such as the entry of traditional large investment institutions, the booming development of DeFi, the repeated record highs of Bitcoin prices, the upgrade of Ethereum 2.0, the cross-chain project Polkadot mainnet, and the ecological progress of Cosmos, etc. They all make us full of hope for the future. The development of any industry will go through the so-called bubble period, and it is through the process of going through big waves that an industry can truly reach new heights.
The current development of the blockchain industry is just like the Internet era around 2000. At that time, it was hard to imagine that the scale of the Internet today could be so large. As the new year is approaching, let us work together to create a better future for the crypto world!
The future is here. Are you ready to be a part of it?
Krypital Group
Founded in 2017, Krypital Group is a leading global venture capital firm and blockchain incubator. By leveraging top resources ranging from a network of capitals, digital asset exchanges, top law firms and communities, the team has nurtured projects that have generated a total value of more than $1B and has brought in more than 2 million users to top blockchain projects.
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