Blockchain projects are strongly attracting capital.

The "2017 China Internet Finance Investment and Financing Analysis Report" stated that only from the equity financing that can be observed and monitored, the equity investment and financing cases in the blockchain field rose from 4 in 2016 to 29 in 2017, an increase of up to 625%. In terms of overall market value, according to Coinmarketcap data, the single-day market value of global digital currencies exceeded $600 billion at the end of December 2017, and there were 1,334 digital currencies in total.

Everything related to blockchain is creating new records one after another in the business world, but why can blockchain become a new business trend?

With the above questions in mind, the author interviewed Xu Chaoyi, managing partner of BKFund and director of the Strategic Management Department of Fenbushi Capital, and chatted with him about the methodology hidden under the irregularities of blockchain investment.

The following is the author's interview with Xu Chaoyi (edited).

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There is still a lot of room for the underlying technology of the blockchain

Q: Which projects will BKFund focus on in the primary blockchain market in 2018, and why?

A: The first is the industry public chain. We think there is still some big room for the underlying technology of this blockchain. For example, EOS can greatly improve the performance of the underlying block in theory, but sacrifices part of security and democratization; cross-chain technologies such as Cosmos and Polkadot are also being further improved; distributed storage and distributed computing are far from mature. Commercial use still has a long way to go.

The second is the industry vertical public chain. This is because different industries have different requirements for this underlying technology, and it is impossible to add it to Ethereum. A public chain specially developed for the industry is required. When these chains are still being designed, they will fully consider the upper-level business need.

The third is a specific vertical application, which can be combined with existing Internet giants, because they have a relatively large number of users, and they can quickly use existing users, data, and process this level of business logic The full output of experience advantages is migrated to the blockchain system.

In fact, in the blockchain industry, the highest valuation is the underlying protocol layer or public chain, and the valuation of the upper platform layer will be lower, including the upper business layer of vertical industries, imagination and valuation. value will be much lower.

Q: I have seen so many blockchain projects and invested a lot. What is your investment logic?

A: First look at the founding team. A founder with an open mind can gather a group of outstanding talents and form a good community through these people; secondly, is the track he chooses big enough, because the blockchain itself is a big one? Industries, small industries may not be able to be distinguished in the form of blockchain; then look at the current status of the project, such as the valuation of the project, whether the financing of the project is reasonable, the distribution of project tokens, and whether the model of the project’s incentive economy Reasonable.

Q: Have you ever missed some good projects, any regrets? What impact did it have on the subsequent investment strategy?

A: I have been investing for many years, and it is normal to miss good projects, and I do not feel regretful. One reason is that as long as the team’s investment ability is cultivated, the next good project can be discovered; in addition, we think that investment risk control is very important. If the risk exceeds the scope we can bear, we will give up even the best project.

In December 2017, all investment institutions were very aggressive at that time. A project invested thousands of Ethereum, but our BKFUND invested very carefully. Generally, the investment scale of a project was 200 to 500 Ethereum. . But it turned out that our conservative strategy was wise. December last year was a period of intensive and high-volume ICOs. Many projects rose many times when they went online. However, so far, most of the new currencies of ICOs have broken badly.

This has caused many investment funds to lose money in a large area, but we are still profitable. Since December last year, our Ethereum (ETH) revenue has increased by more than 60%.

Q: What pitfalls may be encountered when investing in blockchain projects? How to carry out risk control?

A: Mainly in four aspects:

1. Delivery risk.The basic tokens are anchored, and the delivery price changes with the basic price fluctuation; there is no specific agreement, and the negotiation of investment terms is inconsistent with the quantity and time of delivery, and investment risk needs to be controlled.

2. Time risk.The threshold for exchanges is getting higher and higher, and even the time to be listed on the exchange is more than half a year, which poses a big challenge to the efficiency of capital use, so uncontrollable factors should be minimized to a minimum.

3. Liquidity risk.Refer to the benchmark digital currency, Bitcoin, Ethereum, legal currency, etc. After one year of investment, it cannot outperform the benchmark unit of denomination. Ethereum has increased by 100 times, but the Ethereum project is at a loss. Liquidity management is required to improve the use of funds efficiency.

4. Wallet account security management, migration security issues.Most institutions, traditional single sign. If the wallet management process is not appropriate, it may be cleared overnight, or it may be hacked due to poor management, so the organization needs to have a set of security management methods.

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The first coin or white paper is a Chinese characteristic

Q: Many domestic projects now issue white papers or coins from the very beginning. Is this logic correct?

A: It is different at home and abroad. It is a common state in China to issue white papers or coins first.

Foreign projects often feel that the project is almost done and is about to open source, and then they issue white papers to raise funds. But for projects in China, it may be due to fierce competition. At the beginning, I want to get a good starting point. I have a white paper or an MVP product and I am ready to issue tokens to raise funds. There are different methods, but there is no right or wrong. Chinese people are very strong in execution. People in this industry are very hardworking. They work until two or three o'clock in the evening, and each of them only sleeps for three or four hours. unimaginable.

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The entry of giants affirms the development direction of the industry

Q: Internet giants are also very active in blockchain now, which one will come out?

A: The benefit of their entry is that they have affirmed the development direction of the industry, which shows that they have realized that a set of technology systems for distributed ledgers and a concept such as venture capital business may bring about changes, which is beneficial to the development of the entire industry .

I can't predict which giant will come out now, but we definitely like such giants: they have made the underlying technology very perfect, and are willing to share it, and are willing to provide technical support for some other applied projects of the same industry. One type, with an open mind, because the blockchain is naturally open.

Q: Isn’t it contradictory for a centralized giant to do a decentralized blockchain?

A: No contradiction. In their view, the blockchain is their underlying technical facility, and they do not regard the blockchain as their thought and spirit. It used to be a neutral database, and it was inconvenient to query. Now there are several more nodes, and distributed processing is used to ensure data consistency and immutability.

Q: Are the giants in this field dominant, or are some start-ups and mid-sized companies dominant now?

A: In fact, what flows in our industry is not the company but the community.The vitality of the community is stronger. Why do you say that? Because the motivation of the community comes from the motivation of the self from the system, not from the current bureaucracy.secondary title

Motivate users with community system and Token

Q: There are many peopleexplainBlockchain is a disruptive technology, which industry will be disrupted first?

A: These industries need large-scale collaboration.

For example, such as Sina Weibo.

Users create UGC content on Weibo, but Weibo often pushes advertisements for you. Instead of benefiting users, you are harassed by advertisements, and you may have to spend money to buy VIPs to advertise. At the same time, in order to harass others User, you also pay to tweet your posts. The market value of Weibo has grown so large, and users have not benefited from it. This model is not good enough. In the content industry after the transformation of the blockchain, everyone contributes their own UGC original content in it, and at the same time receives token incentives from the system. There is no need for advertisements in this system, and users will not be harassed. When users become more and more When there are more, the entire economy will become larger and larger, and the value of the token will also increase.

Q: Some people say that the issuance of coins is legal and reasonable. What do you think of this point of view?

A: Rationality means that for the economic model of this blockchain, tonken (proof of rights and interests) is an indispensable link. If this certificate is missing, it will become a few nodes to do simple bookkeeping. There is neither an incentive system nor a punishment system. At the same time, users from the outside community cannot enter. If there is no proof-of-stake mechanism, This system is logically inconsistent.

Legitimacy lies in the fact that the issuance of currency is legal in some countries, but it is illegal in China, and we have to treat it differently.

Note: BKFund is a digital asset investment fund officially incubated by Fenbushi Capital in December 2017. Xu Chaoyi, the former director of the strategic management department of Fenbushi Capital, serves as the managing partner. Its management team will independently conduct fundraising and investment. Xu Chaoyi also revealed that since its establishment, BKFund has invested in nearly 20 blockchain projects.