Overview
The cryptocurrency market has seen significant growth and innovation in the first half of 2024. This report outlines HTX Ventures’ strategic investments and partnerships to advance blockchain technology and the Web3 ecosystem, and looks ahead to the second half of 2024.
“HTX Ventures has achieved excellent results in the first half of 2024. We actively seek investment opportunities and carefully select projects that can support key ecosystems, customer experiences, and infrastructure, which we believe are critical to the long-term development of Web3.” said the managing partner of HTX Ventures. “Despite the market slowdown, we are still confident about the second half of 2024. By adhering to the long-term strategy and supporting front-end development, we have seen the positive flywheel effect brought by a successful business model and ecosystem. This success will inspire many entrepreneurs and drive innovation, thereby prospering the entire ecosystem in the long run.”
HTX Ventures is the global investment arm of Huobi HTX, integrating investment, incubation and research to identify the best and brightest teams in the world. HTX Ventures currently supports more than 300 projects covering multiple blockchain fields, and some high-quality projects have been traded on the HTX exchange.
market background
Macroeconomics
Since the end of 2023, the cryptocurrency market has experienced a significant rise in the first half of 2024. The approval of the Bitcoin ETF has opened the door to traditional finance for cryptocurrencies, injected a lot of liquidity, and stabilized the price of Bitcoin from an average of $40,000 to between $60,000 and $70,000. In addition, the ETH ETF approved by the U.S. Securities and Exchange Commission has brought cryptocurrencies into the ETF era, greatly lowering the investment threshold, but it may also bring more regulation and artificial volatility. As one of the major risky assets, virtual currency ETFs, but price fluctuations will have a stronger positive correlation with other financial markets (such as stocks and bonds). This may make its volatility more susceptible to manipulation by Wall Street.
On the other hand, the Feds interest rate policy also has an important impact on the cryptocurrency market. The Feds interest rate directly affects the liquidity of the US dollar and even related anchor currencies, which will also directly affect the volatility of Bitcoin and other major cryptocurrencies. The Fed remains cautious about interest rate cuts. According to the dot plot and economic forecasts after the Federal Open Market Committee (FOMC) meeting in June 2024, it is expected that there will be 1-1.5 interest rate cuts (about 25 basis points) in 2024, and a 100 basis point interest rate cut is expected in 2025. From the perspective of interest rate levels, liquidity will become more relaxed due to interest rate cuts, but the overall release of liquidity is limited, and the cryptocurrency market may suffer from liquidity differentiation (US stocks and other non-US risk assets divide liquidity).
Comments on the August 5 global market sell-off
The current market situation is that Japans interest rate hike, US stock earnings and employment data deterioration are the triggers, which have caused the market to be overly pessimistic in terms of sentiment and a trading recession (exiting risky assets and pouring into safe-haven assets) in terms of trading. The actual situation is that the US economy has not really entered a recession, and more new economic data are needed to provide proof, such as CPI and PCE data in July and August, ISM manufacturing and non-manufacturing indexes, PMI data, etc. These data will gradually make the economic situation clear. By then, there will be a more definite conclusion on whether the market is overly pessimistic or the consensus expectation is successful, and it will also provide more basis for the Federal Reserve to make monetary policy decisions. The market is currently overly optimistic about the Federal Reserves interest rate cut expectations (the market currently prices that the Federal Reserve will cut interest rates by a total of about 100 bp in three meetings before the end of the year), and the Federal Reserve is unlikely to adjust its monetary policy before September (if there is any adjustment, it will be a big positive). In addition, due to the US election, market uncertainty has increased.
Based on the above assessment, we believe that at least until September, cryptocurrency investors should not be too pessimistic and blindly reduce their positions, nor should they chase high prices. Now is a good time to explore cheap but high-quality business models. Position sizes should be moderate, leverage operations should be avoided, and investors should constantly update their understanding as new economic data is released to gain greater certainty.
Project Construction
On the business side, the Ethereum Dencun upgrade in early 2024 enhances the ETH ecosystem, improves the usability and competitiveness of Layer 2, and opens up new opportunities for project chains. Eigen Layers innovative business model introduces new use cases and revenue sources for secure network coins such as Ethereum, and encourages people to explore new applications for Bitcoin. The combination of AI agents and blockchain also brings the advantages of transparency and automatic execution to service requesters, providing a future vision of AI integration.
HTX Ventures 2024 Investment Priorities
In this market cycle, HTX Ventures actively identifies and supports cutting-edge technologies and emerging business models. With the mission of advancing blockchain technology, HTX Ventures provides comprehensive support for projects that expand the scope of Web3 technology.
In the first half of 2024, HTX Ventures made 23 strategic investments in multiple fields including infrastructure, DeFi, Bitcoin ecosystem, AI, DePIN, SocialFi, etc., with a focus on infrastructure and base layer models. HTX Ventures is impressed by the growing talent in the Web3 developer community, especially experienced Web3 developers working with Web2 professionals to solve real user needs. HTX Ventures looks forward to working with passionate teams to build a more user-friendly Web3 ecosystem.
There are three main areas we focus on and believe will continue to be rewarding and prosperous in the second half of 2024, including BTCFi, multi-chain future infrastructure, and user experience improvements.
1. BTCFi: Unlocking value in network security and token liquidity
Bitcoin decentralized finance, or Bitcoin DeFi, or BTCFi, refers to the introduction of decentralized financial features into the Bitcoin ecosystem. Bitcoin has always been the blockchain network with the strongest consensus and security. However, due to its lack of smart contract capabilities, Bitcoin cannot host decentralized applications (dApps) like Ethereum or other public chains, and most of the time Bitcoin is just used for hoarding coins. For Bitcoin holders, experiences such as on-chain lending, decentralized trading, and futures trading are largely missing.
In early 2024, Ordinals and Runes explored new use cases for the Bitcoin ecosystem, demonstrating the markets interest in Bitcoins general functionality. However, we believe that Bitcoins potential in DeFi remains to be unlocked. Currently, BTCFis total locked value (TVL) is close to $1.2 billion, accounting for only 0.09% of Bitcoins total market value. In contrast, the TVL to market value ratio of mainstream public chains with smart contract functions is much higher: Ethereum is 14%, Solana is 6%, and Ton is about 3%. Even at a rate of 1%, BTCFi has the potential to grow tenfold.
HTX Ventures focuses on Bitcoin ecosystem expansion plans and token staking protocols. We believe that expansion plans and token staking protocols can bring more flexibility and usage directions to Bitcoin holders, thereby liberating the value of Bitcoin stored as digital gold.
Babylon
Inspired by EigenLayer, Babylon built an infrastructure that enables Proof of Stake (PoS) systems to obtain stake capital from Bitcoin to enhance their network security. The platform uses a modular design and penalty function to enable stake-based systems (such as blockchains, Layer 2, DA layers, and oracles) to incorporate Bitcoin as a staked and re-staked asset.
The Babylon ecosystem is similar to and different from EigenLayer. The ecological structure is similar, and a large number of projects such as LRT, AVS, and DA will also explode. In the LRT track alone, there are dozens of projects such as StakeStone, Uniport, Chakra, Lorenzo, Bedrock, and pSTAKE Finance, which reminds people of the boom brought by Eigenlayer ecosystem Renzo, Puffer and other projects last year; the difference is that the ETH ecosystem has also seen successful narratives such as DeFi and Layer 2 that are comparable to Restaking, while Babylon is a catfish on the BTC layer, which has activated a huge amount of liquidity for the first time, and is likely to drive the development of the BTC DeFi track and improve the efficiency of BTCs capital utilization. The existence of Babylon is crucial to the revitalization of the Bitcoin ecosystem. It has become the base layer of many other BTCFi protocols and has brought Bitcoin back into the spotlight of DeFi.
BounceBit
Unlike Babylon, BounceBit is a centralized Bitcoin re-hypothecation infrastructure that provides a base layer for different re-hypothecation products, secured by regulated custody of Mainnet Digital and Ceffu.
Designed as a re-staking product showcase within the BounceBit ecosystem, the BounceBit Chain is a PoS Layer 1 that simultaneously stakes BTC and BounceBit native tokens through validators - a dual-token system that leverages native Bitcoin security and is fully EVM compatible. It supports key ecosystem infrastructure such as cross-chain bridges and oracles by providing Bitcoin re-staking services. Through an innovative CeFi + DeFi framework, BounceBit enables Bitcoin holders to earn yields on multiple networks while providing a great user experience.
COREx
HTX Ventures is one of the earliest ecosystem partners of Core, a Bitcoin-powered, EVM-compatible blockchain that leverages the security of the Bitcoin network to provide efficient transaction processing speeds (TPS) while maintaining sufficient decentralization. We believe Core can provide one of the best environments for developing BTCFi and are working closely with the ecosystem to achieve this goal.
This led us to invest in COREx, a flagship V3-style decentralized exchange built on the Core ecosystem. As the future gateway and liquidity center of the Core ecosystem, it is known for its user-friendly design (requiring minimal learning curve), powerful community social features, and advanced transaction monitoring and AI advisory capabilities.
2. Multi-chain future infrastructure
Competition between blockchains is fierce, especially between Layer 1 blockchains. Since Layer 1 chains developed in the previous cycle cannot communicate smoothly with each other, this is always a competition in the stock market. Once developers and users are tied to one chain, they cannot easily switch chains. Since people cannot access other EVM-based primary or secondary blockchains, they can only rely on insecure cross-chain solutions (such as cross-chain bridges). Except for the top few chains, most Layer 1s face relatively low user activity, capital flow, and liquidity. Ethereum is a leader in the Layer 1 ecosystem, and its ecosystem retains most of the liquidity and users, but its transaction fees are high and inefficient, and it faces multiple technical bottlenecks.
New Layer 1 developers embrace the multichain future, specializing in one or more existing Layer 1 pain points while being compatible with EVM or other Layer 1s, or providing a deeply focused and excellent user experience in a specific area. To a certain extent, they become complementary rather than substitutes for each other. This is leading us towards a more modular and efficient future with smoother base layer communication.
Monad
Monad is a first-class blockchain platform known for its unique rearchitecting of the Ethereum Virtual Machine (EVM). It aims to solve Ethereum’s throughput limitations and enable decentralized applications (DApps) to achieve mass adoption.
Monad is a representative parallel EVM Layer 1 with ultra-large-scale scalability, enabling the network to process more transactions in less time, with lower fees and congestion, while leveraging Ethereums existing user base and liquidity. It combines the flexibility of Ethereum with the performance of Solana, with over 10,000 transactions per second, 1 second block time, and instant finality, while maintaining full backward compatibility with the EVM and key Ethereum infrastructure.
Avail
Avail is building a unified layer to solve the Rollup fragmentation problem at scale. Avail DA, as the underlying data availability layer, uses the same technologies in the Ethereum danksharding roadmap, including KZG commitments and data availability sampling (DAS).
Avail DA is one of the fastest and most cost-effective data availability solutions on the market today. By combining its data availability layer with cross-chain interoperability and the strong security provided by Avail Nexus and Avail Fusion, Avail is building a unified layer for Web3. Avail Nexus solves the growing fragmentation problem by leveraging proof aggregation on Avails scalable data availability layer, enabling permissionless interoperability. Avails security is enhanced by multi-asset staking with Avail Fusion.
Berachain
Berachain is an EVM-compatible L1 built on CosmosSDK. It was launched at the end of 2021 and is dedicated to solving DeFi liquidity problems. It features a consensus mechanism of Proof of Liquidity (PoL) and a three-token token economic model to achieve long-term prosperity of on-chain liquidity.
Validators are incentivized to stake whitelisted assets such as BTC, ETH, and stablecoins on the validator vault. Similar to dPoS, users can delegate their deposits to specific validators, provide liquidity for on-chain protocols, and receive a portion of DeFi protocol revenue and $BERA in return. The more deposits, the more rewards. This can bring rich liquidity to DeFi on Berachain.
Sophon
Sophon is a zkSync superchain or second-layer network that is being built using ZK Stack, a modular open source framework from Matter Labs, and is a modular public chain project focused on the pan-entertainment track. It is mainly aimed at entertainment, games, music, art, ticketing, and gambling, and aims to become a high-performance modular public chain focused on the pan-entertainment industry.
In terms of core products, Sophon quickly developed its own modular public chain based on the toolkit provided by ZK Stack. As the execution layer, the settlement layer still applies to Ethereum, while the data availability layer uses (to be disclosed). This combination can quickly realize the deployment of modular public chains, reduce development costs, and enjoy the characteristics of low transaction fees, high operating speed and high scalability.
3. Improved user experience
No matter what the usage scenario and technology are, the users are the ones who face it in the end. In this field, Apple is the king of customer experience. Being able to combine cutting-edge technology and good user experience like Apple is crucial to the popularization of Web3 technology. When making investments, HTX Ventures believes that project experience and product operation are crucial in our investment criteria. We also have a strong investment interest in projects that can introduce people to Web3. Currently, social interaction, fan groups, and gaming are key areas to drive wider adoption. HTX Ventures invests in communities, education, SocialFi, and GameFi to build a more user-friendly ecosystem:
Camp Network
Camp Network is a modular Layer 2 blockchain designed to enable mass Web3 adoption in areas such as culture, music, games, movies, social media, sports, and live events. It uses a digital backpack to leverage offline engagement data in social and streaming applications - which is where most users digital identities exist today - to help consumer applications better understand and incentivize valuable behaviors. Camp Network has a strong business development and operations team and has the potential to bring high-quality user communities to Web3.
Tomo
Tomo is an all-in-one Web3 social application that transforms users online presence into a universal social wallet, facilitating authentic, spam-free connections and financial incentives. Tomo allows users to interact directly with creators, participate in private discussions, and explore a new generation of digital art through Tomoji. Tomo stands out by embedding financial incentives into social interactions, thereby redistributing value between creators and audiences.
ChainML
ChainML is an AI and ML development lab that recently launched Theoriq, a platform built on composability, scalability, and community-driven governance. Theoriqs AI Agent base layer is designed to combat monopolistic control of AI Agent technology and integrate its capabilities into the emerging Web3 framework. The protocol introduces a Web3-enabled consumer layer and an open AI Agent marketplace, effectively democratizing access to AI technology. This approach not only enhances transparency, but also aligns with the fundamental principles of Web3, in stark contrast to the centralized models of existing tech giants.
Theoriqs core advantages are: security (computational challenges through proofs, binding of collateral assets through a reputation system, and multi-party game security), cost advantage (performance overhead is significantly reduced compared to ZKML), and scalability. In the future, it can provide a shared economy for deep learning applications: aggregating GPU computing resources from all over the world to solve the current problem of GPU computing power shortage. Its proof can ensure that AI reasoning is actually executed, and then use the Token economic model to motivate all GPU computing power to participate.
4. Application-based infrastructure projects
In order to establish a project ecosystem, it is essential to lay a solid foundation for basic technical infrastructure. In addition to the Bitcoin ecosystem, the other two infrastructure directions we are currently focusing on are FHE fully homomorphic encryption and AI.
FHE Fully Homomorphic
FHE fully homomorphic technology can be used in transaction privacy encryption and AI privacy. In the transaction privacy track, compared with competing products such as ZK and mixers, it naturally supports contracts and is compatible with EVM; in the AI privacy track, it can protect the privacy data entered when using AI products such as Chatgpt. At present, most countries focus on data security and data privacy in regulating AI, especially since the worlds major AI companies are currently controlled by the United States, and AI symbolizes huge productivity, and resisting the use of AI is even more undesirable. Several projects in the FHE track will be launched at the end of this year and Q1 next year, or they can be applied in AI data privacy protection, further promoting the combination of AI and crypto, and used for transaction privacy protection, becoming an alternative to products such as mixers. At present, the main problem restricting the application of FHE is performance. In order to improve performance, many FHE companies such as ZAMA have begun to introduce FHE hardware acceleration. Now, we think that companies worth looking forward to in the FHE track include Fhenix and ZAMA.
AI
AI has become an important part of daily life and work. By integrating AI with blockchain technology, many existing pain points, such as black box transactions and the need for human intervention, can be solved. The combination of Crypto and AI can solve problems in the field of AI from an economic model through a token incentive model. Tokens can be used to incentivize global workers to participate in technologies such as data annotation, synthetic data, FHE privacy protection, and decentralized computing networks.
HTX Ventures believes that the focus in the second half of 2024 can be on the AI Agent direction mentioned by Vitalik Buterin. AI Agents are able to perceive the environment, think independently, and take corresponding actions to achieve set goals. With the support of large language models, AI Agents can not only understand natural language, but also plan decisions and perform complex tasks. They can serve as virtual assistants, learn user preferences through interaction with them, and provide personalized solutions. In the absence of clear instructions, AI Agents can also solve problems autonomously, improve efficiency, and create new value. The AI Agent direction is the segmented track that is closest to users, easiest to break out of the circle, and brings traffic.
Another direction that can be focused on is the breakthrough in the data layer: IMO stands for Initial Model Offering, which is the monetization of AI models in reality. Unlike the illusory ICO, IMO actually corresponds to the AI model in the real world, rather than issuing air to make money. The current AI industry is mainly dominated by closed source, and many open source AI models face difficulties in making profits. If open source AI models want to develop, the key is to raise more funds. The purpose of IMO is to provide a new way of issuing assets to help developers of open source AI models raise more funds to fund their development.
5. New SocialFi and community-driven apps
There are about four community-type projects (ecosystems) worth paying attention to at present. The first is Blockchain Links (Blinks) and its project ecosystem launched by Solana, the second is the old social project FriendTech, the third is the new socialfi project Farcaster based on Base, and the fourth is the Ton ecosystem.
Farcaster and TON have demonstrated their great potential in the future crypto market through their unique ecosystems and strong technical support. Farcaster has formed a strong social layer foundation through decentralized social relationship graphs and memecoins economics, while TON has consolidated its position in the SocialFi and GameFi fields through important strategic investments and technology deployments. At the same time, Blink, recently launched by Solana, is also making efforts in the social direction, and it is expected that this trend will continue to strengthen in the second half of 2024. The development of these projects provides investors with new opportunities and directions.
In addition to community projects, HTX Ventures is also optimistic about the SocialFi and GameFi projects based on the Farcaster and TON ecosystems, which can leverage the existing social ecosystem, expand as quickly as possible, and be easy to use.
6. DePIN
The Decentralized Physical Infrastructure Network (DePIN) is reshaping the blockchain space through its innovative use of existing infrastructure and data-centric business models. Beyond traditional IoT frameworks, DePIN stands out for its decentralized efficiency and cost-effectiveness, playing a key role in integrating technologies such as privacy enhancement, zero-knowledge proofs, and artificial intelligence. As the leading platform for DePIN, Solana embodies the integration of high-performance blockchain technology with physical networks, promising significant economic returns and pioneering new ways to merge technology with real-world applications.
In the second half of 2024, HTX Ventures will continue to explore high-quality projects, support cutting-edge technologies, critical infrastructure, and applications that significantly improve usability, user experience, and increase the Web3 user base. This includes AI Agents, DeFi, SocialFi, GameFi, Decentralized Physical Infrastructure Network (DePIN), Ethereum, Layer 1 and Layer 2 solutions, Bitcoin ecosystem, etc.
About HTX Ventures
HTX Ventures is the global investment arm of Huobi HTX, integrating investment, incubation and research to identify the best and brightest teams in the world. As an industry pioneer, HTX Ventures has more than 11 years of experience in blockchain construction and excels in identifying cutting-edge technologies and emerging business models in the field. In order to drive growth within the blockchain ecosystem, we provide comprehensive support to projects, including financing, resources and strategic advice.
HTX Ventures currently supports more than 300 projects covering multiple blockchain fields, and some high-quality projects have been traded on the HTX exchange. In addition, as one of the most active FOF funds, HTX Ventures has invested in 30 top funds in the world and cooperated with top global blockchain funds such as Polychain, Dragonfly, Bankless, Gitcoin, Figment, Nomad, Animoca and Hack VC to jointly build a blockchain ecosystem.
