Do DeFi projects need institutional investment?
Editor's Note: This article comes fromHoneycomb Finance News (ID: fengchao-caijing), Author: JX kin, reproduced by Odaily with authorization.
Editor's Note: This article comes from
Honeycomb Finance News (ID: fengchao-caijing)
Honeycomb Finance News (ID: fengchao-caijing)
, Author: JX kin, reproduced by Odaily with authorization.
When the flames of DeFi became more and more prosperous, institutional investors in the currency market ran over with funds.
In July, first there was a high-profile layout of funds with an exchange background; in August, some investment institutions announced the establishment of a special fund to invest and incubate DeFi.
The trend of large funds rushing to the wind suddenly brought time back to the bull market from the end of 2017 to the beginning of 2018. At that time, there were many well-known VCs in the Internet circle such as Zhen Fund and Sequoia China, and most of the capital injections flocked to public chain projects.
However, the logic of investment and withdrawal is very similar to the currency circle from the inside. The project issues currency, financing, listing on the exchange, and capital exits to make a profit. As for what did you do with the money? More costs are invested in listing and market value management. And after that? The bear market of 2018 showed various "return to zero" transcripts.
Today's DeFi uses liquidity mining and decentralized transactions to bring destructive power to the primary and secondary markets in the past. Some protocols directly offer "no institutional investment, 0 pre-mining, pure community governance", which is very popular. The market price of YFI, the first to hold this flag high, surpassed that of Bitcoin.
These deadly "decentralized" DeFi protocols almost shouted that they were going to kill CeFi. But institutions still welcome DeFi.
So, does it really need money from institutions to create DeFi with low cost of time and capital?
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Many institutions "investment incubation" DeFi raised doubts
After the DeFi "tornado" brought liquidity mining to the currency market, the institutional investors who were originally in the primary market of the currency market became agitated, and expressed to the outside world that they would launch special funds to invest in and incubate DeFi projects.
On August 5, the Consensus Lab initiated by Wang Feng, the founder of Mars Finance, announced the establishment of the Consensus DeFi Innovation Fund to participate in the construction of the DeFi ecosystem and infrastructure through investment and incubation. Ren Zheng, a partner of Consensus Lab, revealed that the fund not only invests in the primary market, but also some financial products. “The DeFi industry is relatively new, and it provides flexible investment methods, and there are many possibilities for participation.”
Ren Zheng told Honeycomb Finance that Consensus Labs has invested in multiple projects in the DeFi field, including Mantradao, Bifrost, Definer, finnexus, Axis, Powerpool, Bella, BTswap, Dfk, DIA, Serum, etc.
According to public information, among them, BTswap and Serum belong to projects in decentralized trading scenarios, and AXIS claims to be the first dedicated DeFi super chain, which belongs to infrastructure. The rest of the projects are DeFi protocols that provide asset liquidity.
Almost at the same time as Consensus Lab, Leading Capital, founded by well-known investor Yi Lihua, announced the establishment of a fund worth tens of millions of dollars to focus on investing in high-quality DeFi projects. As of now, public investment projects include Mantradao and POFID, both of which are DeFi protocols that provide asset liquidity services.
Both Consensus Lab and Leading Capital are institutional investors who are still active in the blockchain market after the bear market in 2018. From the perspective of investment trends, they have already started the deployment of DeFi.
The enthusiasm of institutional investors in the DeFi field seems to have returned to the short-lived bull market at the end of 2017 and the beginning of 2018. Among the institutional investors at that time, there were many well-known VCs in the Internet field such as Zhen Fund and Sequoia China, and most of the capital attention was public chain projects.
The speed and rate of return of projects issuing coins, financing, and landing on exchanges, capital investment, and exits have made Internet giants feel that money in the currency circle is too easy to make.
Xu Xiaoping, the founder of ZhenFund, appealed in his own CEO group, "Blockchain is a great technological revolution in which those who follow it will prosper, and those who go against it will perish. Don't hesitate to mobilize executives and employees immediately to learn how to embrace this revolution".
The financing projects are also very similar to the early start-up companies in the Internet field, and the financing reasons are at least tenable from the outside world. For example, in the white papers of many projects, the development cycle of the main network is one year or even higher. Development requires talents, and costs such as publicity and community formation are required. Compared with the listing fee of tens of thousands or tens of millions, it is a small amount of money. After being listed on the exchange, it is not over yet, and there must be funds for market value management.
From this point of view, it seems that the project has financing needs.
In mid-June this year, DeFi accumulated power from overseas and spread to China. It was not institutional investors who reaped early dividends. The first people to participate in liquidity mining were the old leeks who stuck to DApp applications during the bear market in 2018. . In the DeFi sector, those agreements with "no institutional investment, 0 pre-mining" are the most popular among them, even if they need to stay up late to wait for the "head mine".
In the eyes of some "miners", the real DeFi protocol is not only to run on the chain and be open source, but more importantly, they insist on community governance, so they use liquidity mining to generate 0 pre-mined governance tokens, so that Tokens that represent governance votes are more decentralized and decentralized, and even the price of some tokens will be adjusted with elastic supply, "in order to gradually return tokens to rational value so that they can play a role in governance."
Some "miners" have doubts about the motivation of institutional investors to invest in and incubate DeFi, "Once capital intervenes, if it is not equity investment, the capital still holds Token, so how can DeFi's Decentralized (decentralized) be guaranteed? Is it back to the ICO era?"
In addition, unlike the development of public chains, there are various difficulties. Does the DeFi protocol that can be built relying on the infrastructure of the public chain really need financing from the primary market?
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"Developing a DeFi protocol for up to two days"
The current DeFi protocol, neither the development time nor the operating cost is high, and the difficulty is not something that can be solved with money.
Gu Qianfeng, CEO of Xuanbei Technology, told Honeycomb Finance that he can complete the construction of a DeFi protocol in one day, "Developers now have many tools and plug-ins to call, and they can build a decentralized governance organization in a few minutes. It will take two days at most.” However, he also emphasized that the difficulty in developing DeFi protocols lies in code auditing, and it is dangerous to rush projects launched without professional audit, “such as Yam Finance (YAM).”
So, are audits expensive?
Honeycomb Finance learned from a well-known security audit company that the cost of code auditing is not high. "The capital cost is about 20,000 US dollars, and the time may take half a month. After all, it involves risks, and every link needs to be cautious."
Looking at it this way, creating and running a DeFi protocol does not require much hard expenditure. The development team is even very light. Now the price of YFI tokens surpasses that of Bitcoin, and the protocol Yeran.Finance it relies on is Andre Cronje, who is a blockchain geek. The online celebrity agreement Yam.Finance has a large team, and there are 5 people who have publicly exposed their faces, including the founder Brock Elmore.
It seems that raising people does not require too much cost, and many DeFi protocols are built by geeks spontaneously, and some core creators have other jobs, such as Brock Elmore, who came out to apologize after the Yam vulnerability incident, is itself a DeFi service platform Co-founder of Topo Finance.
In Gu Qianfeng’s view, it is worthless for investment institutions to invest and incubate DeFi projects. Real developers don’t need a lot of money to build a good DeFi application. No, or I just ran to cut leeks.”
But Ren Zheng doesn’t think so. He believes that as long as the private placement link is designed in the early stage of the project, it must need the help of investment institutions at that stage. Get used to it, so you can do it for a long time." In addition, Consensus Labs has no special advantages in investing in DeFi projects with governance functions, "need to lock up."
As for why institutional investors invest in and incubate DeFi, Leading Capital did not respond to this.
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The DeFi protocol for institutional investment is not open and listed first
Of course, not all the popular DeFi projects in the market are self-made, but most of them received financing earlier than this year when they became popular.
Among the top 10 DeFi protocols with locked positions on DAppTotal, Aave, Maker, Synthetix, Compound, Balancer and other protocols have publicly accepted investment from exchanges or venture capital institutions, and most of them have developed for at least one year.
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Top 10 DeFi Protocols for Locked Funds
Compound, the leading protocol in the mortgage lending scene, was launched as early as 2018 and was later invested by Coinbase. At that time, it had not yet started liquidity mining, and YFI had not yet been born. Early DeFi protocols like Compound, like traditional blockchain projects, have a long-term team operation process.
Until June 16 this year, Compound put tokens into the market, started liquidity mining, and allowed people who hold COMP to participate in community governance. The annual rate was once as high as 1000%, and COMP also rose from about $60 to $381.
Since then, long-dormant agreements such as Aave and Balancer have also "become popular" through liquidity mining, attracting a large number of users to invest and participate in it, which in turn pushed up the overall locked-up amount of funds in the DeFi sector.
Indeed, whether to finance or accept financing depends on the needs of the project and the willingness of the institution, but the "decentralization" of DeFi is more impressive than previous blockchain projects, and its Token exists in the market just like various ICO coins The early hype, but the ultimate essence of DeFi currency is to be used for community governance.
If investment institutions intervene and hold coins according to the amount of capital injection, then the voting power of governance voting will be concentrated, the voice of other people in the community may be weakened, and a proposal may not be passed because it has not been voted by the founding team and investment institutions. There are even project splits.
In March this year, due to the acquisition of the Steem project by Justin Sun, the community split and the network forked happened. Although this project is not a DeFi protocol, the divergence of community consensus also exists in the DeFi world.
Yearn.finance (YFI) is said to be an agreement born to change the concentration of governance power.
Wan Hui, a member of YFII’s forked protocol YFII community, once revealed in a live broadcast that when Yearn founder Andre Cronje built this aggregation protocol for users’ capital selection and mining, he saw the user demand for liquidity mining, and also It lies in his governance concerns about agreements such as Compound. He believes that Compound’s early investment institutions and founders have taken away a large number of governance tokens, and community governance is too centralized.
Therefore, the later Yearn was completely designed and developed by the founder Andre Cronje. The project has zero pre-mining and no investment institutions to participate. The 30,000 governance tokens YFI are all mined by users who provide liquidity, and the community development is fully empowered by the community. Governance.
Andre Cronje also said in a recent interview that collective governance is very important. The more you do outside the chain, the more risks you have. On the contrary, on the chain, everything is verifiable, everyone can see it, and it can be operated.
The emergence of YFI has raised the decentralized governance of DeFi to a certain extent, and users are more interested in projects without venture capital and pre-mining. After that, Yam, which exploded the market again, completed the development of the protocol, allowing the governance tokens to be completely generated by the participation of users, and handing over the governance authority to the community.
Both YFI and YAM, two hot money agreements, only appeared after the DeFi market became hot in June this year. In fact, in mid-June, after liquidity mining became popular, there were also DeFi projects endorsed by capital or exchanges, but judging from the locked funds, it seemed that they were left in the cold by users.
At the beginning of July, Hoo Exchange used the Tron DeFi protocol Oikos supported by IEO, and the current lock-up amount is only 34,000 US dollars. In early August, Hoo announced that it invested 10,000 EOS to support the mortgage loan agreement DFS. Currently, the locked amount of the agreement is 1.4 million US dollars.
Looking at the current DeFi projects injected by institutions, most of them are only semi-finished products. The tokens of Mantradao, finnexu, and Serums have been issued and listed on the exchange. The latter two projects have made it clear that the tokens have governance functions, but their official websites have not yet appeared user entrances, such as wallets using the protocol. That is to say, these The protocol is not yet open to users.
