What areas are the top Asian blockchain VCs most interested in? Definitely not DeFi.

IDG Capital, HashKey Capital, Distributed Capital, NGC Ventures, and FBG Capital, these top 5 Asian blockchain institutions are very cautious about STO and DeFi concept projects. Their investment focus remains on public chain technology, exchanges, and decentralized wallets.

Author: Pan Zhixiong, Research Director at ChainNews

Asia has always been one of the hottest regions for the cryptocurrency and blockchain industry, and is considered a significant source of global investment funds. Not only does Asia have China, which is vigorously developing blockchain technology, but South Korea and Japan have also been some of the most popular regions for Bitcoin or cryptocurrency trading. Singapore and Hong Kong, as two financial centers, are also chosen by many companies as offshore registration locations for their projects. These factors combined have made Asia the second hottest region for investment, following only North America.

Understanding the preferences and investment directions of core investors is crucial in uncovering the mainstream capital flow in the blockchain investment field. By analyzing the investment targets of the top blockchain venture capital institutions in Asia in 2019, we found a completely different aspect of the Asian market compared to other regions, with the most obvious feature being the relatively cautious attitude towards the concept of Decentralized Finance (DeFi) in the Asian market.

Of course, our findings go far beyond this.

In December last year, X-Order, an innovative research institution focusing on cryptocurrency investment, open finance, and data science, collaborated with ChainNews, a professional media outlet specializing in financial technology and blockchain, to launch the "Proof of Value Blockchain Venture Capital Fund Ranking". This ranking comprehensively evaluates the reputation and popularity of blockchain and cryptocurrency investment funds globally.

From this, we selected the top 5 Asian blockchain venture capital institutions from this ranking, and compiled all the investment cases they announced from 2019 to mid-January 2020 as the basis for our research. Data sources include public channels such as ChainNews, Block123.com, and Crunchbase.

We found that these top Asian blockchain institutions are almost no longer investing in new projects based on the Security Token Offering (STO) concept, and are relatively cautious in their investment in DeFi concepts. They still focus their main capital on entry-level products with clear profit models, such as exchanges, and the fundamental blockchain technology of cryptocurrencies.

Top 5 Asian Blockchain Venture Capital Institutions

In the "Proof of Value Blockchain Venture Capital Fund Ranking" released by X-Order in collaboration with ChainNews, the top 5 Asian venture capital institutions are: IDG Capital, HashKey Capital, Distributed Capital, NGC Ventures, and FBG Capital.

IDG Capital was founded in Boston, USA in 1992 and entered the Chinese market as a foreign investment institution in 1993. IDG Capital is involved in venture capital, private equity, and mergers and acquisitions, with investments in industries including TMT (technology, media, telecommunications), healthcare, consumer & entertainment, and advanced manufacturing & clean energy. They are early investors in many well-known companies like Baidu, Tencent, and Nio.

HashKey Capital is an investment fund specializing in the blockchain industry under the financial group HashKey Group based in Hong Kong. Xiaofeng, Chairman of HashKey Group, is also Vice Chairman and Executive Director of China Everbright Holdings and Chairman and General Manager of Shanghai Wanxiang Blockchain Co., Ltd.

Distributed Capital was established in 2015 and is a venture capital institution focusing on investing in companies related to blockchain technology. The general partners of Distributed Capital include Xiaofeng, Chairman of Wanxiang Blockchain, and Shen Bo, also a general partner of Distributed Capital. Vitalik Buterin, the founder of Ethereum, is an advisor to the fund.

NGC Ventures, founded in December 2017, formerly known as NEO Global Capital, is a venture capital fund focused on the blockchain industry. The founding partners are Tony Gu and Roger Lim, among others.

FBG Capital is a venture capital fund focusing on the blockchain field. Its founder, Zhou Shuoji, is an expert in digital currency trading and an active investor in the blockchain field.

What do these top institutions like to invest in?

We categorized the projects invested in by these 5 institutions from 2019 to the present into the following categories: public chain technology-related, trading ecosystem, wallets, DeFi/CeFi, STO, data/media, and other categories, and came up with the following investment map:

From the chart, we can see the following investment characteristics:

Without a doubt, public chain technology and trading ecosystem are still the hottest investment tracks in Asia in 2019;

Among these 5 investment institutions, HashKey, Distributed Capital, and NGC Ventures were more active in their layouts in 2019, while FBG and IDG had fewer actions;

There is a higher degree of overlap in investments between HashKey Capital and Distributed Capital, indicating a certain "synergy";

HashKey prefers public chain technology, Distributed Capital leans more towards the trading ecosystem, and NGC Ventures' investments are more balanced;

Compared to the hundreds of DeFi projects and protocols born in 2019, Asian blockchain venture capital institutions were more cautious in their deployment of DeFi concepts last year, with each institution investing on average in only 1 DeFi project;

Asset tokenization and STO (Security Token Offering) have been hot topics since 2018, but there were only 2 related investments during 2019;

Compared to centralized custodial wallets, top Asian venture capital institutions tend to invest in non-custodial decentralized wallets;

Among over 60 projects, 10 projects were invested by two of the top Asian venture capital institutions, including Blockstack, Marlin Labs, CoinFLEX, AlphaWallet, MYKEY, Huobi Wallet, Wirex, LongHash, Cere Network, and STP.

Public Chain Technology

Since it is the blockchain industry, public chain projects and related technological research directions are the most important focus for venture capital institutions, and most new public chains are compared to Ethereum, hoping to completely overcome the poor performance of the world's top public blockchain network.

In 2019, the top 5 Asian blockchain investment institutions invested in 19 projects related to blockchain technology, many of which were public chains, and some started breakthroughs from Layer 0, Layer 2, privacy, applications, developer tools, consensus mechanisms, and more.

Skale attempts to scale through Layer 2, CasperLabs focuses on achieving better consensus mechanisms, Blockstack aims to enter the platform through DApp applications, Cartesi provides development tools for developers familiar with the Linux environment, and Nym provides privacy for the data transmission layer of the blockchain.

These projects will explore various possibilities for blockchain technology itself. For example, overcoming performance bottlenecks means a larger user capacity and support for consumer-grade payment platforms; solving development tool issues will make it easier for non-blockchain developers to quickly develop and deploy blockchain applications; enhancing user privacy will give users more incentive to abandon centralized platforms that track user data.

Among these 5 institutions, HashKey is the most inclined to invest in blockchain-related technology, and almost all are public chains. Deng Chao, CEO of HashKey Capital, has shared some thoughts on public chains, believing that blockchain-related technology is in the middle of the industry, second only to upstream chip manufacturing, mining industry, and general technology research and development. As for consortium chains, he mentioned that although there have been more mature consortium chains since 2016, with blockchain technology being elevated to a national strategy recently, the voice of consortium chains has increased, but there are still no good commercial applications.

Trading Ecosystem

Since the current use cases of cryptocurrencies mainly revolve around trading, trading and related ecosystems are the second focus area of venture capital institutions beyond blockchain technology.

In 2019, the top Asian blockchain investment institutions invested in 13 projects related to the trading ecosystem.

These 13 projects are mainly focused on trading services, especially derivative exchanges, such as Liquid, a Japanese exchange that supports contract trading; Tassat, a US futures trading compliance licensed platform; CoinFLEX, which focuses on physically settled Bitcoin contracts; FTX, a derivatives exchange supported by Binance investments; OceanEX, an exchange based on the VeChain ecosystem; and Bilaxy, which focuses on perpetual contracts.

Among these five institutions, only Distributed Capital and NGC Ventures have invested in the field of decentralized exchanges, namely SIBEX and Vega Protocol. SIBEX, invested by Distributed Capital and institutions like the Swiss Stock Exchange (SIX), aims to establish a decentralized exchange (DEX) with real-time on-chain settlement based on a P2P network. Its features include users being able to choose not to disclose transaction prices, real-time on-chain settlement, and utilizing Hashed Time Lock Contracts (HTLC) for Bitcoin and Ethereum transactions. Vega Protocol, with investments from NGC Ventures, Pantera Capital, Xpring, and others, allows for the creation and trading of financial derivatives in a fully decentralized network.

HashKey Capital's investment in Blockfolio, an entry-level market and asset management tool, was revealed by Deng Chao, CEO of HashKey Capital. He disclosed that the product has around 5 to 6 million users. A product of this scale is crucial in the cryptocurrency trading ecosystem, not only serving as an asset management tool for new users but also helping exchanges with user traffic and monetization.

Kronos launched the dark pool product WOOTRADE last year, hoping to solve the problem of insufficient market liquidity. Although there are numerous exchanges in the cryptocurrency ecosystem, compared to traditional financial trading volumes, there is a significant gap in liquidity. Traditional financial giants may not be able to enter this field due to poor liquidity. WOOTRADE aggregates numerous market makers and Kronos' own liquidity to further establish the liquidity infrastructure for the industry.

FTX emerged as a newcomer in the cryptocurrency derivatives trading market in 2019, incubated and supported by liquidity provider Alameda Research. After receiving an $8 million seed round of funding in August, they received strategic investment from Binance at the end of the year. The exchange is impressive in developing innovative derivative products, such as tradable volatility contracts, leveraged tokens, index contracts, and has also developed futures contracts for predicting the re-election of US President Trump called TRUMP, and introduced the Dragon Index, a benchmark index for Chinese public chains.

Derivatives trading became a hot topic in 2019, and this trend is likely to continue in 2020. Several compliant derivatives exchanges were approved in the US, such as Tassat, invested by HashKey Capital, and many exchanges have introduced options contracts in addition to futures contracts, such as BitMEX recently adding Bitcoin options. Although trading volumes are currently relatively small, with the improvement of the entire trading ecosystem, including peripheral market makers, liquidity providers, brokers, asset management tools, etc., these layouts will have a profound impact on the cryptocurrency trading ecosystem in 2020.

Wallets

Each of the 5 wallet projects has very distinct features. Interestingly, although we found that many wallet tools in China tended to focus on centralized custody and these venture capital institutions were more concerned about centralized exchanges in the trading field, in the wallet field, these investment institutions clearly prioritized non-custodial decentralized wallets.

AlphaWallet, favored by both HashKey Capital and Distributed Capital, is exploring the application of Non-Fungible Tokens (NFTs). They collaborated with Shengkai Sports to release 20,000 NFT-form VIP tickets for the 2020 European Football Championship. They have also introduced an open standard called Tokenscript, providing infrastructure for the industry.

MYKEY and the cryptocurrency community platform "Bi Hu" belong to the same parent company KEY Group, and have received investments from HashKey Capital and Distributed Capital. MYKEY is a decentralized wallet that attempts to help entry-level users solve experience issues through product design, becoming a user's identity gateway to the blockchain and digital assets, and meeting user demands for blockchain platforms by integrating with other exchanges, custody services, and DApps. Last month, MYKEY brought nearly 3,000 new users to MakerDAO, an important DeFi infrastructure on Ethereum, in a two-day event, demonstrating MYKEY's ability to drive user traffic.

ZenGo, a wallet project invested by HashKey Capital, is worth noting. This product provides a decentralized experience while offering high-quality user experience. Users do not need to understand the concept of mnemonic phrases and can recover private keys with just facial recognition. Users who have used it will marvel at how simple the wallet registration process is, reducing the barrier to entry for using cryptocurrencies and helping more new users get started quickly.

The wallet projects edge invested by Distributed Capital and Dapix invested by NGC Ventures have some "association". edge was renamed from the Bitcoin wallet tool Airbitz released in 2014, which integrates exchange tools and the FIO protocol. The original version of the FIO protocol was developed by Dapix (invested by NGC Ventures), which aims to improve the readability and usability of blockchain wallet "addresses" or "public key addresses". After wallets deploy the FIO protocol, transfers between users can be done using human-readable strings instead of random codes.

DeFi and CeFi

Due to the inherent financial attributes of cryptocurrencies, the top 5 Asian venture capital institutions invested in a total of 10 projects related to finance. With the rise of the Decentralized Finance (DeFi) concept in 2019, we divided these 10 financial projects into two categories: Decentralized Finance (DeFi) and Centralized Finance (CeFi).

There are 5 projects that can be classified as DeFi:

HashKey Capital invested in the Cosmos-based DeFi platform Kava, which is about to enter the CDP testing phase;

HashKey Capital invested in the lending platform Linen, which integrates with Compound to provide interest income to users;

NGC Ventures invested in the stablecoin network xDai, focusing on payment scenarios, which is an Ethereum sidechain with a block time of only 5 seconds, fast and cost-effective;

NGC Ventures invested in the Helis Network, a comprehensive DeFi entry-level platform integrated with other DeFi protocols;

FBG Capital invested in Neutral, which aggregates a basket of stablecoins to hedge against the risk of a single stablecoin failure.

There are another 5 projects that lean more towards CeFi:

HashKey Capital invested in Terra, which, although it also issues stablecoins, has been focused on connecting payment scenarios and has partnered with Korean payment processor BC Card to allow users to purchase goods directly from merchants using the Terra mobile payment platform CHAI;

HashKey Capital invested in Lightnet, a cross-border remittance, payment, and clearing platform;

Distributed Capital invested in Wirex, a service similar to a bank card, providing users with a one-stop service including digital banking, VISA debit card, and fiat currency exchange. They have obtained an EU electronic payment license and claimed to have over 2 million users;

NGC Ventures invested in XanPool and Banxa, two projects that provide payment channels for individuals and merchants to bridge fiat and cryptocurrency payments. After NGC Ventures' investment in Banxa, the project completed a reverse acquisition listing on the Venture Board of the Toronto Stock Exchange in Canada, with the listed company Hoist Capital Corp. being renamed Banxa Holdings Inc.

Compared to the hundreds of DeFi projects and protocols born in 2019, and the vigorous progress of American blockchain investment institutions in this field, the top Asian blockchain venture capital institutions were more cautious in deploying DeFi concepts last year. These 5 DeFi projects focus on stablecoins, lending, and payments, providing users with decentralized financial infrastructure. Aggregated DeFi entry-level products like Helis Network may be the next investment focus, as when other underlying protocols provide reliable infrastructure, the industry needs to provide more user-friendly interfaces and experiences for new users.

Applications of CeFi invested in by Asian venture capital institutions focus on bridging fiat and digital currencies to prepare for incremental users. Unfortunately, these platforms currently cannot serve mainland Chinese users.

STO and Asset Tokenization

Asset tokenization and STO were hot topics at the end of 2018 when the concept of Initial Coin Offerings (ICOs) burst, leading some investors to believe that tokenized securities offerings might be one direction for ICO compliance. However, looking at the investment results of Asian blockchain venture capital institutions in 2019, the STO concept is still in its early stages, and there are not many projects actively pushing forward. The two projects under this category are Standard Tokenization Protocol (STP) and Securitize. STP, launched by blockchain consulting firm Block72, develops a traffic-side digital asset investment banking business for compliance and programmable on-chain crowdfunding and digital asset issuance services.

Securitize has made faster progress, partnering with Algorand to allow issuers to issue digital securities on the Algorand blockchain using Securitize's DS protocol. They have been very active in other areas, including financing (Coinbase, 8 Decimal Capital, SBI, Algorand), acquisitions (acquisition of Japanese blockchain consulting company BUIDL), strategic partnerships (Algorand, Elevated Returns), and more.

We look forward to seeing more scenarios of physical asset tokenization in 2020, such as issuing digital securities through platforms like Securitize, experimenting with asset or commodity chaining through NFTs like AlphaWallet, or the circulation of bulk commodities on the blockchain like Paxos' gold-backed token PAXG.

Data, Media, and Other Projects

These are some peripheral ecosystems outside core investment projects, including media, DApp aggregation platforms, tax platforms, enterprise tools, etc., with relatively fewer projects in each sub-category. Distributed Capital, in addition to its preference for the trading ecosystem, has also invested in many projects around the periphery of the blockchain ecosystem, making it one of the most active Asian blockchain venture capital institutions in these two categories.

The projects with media attributes are LongHash, TokenInsight, The Block, and Bi Hu. Except for LongHash, which also has an incubator and data tool platform, the other three mainly produce text content on media platforms, including news, in-depth analysis, data analysis, and research reports.

DappReview and Dapp.com, as their names suggest, focus on exploring decentralized applications (DApps