ABCDE Investment Partner Lao Bai's Comment: On-chain derivatives, Friend Tech, TON overvalued, gaming and ZK.

After the Token2049 event in Singapore, ABCDE Investment Partner Lao Bai observed some hot topics and made relevant comments on "derivatives, Ton, games, and ZK." He mentioned that despite the mostly pessimistic comments from others, he still wanted to discuss optimistic matters from a primary market perspective. Here is a summary and supplement.

Derivative Trends: Flourishing On-chain, Approaching Centralized Exchanges

Lao Bai stated that besides public chains Aptos and Sui launching spot trading DEX decentralized exchanges or lending protocols in recent months, nearly all other public chains have not introduced new initiatives on these topics. Instead, they are focusing on the "on-chain derivatives" track, mostly contracts with a small number of options.

"On-chain Derivatives Exchanges" Approaching CEX

Lao Bai believes that the trend in the derivatives track is becoming more like the experience of centralized exchanges, with features such as registering wallets with email, trading multiple assets, off-chain order books, KYC, and even trading rebates, VIP gold card mechanisms, etc.

Conditions for Surpassing CEX: Adequate Liquidity and Market Makers

Lao Bai believes that on-chain derivative exchanges will approach CEX, with several key points:

• Speed and asset quantity can match
• Security brought by self-custody wallets
• Trading pairs can be listed quickly without permission
• Retail investors can provide liquidity simultaneously and act as trading partners. Many startups are developing strategies to mitigate liquidity providers' losses due to significant losses from trading partners.

"Rationally speaking, with sufficient liquidity and market makers, the overall experience of on-chain derivatives in the next 1-2 years may even surpass that of CEX,"

Friend Tech and On-chain Derivatives: A Good Match?

Lao Bai believes that the concept of Friend Tech may attract on-chain derivatives by allowing "traders" to issue their own KEYS through KYC and automatically distribute 10% of monthly profits to all KEYS holders. The KEYS of "traders" may also be highly volatile due to the instability of trading profits.

"It feels like FT, this kind of 'empty trading' hanging on the curve without counterparties, is very suitable for this scenario," Lao Bai said.

He continued to explain possible scenarios, such as only allowing the top 100 "traders" on the trading list to issue KEYS. To stimulate trading volume, those interested in buying KEYS may be required to complete over $1000 in contract trading on the platform. The motivation for issuing KEYS to "traders" may be for reputation, or to collect taxes between trades, or just for fun. Buyers and sellers are gambling on their own judgment.

TON Short-term Ecology Overestimated

Lao Bai believes that Telegram and the public chain TON attracted attention at Token2049, with expectations due to Telegram's 800 million monthly active users base, especially as the official Ton Space wallet is set to launch by the end of September.

However, in my opinion, the short-term outlook for TON's ecosystem may be slightly overestimated.

Lao Bai believes that the hype around TON is actually driven by Telegram Bot users, mostly Crypto Degen and some DeFi veterans, rather than traditional Telegram Web2 users.

In addition, Ton's official wallet has been in operation for a year, but it was previously a custodial wallet. This transition has made Ton Space self-custodial. The default wallet has only become more decentralized, rather than starting from scratch.

TON Ecosystem Lacks True Innovation

Lao Bai stated that he and his venture capital firm ABCDE have discussed with many startups and foundations in the TON ecosystem, but so far, he has not seen anything truly "exciting." The DeFi ecosystem mostly consists of replicas like Uniswap, Lido, or platforms based on tipping.

Ton Space only provides self-custodial wallets, and its launch may not completely transform the Ton ecosystem, which raises doubts.

TON's Technical Suitability for Applications

Lao Bai stated that regardless of Telegram's user base, Ton has the potential to become a noteworthy public chain. In terms of technology, it is similar to ICP. Lao Bai analyzed in 2021 that Ton does not achieve "global consensus" among all nodes like Ethereum but leans towards a "semi-decentralized and visually appealing" performance with a focus on "local consensus."

Lao Bai believes that Ton is unlikely to rise through traditional DeFi elements like DEX or lending but will instead focus on payments, bots, social, and gaming applications.

Two Paths for Gaming: Web2.5 or Full-chain

Lao Bai believes that the development of gaming applications can be divided into two camps: Web2.5 and full-chain games.

Web2.5

Web2.5 refers to games that do not fully utilize blockchain technology but are becoming more like Web2 games. Rough games like the first generation of P2E Axie Infinity are no longer seen. Web2.5 games offer higher playability, with fewer Web3 elements.

The target users have returned to Web2 game players, and when players find the game fun and have a demand for in-game items, wallets, NFTs, and token economies are introduced.

Therefore, the goal of Web2.5 games is no longer about balancing gameplay and earning but competing with fun games in Web2 and enhancing differentiation through Web3 elements.

Full-chain Games

Regarding full-chain games, Lao Bai believes that they will eventually succeed, but the time frame is uncertain. After testing multiple full-chain games, researchers at ABCDE found them "interesting but not addictive, easy to start but not fun." Full-chain games may still lack the excitement needed for widespread adoption.

ZK Focus Shifts from ZK Rollup

Lao Bai believes that the previous application of zero-knowledge proofs (ZK) on Rollups is no longer popular and has shifted to two other branches:

New Empowerment for Smart Contracts

Lao Bai stated: "One is the concept of coprocessors represented by Axiom, also known as Storage Proof. Competitors in the market include Lagrange, HyperOracle, and Herodotus. If I had to describe what coprocessors do in one sentence, I think Dr. Dong Mo of Celer's explanation is the simplest and most understandable - 'empowering smart contracts with the ability of Dune Analytics' (by the way, Celer is also entering this arena)."

General Infrastructure

Lao Bai stated: "The other type is more general, universal ZK computation and verification aimed not only at Web3 users but also Web2 users."

"There are various virtual machine architectures, such as those based on WASM, LLVM, Mips, and even Risc0 based on Risc V. Proof systems like Plonky2, Plonky3, Nova, and SuperNova can be seen."

"Currently, these projects generally face a 'lack of application scenarios' issue. However, in the long run, especially starting from the first principles of blockchain, I think general ZK computation is a promising track."

"If the first principle of the Internet is 'bringing or even eliminating spatial distances,' then the first principle of blockchain should be 'trustlessness.' BTC/ETH eliminate trust in on-chain computations through full-node settlement, while general ZK can theoretically 'eliminate trust' in all traditional computing processes through off-chain computation and on-chain verification. What new types of computation or scenarios will emerge once this matures is still unknown and needs to be observed step by step."

Optimistic Thoughts

"My optimistic view is that Web3 is still a 'Wild West,' where capable individuals can fully showcase their abilities," Lao Bai said.

Despite the quiet nature of primary and secondary markets, he believes that the industry's vitality remains strong.

From a technological perspective, public chain systems are becoming more mature, and ZK technology is developing rapidly, competing with AI development.

In terms of applications, full-chain games are only a matter of time. RWA, Web2.5, DeFi, NFT, AI+Crypto are all evolving, along with third-world payment applications, and there will always be a few successful ones.

Additional note: Former Alibaba Chief Strategy Officer Ming Zeng: AGI (Artificial General Intelligence) and cryptocurrency are a perfect match

In terms of talent, Ivy League blockchain entrepreneurs are prevalent, with many smart individuals, showing promising prospects for the future.

Lao Bai's past viewpoints summarized