From the layout and investment logic of OKX Ventures in Layer 2, explore the opportunities of Layer 2 track.
Author: 0x231
The contradiction between Ethereum's explosive user growth and slow development progress is deepening. Before solving the thorny problem of scalability, it has become impossible to achieve mass adoption. However, the emergence of Layer 2 at the right time alleviated the embarrassing situation of Ethereum. While sharing the security of Ethereum, it transferred the pressure from the chain to the off-chain, and played a key role in the Ethereum 2.0 relay race.
At the beginning of this year, as Ethereum is steadily advancing in accordance with the established roadmaps for Shanghai upgrade and Cancun upgrade, Layer 2 is also ushering in vigorous development. Especially after the Arbitrum AirDrop, the Layer 2 sector is expected to be fully filled, and the TVL of the entire track continues to rise Even catch up with some Layer1.
Keen capital will not miss such a track with strong certainty and high growth. OKX Ventures clearly recognizes the cyclicality of the market, insists on investing in long-term structural value, accurately predicts trends and captures targets, and makes decisive moves. Pay attention to promising Layer2 potential projects. Looking back at the high-growth public chains such as Near, Solana, AR, and Cosmos, there are OKX Ventures, but this is only the tip of the iceberg of OKX Ventures' extensive deployment of infrastructure, DeFi, GameFi, Web3, Metaverse, and NFT In just two or three years, OKX Ventures has successfully invested in more than 300 projects worldwide, becoming one of the most influential crypto venture capital institutions in the industry.
Investing is not about buying vegetables, as long as they look fresh and cheap, you must thoroughly and systematically understand the internal logic of investment targets in order to find Alpha from the vast market. The essence of investment is the realization of cognition, and this sentence will never go out of date. This article will have an in-depth conversation with OKX Ventures, starting from its Layer 2 track layout, investment logic, pattern prediction and other aspects, to explore the value depression of the Layer 2 track.
Getting to Know OKX Ventures
OKX Ventures is the investment institution of OKX, the world's leading encryption trading platform, focusing on exploring the best blockchain projects in the world, supporting the most cutting-edge blockchain technology and innovation, and promoting the sustainable development of the global blockchain industry. Invest in long-term structural value.
The initial capital of OKX Ventures is US$100 million, and its investment projects in the encryption field cover GameFi, DeFi, Web3, NFT and Metaverse, blockchain underlying infrastructure and other tracks, with a total of more than 300 projects. Among them, the proportion of investment is: infrastructure (40%), DeFi (20%), games (15%), Web3 (15%), NFT and Metaverse (10%).
OKX Ventures is committed to helping entrepreneurs who have contributed to the blockchain industry to build great companies. It aims to help promising blockchain projects provide first-class global resources and industry experience. In the future, it will spend 1 billion US dollars to continue to support Ethereum Workshop and Layer 2 ecology, infrastructure, Web3 and other key tracks
Layer 2 track layout and investment logic
We are very bullish on Layer 2. Before the arrival of Ethereum 2.0, Layer 2, as the most mainstream expansion solution of Ethereum, can increase the throughput and transaction speed of Ethereum without affecting the Ethereum main network, thereby carrying more and more complex Dapp applications , to help Ethereum solve the current expansion problems and make it more suitable for large-scale applications, so as to maintain the leading position of Ethereum. The two complement each other and are inseparable. This is also the core logic of OKX Ventures investing in the Layer 2 track.
At present, we have invested in many star Layer 2 projects including Arbitrum, Scroll, Starkware, zkSync, Taiko, and Metis, and will continue to increase in the future.
Take Scroll, a strategic investment by OKX Ventures, as an example. Its positioning is the equivalent of EVM zk- Rollup. It is also a Type 2 zkEVM project that Vitalik introduced in the 4 zkEVM examples. It provides minimum trust assumptions, high throughput and fast finality .
Judging from the data on the chain, Scroll is currently making very good progress. As of 22:00 on March 26 this year, the number of wallet addresses in its Alpha test network is about 1,799,980, 594,361 new wallet addresses have been added, and about 7,886,928 user transactions have been processed. Transactions generated 757,543 blocks, with an average block time of about 3 seconds, and the data performance is impressive.
From the perspective of development path, Scroll needs to solve the problem of decentralized verification from the very beginning. At present, the first stage is to improve the performance of Prover through hardware acceleration and realize its decentralization. The next step is to decentralize Sequencer. , at which point anyone can run a node. We agree with Scroll's development plan and path, and are willing to support a general-purpose L2 network that is better compatible with EVM to implement more complex functions such as deploying smart contracts and general computing. When the efficiency of zk is no longer a problem, there will definitely be great opportunities in the expansion layer infrastructure of Ethereum.
How do you view the competition between Optimism and Arbitrum, as well as ZK and OP ?
Compared with the competitive relationship, we believe that Optimism and Arbitrum are a higher-dimensional incentive relationship to jointly grow the Layer 2 track. Optimism and Arbitrum both use Optimistic Rollup technology, and are currently the two largest Layer 2 solutions, aiming to solve the scalability problem of Ethereum.
The two teams have always maintained such an original intention to continuously improve their technical performance and expand their ecological influence. The two teams have become very mature in their strategies of ecological accumulation and AirDrop grabbing users, which is reflected in the market share of the Layer2 ecosystem. It is worth learning from all Layer2 projects that have not issued coins. The impact of this Arbitrum AirDrop on Layer2 and the entire industry is also gradually emerging. As of writing, Arbitrum's TVL is 1.79 billion US dollars, and the number of transactions processed per day is also 2-3 million.
The differentiated competition between ZK and OP series is becoming more and more obvious. Compared with the first OP series, the progress of the ZK Rollups series is also very fast. It can be clearly seen that zkSync Era, Scroll testnet, Taiko testnet, Starknet, Polygon zkEVM and Consensys Linea are all making good progress.
For example, Scroll's Alpha testnet has been launched on Goerli, which supports the deployment of smart contracts and is committed to iterating and improving the performance of zkEVM. Starkware will launch the StarkNet Mainnet in November 2021. There are currently 50+ projects on the Mainnet, 100+ The project launched the test network, zkSync launched the zkSync Era Mainnet, and the ecological applications in DeFi, Gamefi, infrastructure, social, public goods and other tracks have exceeded 240+, and Taiko launched the Alpha-2 test network "Askja", which is open for deployment Smart contracts, and deploy Uniswap forks and more.
However, in view of the fact that the OP series has accounted for more than 95% of the TVL in the market, the ZK series needs faster mainnet launch progress and ecological construction to participate in the competition for user growth, and the time window left for the ZK series is getting shorter and shorter. As the Layer 2 ecology gradually matures, if the Rollup fee can be greatly reduced after the Cancun upgrade, user growth and ecological construction may be the most critical factors for winning the competition between ZK and OP . We look forward to the moment when Layer2 is in full bloom and can truly bring Next Billion Users to the industry.
The impact of Ethereum 2.0 progress on Layer 2
We pay attention to the impact of Cancun upgrade and Danksharding progress on Layer2. According to the latest Ethereum developer meeting, we expect the core content of the next Cancun upgrade to be EIP-4844, which is now renamed Deneb. EIP-4844 introduces a new transaction type Blob-carrying Transaction, which is the first Ethereum This is the first time to build a separate data layer for L2, which is also the first step in the realization of Full Danksharding. A new transaction type will be introduced to Ethereum that can carry short-lived data called blobs. Availability of data previously stored as Calldata can instead be stored in blobs, which are much cheaper to store than calldata.
Danksharding can help Ethereum achieve the combination of centralized block generation, decentralized verification and anti-censorship, and build Ethereum into a settlement layer and data availability layer, leaving room for Layer 2 computing performance improvement. The impact of Danksharding on Ethereum is to improve the performance and scalability of Ethereum, so that Ethereum can better support more application scenarios and more users.
Of course, we are also paying attention to the direction of "enshrined zk- Rollup" proposed by the Ethereum Foundation and V God, which is part of the visual roadmap released by Vitalik "generating ZK-SNARK proofs for everything". OKX Ventures will pay long-term attention to Ethereum's long-term technical planning and its impact on Layer 2.
Layer 2 ecological development expectations in the next two years
In the next one or two years, the upgrade of Cancun may benefit the diversification of Layer 2, the development of DA layer and the Raas track.
In terms of diversification of the L2 track, the expansion and low fees of EIP-4844 will benefit each L2 ecology, the OP ecology will be more diversified, and the ZK ecology will be more available due to the enhanced data availability, allowing the rapid growth of independent layer 2, which is difficult to operate at high cost . In addition, in addition to these two mainstream Rollup, EIP-4844 may bring opportunities to other Layer 2 projects, such as Metis, Boba, Aztec, zkswap, zkspace and other projects that are still under development. It will become richer and the number of users will increase.
In terms of the development of the DA layer, since Blob data can only be stored for a short period of time, there are problems with the call of historical data. Then there will be a new development channel for decentralized storage protocols. At the same time, the Layer 2 expansion solution also needs to use the data availability layer ; In addition, the Cancun upgrade will benefit the L1 storage expansion network, such as ETH storage, Arweave, Filecoin and other projects that have a layout on the Ethereum DA layer.
In terms of Raas tracks, customized Raas may benefit the most. After EIP4844, Rollup 's various services will expand to a certain extent in the market, and the RaaS ecosystem may see full competition between the ZK-based multi-layer network and the OP 's ecological construction. At present, the advantage of OP -based RaaS lies in the rapid construction of the ecology, which is ahead of the development of the ZK ecology, especially the bedrock upgrade +4844 of the OP stack is online, but the small improvement brought by pure cost and efficiency is not attractive enough before EIP4844 . The ZK-based Raas multi-layer network design can superimpose the advantages of low cost and customization, and it will be more competitive in the long run. At the specific level of implementation, Gaming projects may be more required to go to layer 3, DeFi projects will remain in layer 2, and social projects may have daily activities on l3 or off-chain, and finally core data and relationships are placed on l2.
Are you optimistic about the Layer 2 project of Bitcoin?
As the pioneer of the decentralized narrative, Bitcoin remains the cornerstone of the crypto industry’s credibility, and OKX ventures is very bullish on Bitcoin-based innovations. Recently, Ordinals has also catalyzed the development of the entire Bitcoin ecosystem. The adoption rate of Taproot has reached an average of about 10%. The cumulative minting volume of Ordinals has exceeded 500,000, the cumulative revenue has exceeded 100 BTC , and the daily transaction fee has reached a ATH of 9.28 BTC . In addition, Bitcoin Layer 2 projects such as Lightning Network, Liquid, RSK, and Stacks are also developing steadily.
The Bitcoin Layer 2 project is important to the further development of its ecology, which can help improve the scalability and speed of Bitcoin transactions, reduce transaction costs, and help improve the privacy and privacy of Bitcoin by enabling off-chain transactions that do not need to be broadcast to the entire network. safety. Although the progress of the Bitcoin Layer 2 project is slower than that of the Ethereum Layer 2, we remain extremely patient with its development.
Evaluation latitude of investment projects
OKX Ventures firmly embraces the future of decentralized development for a long time, not just for financial returns, so we are not financial investors in the traditional sense. We not only "give money", but are also willing to "give services" and have the ability to "give resources". Willing to accompany all "entrepreneurial partners" to grow together. Not only to be the discoverer of excellent teams, excellent products and innovative technologies, but also to be the enabler of excellent entrepreneurial projects, so as to serve decentralized innovation for a long time.
When investing in projects, OKX Ventures will adopt different models and evaluation methods for different projects. Here we briefly explain a few latitudes that are more important, including product and technological innovation, token economy, team background and company situation.
- In the dimension of product and technology innovation, OKX ventures focuses on whether the technical products of the project are leading in the industry, or even have groundbreaking theoretical and narrative innovations.
- The dimension of token economy, the overall design and distribution ratio of tokens, the overall unlocking situation, and the risk of doing evil; whether it can really motivate users, whether the combination of token application scenarios and products is high, and whether there is real value capture; including repurchase, Dividends, deflation mechanism, staking plan, etc. are all our concerns.
- Team background and company dimensions, focusing on the professional experience and professionalism of the founders. We believe that excellent entrepreneurs are the most important driving factors in this industry.
Optimistic subdivision track
Investment is future-oriented, and opportunities with greater probability are found in the ever-changing market. OKX Ventures is optimistic about several areas such as Ethereum ecology, Multichain ecology, Onboarding new user innovation, and DeFi revival.
In terms of Ethereum ecology, OKX ventures is optimistic about the long-term development of Ethereum and its Layer 2s with real money. We have invested in Gitcoin, the Ethereum donation platform, and multiple projects in the Layer 2 ecosystem such as Arbitrum, Scroll, Zksync, and Starkware. In the future, there will be Continue to increase the various innovations based on the Ethereum ecosystem.
In terms of Multichain ecology, we have laid out Multichain ecology, Cross-chain ecology and corresponding ecological projects, such as Near, Polkadot, Solana, AR, Cosmos, Layerzero, Aurora, Astar Network, Permaweb, Taki, Acala, Zenlink and other ecological and its items;
In terms of onboarding new user innovation, new users are very important to this industry, and we will pay long-term attention to low-threshold and innovative applications that can continue to bring new innovations to the industry. Therefore, we are very optimistic about innovative projects with "onboarding" capabilities.
Regarding the revival of DeFi, we are optimistic and cautious about DeFi. Efficient decentralized trading mechanism, compliance and corresponding infrastructure are all our investment scope. In addition, we will continue to pay attention to DeFi's innovative projects and mechanisms, such as Non-custodial Dapp, Derivatives and options, DeFi scaling solutions (such as L2 rollups and Cosmos application chain), real world assets (RWA).
How to Understand the Crypto Industry Cycle
The industry cycle has no direct impact on the investment projects of OKX Ventures. We devote energy to participate in the development of the industry itself and the progress of technology, pay attention to Ethereum's Danksharding, EOF and Layer1 zk, focus on application innovation that lowers user thresholds, and focus on AI production tools for Increased productivity and more. From the perspective of technological development, the encryption industry is still in the middle and early stages. There are many innovative technologies and concepts worthy of attention, and the scale of the entire industry is constantly expanding.
The current macro environment has accelerated the deleveraging of the encryption industry, and the industry is moving in a more healthy and compliant direction, paving the way for new innovations in asset classes. The next three years will be the most productive period for building and investing in the encryption industry During this period, OKX Ventures is continuing to add high-quality assets, and in the future will spend 1 billion US dollars to continue to support key tracks such as Ethereum and Layer2 ecology, infrastructure, and Web3.
epilogue
Institutional investors not only have capital and information advantages, but also have a sharper sense of smell, more accurate judgments, and a more thorough and profound understanding of the industry, providing reference for the outside world. Through in-depth dialogue with OKX Ventures, we have deepened our understanding of Layer 2 and brought new inspiration to users when choosing and investing in projects.
As a bridge for the transition of Ethereum 2.0, the importance and necessity of Layer 2 is self-evident. With the arrival of the Arbitrum AirDrop, the entire Layer 2 sector has been pushed to a climax. There are differences between different Layer 2 solutions in terms of security, decentralization, and scalability, so they have evolved into side chains, Plasma, state channels, Rollups, Validium, and hybrid solutions have diversified development patterns, but the TVL of Rollups is far ahead.
Ethereum 2.0 is a complicated and lengthy process. It is foreseeable that with the continuous expansion of the industry scale and the optimization and iteration of Layer 2 solutions, more and more Dapp applications will be built on Layer 2, which will lead to further development of users and funds. With the migration of Layer 2, its ecology will be more prosperous.
