Yunjiu Capital Niu Fengxuan: We are still on the eve of the outbreak of Web 3.0

By the end of July this year, the number of unique addresses for Ethereum’s domain name service had exceeded 500,000, and Web3 was gaining a growing user base. Since 2017, Web3’s infrastructure has been gradually completed, showing a change from “dirt roads” to “asphalt roads”. But at the same time, the industry ecological prosperity is still highly linked to the market bull and bear, the value of on-chain data has not been fully explored, new application scenarios and user interaction mechanisms have yet to be unlocked, and the Web3 industry is still on the eve of the outbreak.

Recently, Niu Fengxuan, a partner of Yunjiu Capital, participated in the “Web3 Investment and Entrepreneurial Opportunities” salon held by NetEase Technology Digital Planet Joint Investment Network, together with BAI Capital Partner Wang Tianfan, Qingsong Fund Partner Zhang Fang, and Web3 Scene Lab Initiator Yang Linyuan to discuss the development of Web3 industry, investment layout ideas and observations on the entrepreneurial ecology in the eyes of investors. Here’s a breakdown of what to share:

Mr. Niu Fengxuan has more than 7 years of entrepreneurial and angel investment experience in the Internet and blockchain, focusing on investment in infrastructure, middleware, application layer (DeFi/NFT) and other fields in the blockchain industry. He previously founded DappReview, which grew into the world’s leading decentralized application data analytics platform and was acquired by Binance in 2019. Since then, he has also served as Head of Product at CoinMarketCap. During his entrepreneurial career in the blockchain space, Mr. Niu was also involved in the investment of several early NFT and DeFi projects. Prior to that, he worked at BlackRock as a quantitative analyst.

Core ideas

  • Composability, and standard uniform databases are the greatest value generated by blockchain technology since the birth of technology.
  • Web3 reshapes the value of data; How to mine this data gold mine is an innovative direction with great potential.
  • The value creation of the application layer comes from new mechanisms and interactions, rather than superficial modifications of traditional Web2 products.
  • The Web3 outbreak is still in its early stages, and startup teams can focus on finding real product needs and target users, rather than following the hot spots of the bull market and holding a hammer to find nails.


The development of the Web3 industry from an entrepreneur’s perspective

I would like to share my understanding of the development of the Web3 industry from the perspective of entrepreneurs, because I am actually more suitable to be defined as an entrepreneur than an investor. I’ve been starting my business since the end of 2014. The first venture was to do SaaS tools for the traditional Web2 industry, but it was not very successful, operating for only two years and closing the company by 2017. That same year I started my second venture in the Web3 industry, founding the data company DappReview.

In the four years from 2017 to 2021, I have felt a lot. When I first started Web3 in 2017, we were basically pioneers. At that time, in addition to Ethereum, there were some other chains and on-chain development tools. Even the infrastructure of some developer ecosystems, such as the basic to the wallet, is not perfect, let alone the application. Although at that time, everyone was already imagining some scenarios, including finance, games, identity, social and other directions, but at that time, the industry was basically deserted.

And after a four-year cycle, we can see the infrastructure gradually being perfected, which I describe as a change from “dirt roads” to “asphalt roads” – vehicles can be driven, but planes are not yet allowed to pass. Four years ago, it was very difficult to take this road, and many things could not be done as a developer and entrepreneur. On the contrary, if you compare Web2 entrepreneurship, developers of mobile apps do not need to worry about network, storage performance, computing performance and other issues; In most cases, entrepreneurs only need to think clearly about how to do the product, what user needs to solve, and whether the industry and research can keep up. But in the Web3 industry, there are so many limitations to infrastructure that we need to know what can and can’t be done. In four years, I have also seen the explosion of the middle layer and the protocol layer from 0 to 1, and the application layer has also ushered in the first outbreak in the context of the infrastructure beginning to be complete, realizing the process from 0 to 1, and today it is carrying out the process from 1 to 100 or even from 100 to 1000.

Several other tracks, including games, NFTs, Metaverses, etc., I personally think are still in their early stages. At the same time, the situation of the last cycle has given birth to many of the current head projects, such as OpenSea, Sandbox,Uniswap, Aave, Axie, etc., which were established in 2017 and 2019, during the end of the last bull market and the beginning of the bear market, not all of which were born in the bull market last year and the year before.

These companies have gone through a lot. I met members of Sandbox and Axie when I was doing DappReview in 2017 and 2018. The bear market was particularly tough, and at one point they couldn’t raise enough money. At the end of 2019, Axie and Sandbox were raising funds at the same time, when their valuation was $15 million, and only $1.5 million to $2 million. And now the Web3 project starts at $20 million to $50 million.

I’ve witnessed many interesting things as an entrepreneur this market cycle, and I’ll share some of them below.

What exactly is the value of blockchain technology?

For four years, I have been asking myself: What kind of value can Web3, with blockchain technology as the underlying infrastructure, bring? This is also a question that many people will think about. I started doing DappReview in 2017, and at the end of 2019, DappReview was acquired by an exchange, after which I made a personal investment for a while, and then I joined Yunjiu Capital to invest in Web3. Over the past four years, I have thought about this question repeatedly through entrepreneurial practice and investment experience. I think the answer is twofold:


First, composability, that is, interoperability. Composability, which is essentially permissionless combinations and calls at the code level. For example, code is written on the blockchain with smart contracts, and others can call that code and interface without permission to build something new on this ecosystem. And digital assets, whether homogenized or non-homogenized, can interoperate across applications and natively. Many payment applications of Web2, where money in one application cannot be used in another; Or the props in the game, which are also unusable in another game. However, the characteristic of building applications based on blockchain technology as the bottom layer is that only assets are needed to achieve real-time cross-application calls. It’s something that used to be hard to do. Also, because of the composability of the code (we call it Lego Logic), it’s like stacking bricks, I make blocks, and someone else can build other things on top of my LEGO bricks, which makes the whole industry grow very quickly. Looking at the development of DeFi throughout 2020, in just two or three months, the track has explored countless possibilities. On top of the most pillar applications like lending and trading at the bottom, we’ve built aggregators and other interesting products.

The second point is a unified database. Unified database refers to the data behind the current massive Web2 applications. For example, if a user reads and writes all the data in one place in five applications, and only needs one address to log in to each application, then the value of this database will be huge.

Today, most of the head projects are born in a bear market, and the medium infrastructure is a top priority. Without roads, you can’t drive a car; Without an airport, you can’t fly an airplane.

This is followed by two investment topics that we consider to be important and interesting:

The first is the investment theme of data. As mentioned earlier, one of the values that the entire blockchain brings is a standard unified database. In that database, we think the data on the chain is actually a “gold mine”: everyone has an address, which is your unique identity. If you use the address across multiple apps, all of your relevant data will be recorded on your data board and in the transaction flow below that address. We can then label the address with various labels and analyze it. Data is no longer an island. In the past, we left data in various apps such as WeChat, and that data would only exist in each company’s own database, which is a data island, because large companies will not share data with other companies. But now it is different, all the data on the entire Ethereum is publicly visible, although it is anonymous, there is no way to know the owner of the address, but the behavior of the address, the DeFi products used, the Game-Fi products used, what kind of transactions have been made, these information can be seamlessly captured, and more comprehensive and efficient data analysis and mining can be done. Based on this set of logic, from the underlying data source, the upper layer is used for data cleaning, analysis, indexing, and node services; Further up, after data analysis, there are a variety of protocol layer projects based on this data and content, and there will be many ToB data tools, ToC data Kanban boards, and data applications.


The three layers listed above, each layer has appeared in the unicorn-level company, and there is real income, we are very optimistic about this track. Because when dealing with data now, it is different from the past in that you can see all the data behaviors under the address more comprehensively, and these data behaviors are verifiable. We’ve invested in companies like Galxe (formerly known as Project Galaxy) and CyberConnect, which are actually doing social graphs on the chain and aggregating users’ data.

One of the interesting things I’ve observed is that people in the industry are now hiring and asking them what apps he’s used. Although the resume will write about the products that have been used and researched, this is not necessarily true. And as long as you have the address he provides, you can see whether the address has really performed what he said, such as participating in DeFi projects and buying NFTs, and can verify that all his past behaviors and operations on the chain are consistent with his own claims.

The second part is the application layer. We believe that the next cycle, the next three to four years, will be a phase of large-scale explosions at the application layer. In the last cycle, in fact, the application layer of DeFi has completed the precipitation of users and value from 0 to 1, and some very basic DeFi applications have been saved, even in the bear market. But in contrast, some other tracks, whether games, social or NFTs, although they have a certain hype and bubble in the last bull market cycle, but when the bear market comes, the users of these tracks have been lost, which means that it has not found its own way to open in essence, and it is still in the early exploration stage. The killer application of Web3 is not to simply superimpose today’s Web2 application with a wallet login, but to combine the underlying features on the blockchain, that is, the database of combination and standard unification, in some specific scenarios, through innovative mechanisms and gameplay to unlock new ways of user interaction, thereby creating practical value. DeFi has a similar example. Many early DeFi projects, such as Swap, were not the current AMM (Automated Market Maker) mechanism, but the mechanism of the order book. Because everyone feels that centralized exchanges are all order books, some people hang sell orders, some people hang buy orders, and trade with each other, so there are many people who do various transactions in order books. But it turned out that the pattern wasn’t suitable for on-chain applications and on-chain DeFi, and in the end the swap of the AMM mechanism won. In fact, lending is also the earliest P2P lending method, and it is ultimately verified that it is not established. The earliest Aave model was Ethlend, which was actually P2P lending, but it didn’t succeed, and the final compound was actually a pool of DeFi’s lending protocol to today’s scale. From this, we conclude that there will be completely new ways of playing in specific scenarios. This new mechanism must be different from the current model, and will open up some new ways of interacting. The tracks that we are optimistic about in the next cycle will definitely have new mechanics, scenes and gameplay, which is our focus on new projects. If you just change the existing model, or just stick to Web2’s product plus wallet login, we think it will be difficult to succeed. Only by finding a new way of playing can it stand out.

What can entrepreneurs do?

Finally, it’s about what entrepreneurs can do. I’m an entrepreneur myself and survived a bear market in the last cycle. In my opinion, first of all, there is a need to reserve enough funds to deal with the bear market. Bear markets can last two years, three years, or even longer; A bear market can also be short, starting next year. But I personally recommend that every team be able to have at least 2-3 years of funding ready to hold out until a bull market breaks out.

In a bear market, the team needs to find the real product needs and target users, rather than following the hot spots of the bull market, focusing too much on the price or virtual users under the false prosperity, thus ignoring the essence of the product 。 In the last cycle, projects such as Axie and Sandbox were products and teams that struggled to survive the bear market. There were at least 20 teams at the time, and the products were similar, whether it was something like Axie or a metacosmic product like Sandbox. The difference is that the other teams did not survive, and many issued statements to stop operations at the end of 19 and early 2020. Therefore, it is very important in itself to be able to hold out longer than other entrepreneurs and survive the bear market.

For prospective entrepreneurs, I want you to be believers first and then builders. The industry is very scary in a bear market. In 2018, many entrepreneurs entered the industry, but after a year, there was no positive feedback, and some people couldn’t stay up and leave. Do another year, to 2020, especially March 12, 2020 March 12, 2020 is a historic day for the industry, because on that day the price of the entire industry fell a lot, and even many practitioners in this industry for many years have wavered and questioned. Therefore, if you do not have a strong faith and true love for the industry, it is difficult to stick to it in a bear market.

The second point is to put aside the historical baggage, immerse yourself in the industry for a while, and then think about what to do. In fact, the Web3 industry is still in the era of grassroots entrepreneurship in the last two cycles, and today, there are many excellent factory engineers who have brought outstanding product research and development capabilities, management capabilities, and team capabilities into this industry. But this industry needs a period of immersion to understand and recognize, because it has just changed from a “dirt road” to a “tarmac road”, and there is still a lot of imperfection in it. Some former Web2 entrepreneurs come in and think that everyone’s products are too simple, and he can do very complex things, but this thing is not so easy to do. Therefore, you need to immerse yourself in the industry for a while and then think about what you can do and what restrictions you have, rather than being ambitious. A lot of good people want to make a big deal out of it as soon as they come in, but the infrastructure of the industry is not enough for them to make these things.

Q: What is the biggest difference between Web3’s investment and previous investment in other industries?

First of all, relatively speaking, I have less experience with Web2. In Web3 investing, my intuitive feeling is that it is more difficult to do some in-depth DD (due diligence). Some project teams may have people in the US, some people in the UK, some people in Singapore, etc., and even say that many projects we haven’t seen the team offline when investing. Therefore, for some decentralized office projects, there are still challenges from the investment point of view. But some of these projects still have to be invested, such as the CEO of Nansen two days ago who tweeted that several of their Co-foudners met offline for the first time. Nansen is already a nearly $1 billion valuation project, earning about tens of millions of dollars last year. When I invested in Nansen, I didn’t meet the CEO, but I just thought the product was good. So the DD and reference to the team and founders of the Web3 project is actually more complicated.

At the same time, the investor structure of Web3 investment is more complex. Traditional industries have a maximum of three or four institutions participating in a round of fundraising, but it is common to invest in a round of up to a dozen institutions in Web3. Each agency can help with projects in different regions or fields, provide some resource support and some value added services. Whether the institution can provide this added value is also the threshold for whether it can be invested in this project. Because there is currently no shortage of money in the market, but a lack of good projects, this is also caused by the current market supply and demand environment.

Q: Which areas of Web3 do you value most and what type of entrepreneurs would you prefer?

At this stage, we will focus more on infrastructure and middleware, because we feel that the underlying development environment and infrastructure are not perfect enough, so we attach great importance to this area. At the application level, we are optimistic about more innovative gameplay, mechanics, and designs. Compared with the team, the track, the product and these factors, we would like to see creative products. In fact, many homogeneous products have been seen on many tracks, and we think that they are most likely to be unsuccessful. We prefer some innovative cases with large odds.

As far as the team is concerned, in addition to some infrastructure, more technical direction on the team itself has a certain threshold and requirements, in addition, for some protocol layer and application layer things, we still think that ideas are more important than the configuration of the team itself, our requirements for the team will be relatively weak, more focused on observing whether these ideas are creative. One of the more optimistic types of entrepreneurs is that we should first pay close attention to the industry and should know more than we do in the track, rather than talking about things that I already know. We prefer people who are involved in areas we don’t know, and we think they are more focused on the industry and have a mindset that doesn’t just do projects. Conversely, the kind of entrepreneurs with a “hammer for nails” mentality aren’t the type we particularly like, because I think the industry is early enough to still have the opportunity to make revolutionary innovations, rather than just organizing a group of developers to finance products.

We want entrepreneurs to really believe in the industry, whether it’s looking for demand or coming up with interesting ideas, with the goal of doing big things.

Q: What is the biggest pit in the industry? Can you give some tips to entrepreneurs new to Web3?

I think the next obvious problem is that a lot of people are confident and determined to go big and want to go big, only to find that there are no users, or there are very few active users, and these users are basically based on wool – if the project can’t give some incentives, users may leave. I think this is a phased problem in the industry, and there are multiple factors behind it, including the reasons why the industry infrastructure is not perfect, and there are also reasons why the product itself does not meet the needs of users. That’s why I mentioned in the sharing earlier that entrepreneurs should first precipitate for a period of time after they come in, then think about what I want to do, understand what I can do, find out the current situation of the industry, and then start a business. I think the biggest pit in the industry is that the actual feelings in the industry and the appearance presented outside the industry are not the same, and it is impossible to know without hands-on practice. It’s like crossing a river, a small river seems shallow, but when you cross the river, you find that the water is very deep. This is a big challenge for entrepreneurs.

Q: In addition to the funds, what kind of value and help can you provide to entrepreneurs?

The core competitiveness of funds investing in Web3 is to bring additional value to the invested projects. In my opinion, it is divided into two aspects: business and resources. In terms of business, first of all, many early Web3 projects especially need business and product support, and even deep participation and advice. For example, the Uniswap V3 white paper was actually released by the Uniswap team and the Paradigm research team, so the head fund actually has its own research team to deeply participate in the project, which is also the embodiment of creating value for the project. We’re always trying to give the portfolio more advice on products and directions, share ideas with them, and they can come to us whenever they need to. Some projects are in the product development phase and during the transformation process, we meet with them very intensively, even once a week.

Other help, I believe most investors will actually do, such as the economic model design of tokens, the docking of resources, and the cooperation of other projects. But I think it’s more important to provide support in business, because in fact, cooperation between industries is very open, and the docking of resources is actually relatively easy. There is also the recruitment of people. We helped the portfolio recruit some people, and I’m sure that’s what everyone does. So the core is that we hope to understand the product direction of our investment enterprises, provide more insights and attention in the direction, and help them walk correctly on this road, to a higher stage and a wider market.

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