This report outlines the strategic investments and partnerships of HTX Ventures in driving the development of blockchain technology and the Web3 ecosystem, and looks ahead to the investment prospects in the second half of 2024.
Overview
In the first half of 2024, the cryptocurrency market experienced significant growth and innovation. This report outlines the strategic investments and partnerships of HTX Ventures in driving the development of blockchain technology and the Web3 ecosystem, and looks ahead to the investment prospects in the second half of 2024.
"HTX Ventures achieved excellent results in the first half of 2024. We actively seek investment opportunities and carefully select projects that can support key ecosystems, customer experiences, and infrastructure, all of which we believe are crucial for the long-term development of Web3," said the managing partner of HTX Ventures. "Despite the market slowdown, we remain confident in the second half of 2024. By adhering to long-term strategies and supporting front-end development, we have seen the positive flywheel effect brought about by a successful business model and ecosystem. This success will inspire numerous entrepreneurs, drive innovation, and ultimately prosper the entire ecosystem in the long term."
HTX Ventures is the global investment arm of Huobi HTX, integrating investment, incubation, and research to identify the world's best and brightest teams. HTX Ventures currently supports over 300 projects covering multiple blockchain fields, with some high-quality projects already trading on the HTX exchange.
Market Background
Macroeconomic
Since the end of 2023, the cryptocurrency market experienced significant growth in the first half of 2024. The approval of Bitcoin ETF opened the door of traditional finance to cryptocurrencies, injecting a large amount of liquidity and stabilizing the price of Bitcoin from an average of $40,000 to a range of $60,000 to $70,000. In addition, the approval of ETH ETF by the U.S. Securities and Exchange Commission brought cryptocurrencies into the era of ETFs, significantly lowering the investment threshold, but also potentially bringing more regulation and artificial volatility. As a type of major risk asset, the price volatility of virtual currency ETFs will have a stronger positive correlation with other financial markets (such as stocks, bonds). This may make its volatility more susceptible to manipulation by Wall Street.
On the other hand, the Federal Reserve's interest rate policy also has a significant impact on the cryptocurrency market. The Federal Reserve's interest rates directly affect the liquidity of the US dollar and related anchor currencies, and also directly affect the volatility of Bitcoin and other major cryptocurrencies. The Federal Reserve maintains a cautious attitude towards interest rate cuts, and according to the dot plot and economic forecasts after the Federal Open Market Committee (FOMC) meeting in June 2024, it is expected to cut interest rates 1-1.5 times in 2024 (about 25 basis points), and is expected to cut interest rates by 100 basis points in 2025. From the level of interest rates, liquidity will become more relaxed due to interest rate cuts, but overall easing is limited, and the cryptocurrency market may suffer from liquidity differentiation (separation of liquidity between US stocks and other non-US risk assets).
Review of Global Market Sell-off on August 5th
The current market situation is that the trigger of the market's excessive pessimism and trading decline (exiting risk assets and entering safe-haven assets) is due to Japan's interest rate hike, deterioration of US stock earnings and employment data. However, the actual situation is that the US economy has not truly entered a recession, and more new economic data is needed to provide evidence, such as July and August CPI and PCE data, ISM manufacturing and non-manufacturing indices, PMI data, and so on. These data will gradually clarify the economic situation. At that time, there will be a relatively certain conclusion as to whether the market is excessively pessimistic or uniformly expected to be successful, and it will also provide more basis for the Federal Reserve to make monetary policy decisions. The market's current overly optimistic expectations for a rate cut by the Federal Reserve (the current market pricing is that the Federal Reserve will cut interest rates by about 100 basis points in total at the three meetings before the end of the year) make it unlikely that the Federal Reserve will adjust its monetary policy before September (if there is an adjustment, it will be a major positive). In addition, due to the US presidential election, market uncertainty has increased.
Based on the above assessment, we believe that until at least September, cryptocurrency investors should not be overly pessimistic and blindly reduce their positions, nor should they chase after high prices. Now is a good time to explore cheap but high-quality business models. Position sizes should be moderate, leverage should be avoided, and investors should continuously update their understanding with the release of new economic data to gain greater certainty.
Project Development
On the business front, the Ethereum Dencun upgrade in early 2024 enhanced the ETH ecosystem, improved the usability and competitiveness of Layer 2, and opened up new opportunities for project chains. The innovative business model of Eigen Layer introduced new use cases and revenue sources for secure network coins such as Ethereum, and prompted exploration of new applications for Bitcoin. The combination of AI agents and blockchain also brought transparency and automatic execution advantages to service requesters, providing a future vision of AI integration.
HTX Ventures' 2024 Investment Focus:
In this market cycle, HTX Ventures actively identifies and supports cutting-edge technologies and emerging business models. HTX Ventures is committed to driving blockchain technology and providing comprehensive support for projects that expand the scope of Web3 technology.
In the first half of 2024, HTX Ventures made 23 strategic investments in infrastructure, DeFi, the Bitcoin ecosystem, AI, DePIN, SocialFi, and other areas, with a focus on infrastructure and foundational layer models. HTX Ventures is impressed by the growing talent in the Web3 developer community, especially the collaboration of experienced Web3 developers with Web2 professionals to address actual user needs. HTX Ventures looks forward to collaborating with passionate teams to build a more user-friendly Web3 ecosystem.
We are focused on and believe that there will continue to be returns and prosperity in three main directions in the second half of 2024, including BTCFi, multi-chain future infrastructure, and user experience enhancement.
- BTCFi: Unlocking Value in Network Security and Token Liquidity ----------------------
Decentralized finance for Bitcoin, also known as Bitcoin DeFi or BTCFi, refers to the introduction of decentralized financial functions into the Bitcoin ecosystem. Bitcoin has always been the blockchain network with the strongest consensus and security. However, due to its lack of smart contract functionality, Bitcoin cannot host decentralized applications (dApps) like Ethereum or other public chains, and in most cases, Bitcoin is only used for "hodling." For Bitcoin holders, experiences such as on-chain lending, decentralized trading, and futures trading are largely missing.
In early 2024, Ordinals and Runes explored new use cases for the Bitcoin ecosystem, demonstrating market interest in the general functions of Bitcoin. However, we believe that the potential of Bitcoin in DeFi has yet to be fully realized. Currently, the total value locked (TVL) of BTCFi is close to $1.2 billion, accounting for only 0.09% of the total market value of Bitcoin. In comparison, the TVL-to-market value ratio of mainstream public chains with smart contract functionality is much higher: Ethereum is 14%, Solana is 6%, and Ton is about 3%. Even with a 1% ratio, BTCFi has the potential for tenfold growth.
HTX Ventures focuses on Bitcoin ecosystem expansion plans and token staking protocols. We believe that expansion plans and token staking protocols can bring more flexibility and usage directions to Bitcoin holders, thereby unlocking the value of Bitcoin stored as "digital gold."
Inspired by EigenLayer, Babylon has built an infrastructure that allows Proof of Stake (PoS) systems to obtain staking capital from Bitcoin to enhance its network security. The platform adopts a modular design and penalty function, allowing staking-based systems (such as blockchains, Layer 2, DA layer, and oracles) to include Bitcoin as staking and restaking assets.
The Babylon ecosystem is both similar and dissimilar to EigenLayer. The ecosystem structure has similarities and will also see a surge of projects such as LRT, AVS, DA, and more. In the LRT track alone, dozens of projects like StakeStone, Uniport, Chakra, Lorenzo, Bedrock, pSTAKE Finance, and others have emerged, reminiscent of the trend brought by projects like Renzo and Puffer in the EigenLayer ecosystem last year. However, unlike the success narratives of DeFi and Layer2 in the ETH ecosystem, Babylon, as a shark in the BTC layer, has activated a massive amount of liquidity for the first time, likely driving the development of the BTC DeFi track and improving the capital efficiency of BTC. Babylon's existence is crucial for revitalizing the Bitcoin ecosystem, serving as the foundational layer for many other BTCFi protocols and bringing Bitcoin back into the spotlight of DeFi.
Unlike Babylon, BounceBit is a centralized Bitcoin restaking infrastructure that provides a foundational layer for various restaking products, backed by regulated custody from Mainnet Digital and Ceffu.
BounceBit Chain is designed as a showcase for restaking products within the BounceBit ecosystem, featuring a PoS Layer 1 that allows validators to stake both BTC and the native BounceBit token, utilizing the security of native Bitcoin and fully compatible with EVM. By providing Bitcoin restaking services and supporting critical ecosystem infrastructure such as cross-chain bridges and oracles through an innovative CeFi + DeFi framework, BounceBit enables Bitcoin holders to earn rewards across multiple networks while providing a good user experience.
- HTX Ventures is one of the earliest ecosystem partners of Core, a Bitcoin-driven, EVM-compatible blockchain that leverages the security of the Bitcoin network to provide efficient transaction processing speed (TPS) while maintaining sufficient decentralization. We believe Core can provide one of the best environments for developing BTCFi and are closely collaborating with the ecosystem to achieve this goal.
This has led us to invest in COREx, a flagship V3-style decentralized exchange built on the Core ecosystem. Serving as the gateway and liquidity hub for the future of the Core ecosystem, it is known for its user-friendly design (requiring minimal learning curve), strong community social features, and advanced trading monitoring and AI advisory capabilities.
2. Multi-Chain Future Infrastructure
Competition between blockchains, especially Layer 1 blockchains, is fierce. The inability for Layer 1 chains developed in the previous cycle to smoothly interoperate has led to a competitive market with limited growth. Once developers and users are tied to a chain, it's difficult to switch to another. Due to the inability to access other EVM-based Layer 1 or Layer 2 blockchains, they can only rely on insecure cross-chain solutions (such as cross-chain bridges). Apart from a few leading chains, most Layer 1 chains face relatively low user activity, capital flow, and liquidity. Ethereum is a leader in the Layer 1 ecosystem, retaining most of the liquidity and users, but it faces high transaction fees, low efficiency, and multiple technical bottlenecks.
New Layer 1 developers are embracing the multi-chain future, focusing on addressing pain points of existing Layer 1 chains or providing a deeply focused excellent user experience in a specific area while being compatible with EVM or other Layer 1 chains. To some extent, they complement each other rather than being substitutes. This is leading us towards a more modular, efficient future with smoother base layer communication.
- Monad is a Layer 1 blockchain platform known for its unique re-architected Ethereum Virtual Machine (EVM). It aims to address Ethereum's throughput limitations, enabling decentralized applications (DApps) to achieve mass adoption.
Monad is a representative parallel EVM Layer 1 with massive scalability, allowing the network to process more transactions in a shorter time, reduce costs and congestion, while leveraging Ethereum's existing user base and liquidity. It combines the flexibility of Ethereum and the performance of Solana, with over 10,000 transactions per second, 1-second block time, and instant finality, while maintaining full backward compatibility with EVM and critical Ethereum infrastructure.
- Avail is building a unified layer to address the fragmentation of Rollup. Avail DA, as the foundational data availability layer, adopts the same technology as Ethereum's danksharding roadmap, including KZG commitments and Data Availability Sampling (DAS).
Avail DA is one of the fastest and most cost-effective data availability solutions on the market. By combining its data availability layer with cross-chain interoperability and the strong security provided by Avail Nexus and Avail Fusion, Avail is building a unified layer for Web3. Avail Nexus addresses the increasingly severe fragmentation issue by leveraging proof aggregation on Avail's scalable data availability layer, achieving permissionless interoperability. Avail's security is enhanced by Avail Fusion's multi-asset staking.
- Berachain is an EVM-compatible L1 built on CosmosSDK, launched at the end of 2021, dedicated to solving DeFi liquidity issues. It adopts a Proof of Liquidity (PoL) consensus mechanism and a three-token tokenomics design to achieve long-term prosperity of on-chain liquidity.
Validators are incentivized to stake whitelist assets such as BTC, ETH, and stablecoins in the validator insurance pool. Similar to dPoS, users can delegate deposits to specific validators to provide liquidity for on-chain protocols and receive a portion of DeFi protocol income and $BERA as a reward. The more deposits, the more rewards. This can bring rich liquidity to DeFi on Berachain.
- Sophon is a zkSync "superchain" or Layer 2 network, built using Matter Labs' modular open-source framework ZK Stack, focusing on modular public chain projects in the pan-entertainment track. It is primarily aimed at entertainment, gaming, music, art, ticketing, and gambling, aiming to be a high-performance modular public chain focused on the pan-entertainment industry.
At its core, Sophon rapidly deploys its own modular public chain based on the tools provided by ZK Stack, using Ethereum as the execution layer and settlement layer, while the data availability layer uses (to be disclosed). This combination enables rapid deployment of modular public chains, reduces development costs, and enjoys low transaction fees, high operational speed, and scalability.
Regardless of the usage scenarios and technologies, the ultimate focus is on the users. In this field, Apple is the king of customer experience. It is crucial for the widespread adoption of Web3 technology to combine cutting-edge technology with a good user experience, much like Apple. When making investments, HTX Ventures considers project experience and product operations to be crucial in our investment criteria. We also have a strong interest in projects that can onboard people into Web3. Currently, the key areas driving broader adoption are social interaction, fan communities, and gaming. HTX Ventures invests in community, education, SocialFi, and GameFi to build a more user-friendly ecosystem:
Camp Network is a modular Layer 2 blockchain aimed at achieving mass Web3 adoption in cultural, music, gaming, film, social media, sports, and live events. It uses a "digital backpack" to leverage offline engagement data in social and streaming applications—where most users' digital identities exist today—to help consumer apps better understand and incentivize valuable behavior. Camp Network has a strong business development and operations team with the potential to onboard high-quality user communities into Web3.
Tomo:
Tomo is an integrated Web3 social app that transforms a user's online presence into a universal social wallet, facilitating genuine, spam-free connections and financial incentives. Tomo allows users to interact directly with creators, participate in private discussions, and explore a new generation of digital art through Tomoji. Tomo stands out by embedding financial incentives into social interactions, realigning the value between creators and audiences.
ChainML is an AI and ML development lab that recently launched Theoriq, a platform based on composability, scalability, and community-driven governance. Theoriq's AI Agent base layer is designed to counter the monopolistic control of AI Agent technology and integrate its capabilities into emerging Web3 frameworks. The protocol introduces a consumer layer enabled by Web3 and an open AI Agent market, effectively democratizing access to AI technology. This approach not only enhances transparency but also aligns with the fundamental principles of Web3, sharply contrasting with the centralized model of existing tech giants.
The core advantages of Theoriq include security (challenging computations through proof, binding staked assets through a reputation system, and multi-party game security), cost advantages (significant reduction in performance overhead compared to ZKML), and scalability. In the future, it can provide a sharing economy for deep learning applications by aggregating GPU computing resources from around the world, addressing the current shortage of GPU computing power. Its proof can ensure that AI reasoning is truly executed, and then use a token economic model to incentivize all GPU computing power participation.
Other Trends of Interest
4. Application Infrastructure Projects
To establish project ecosystems, laying a solid foundation of technical infrastructure is essential. In addition to the Bitcoin ecosystem, the other two infrastructure directions we are currently focusing on are FHE Fully Homomorphic Encryption and AI.
FHE Fully Homomorphic Encryption
- FHE technology can be used for transaction privacy encryption and AI privacy, among other areas. In the transaction privacy track, it naturally supports contracts and is compatible with EVM, compared to competing products such as ZK and mixers. In the AI privacy track, it can protect the privacy data input when using AI products such as Chatgpt. Currently, the focus of most countries' AI regulation is on data security and privacy, especially since the world's major AI companies are controlled by the United States. AI represents significant productivity, and resisting the use of AI is not advisable. Several projects in the FHE track are expected to go live by the end of this year and in Q1 of next year, potentially enabling applications in AI data privacy protection, further driving the integration of AI and crypto, and being used for transaction privacy protection, serving as an alternative to mixers and other products. The main issue currently limiting FHE applications is performance, and to improve performance, many FHE companies like ZAMA are beginning to introduce FHE hardware acceleration. We believe that promising companies in the FHE track include Fhenix and ZAMA.
AI
- AI has become an important part of daily life and work. By integrating AI with blockchain technology, many existing pain points, such as transaction black boxes and the need for human intervention, can be addressed. The combination of crypto and AI can solve problems in the AI field through token incentive models. This includes token incentives for global workers to participate in data labeling, synthetic data, FHE privacy protection, decentralized computing power networks, and other technologies.
HTX Ventures believes that in the second half of 2024, the focus can be on the AI Agent direction mentioned by V God. AI Agents can perceive the environment, think independently, and take corresponding actions to achieve established goals. With the support of large language models, AI Agents can not only understand natural language but also plan decisions and execute complex tasks. They can serve as virtual assistants, learn user preferences through interaction, and provide personalized solutions. In the absence of explicit instructions, AI Agents can autonomously solve problems, improve efficiency, and create new value. The AI Agent direction is a niche track that is closest to users, easiest to gain traction, and brings traffic.
Another direction to watch is the breakthrough in the data layer: IMO, which stands for Initial Model Offering, is the monetization of real-world AI models. Unlike the ethereal ICO, IMO corresponds to real-world AI models, rather than raising funds for empty air. The current AI industry is mainly dominated by closed source, and many open-source AI models face profitability challenges. For open-source AI models to thrive, it is crucial to raise more funds. The purpose of IMO is to provide a new way of asset issuance to help raise more funds for the development of open-source AI models.
5. New SocialFi and Community-Driven Applications
- There are currently four types of community projects (ecosystems) worth paying attention to: Blockchain Links (Blinks) and its project ecosystem led by Solana, the old social project FriendTech, the new SocialFi project Farcaster based on the base, and the Ton ecosystem.
Farcaster and TON demonstrate their enormous potential in the future crypto market through their unique ecosystems and strong technical support. Farcaster has formed a strong social layer foundation through decentralized social relationship graphs and memecoins economics, while TON has solidified its position in the SocialFi and GameFi fields through strategic investments and technical deployments. Additionally, Solana's recent launch of Blink also emphasizes the social direction, and this trend is expected to continue to strengthen in the second half of 2024. The development of these projects provides new opportunities and directions for investors.
On top of community projects, HTX Ventures also sees potential in SocialFi and GameFi projects based on the Farcaster and TON ecosystems, as they can leverage existing social ecosystems to expand quickly and facilitate usage.
- DePIN
- The Decentralized Physical Infrastructure Network (DePIN) is reshaping the blockchain field through its innovative use of existing infrastructure and data-centric business models, surpassing traditional IoT frameworks with its decentralized efficiency and cost-effectiveness, and playing a crucial role in integrating privacy enhancement, zero-knowledge proofs, and artificial intelligence technologies. As a leading platform for DePIN, Solana embodies the integration of high-performance blockchain technology with physical networks, promising significant economic returns and pioneering a new way of integrating technology with practical applications.
In the second half of 2024, HTX Ventures will continue to explore high-quality projects, supporting cutting-edge technology, critical infrastructure, and significant improvements in usability, user experience, and the expansion of Web3 user base. This includes AI Agents, DeFi, SocialFi, GameFi, Decentralized Physical Infrastructure Network (DePIN), Ethereum, Layer 1 and Layer 2 solutions, the Bitcoin ecosystem, and more.
If you have great projects or are interested in collaborating, please contact us at VC@htx-inc.com
About HTX Ventures
HTX Ventures is the global investment arm of Huobi HTX, integrating investment, incubation, and research to identify the world's most outstanding and intelligent teams. As an industry pioneer, HTX Ventures has over 11 years of experience in blockchain development and excels at identifying cutting-edge technologies and emerging business models in the field. To drive growth within the blockchain ecosystem, we provide comprehensive support to projects, including financing, resources, and strategic advice.
HTX Ventures currently supports over 300 projects covering various blockchain domains, with some high-quality projects already trading on the HTX exchange. Additionally, as one of the most active FOF funds, HTX Ventures invests in 30 top global funds and collaborates with leading global blockchain funds such as Polychain, Dragonfly, Bankless, Gitcoin, Figment, Nomad, Animoca, and Hack VC to jointly build the blockchain ecosystem.
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