ArkStream Capital Portfolio Report in Q1 of 2024
Investment Project Summary
In the first quarter of 2024, ArkStream Capital invested in a total of six projects. We will disclose the details of these projects and explain why we chose to invest in them.
Project Introduction
XION is the first modular universal abstraction layer specifically built to enable a seamless user experience for average users, facilitating consumer adoption. XION’s universal abstraction layer includes multiple protocol-level abstractions such as accounts, signatures, Gas, interoperability, pricing, devices, and payments. By abstracting all cryptographic complexity, XION eliminates major barriers to entry for new users while helping developers navigate the challenges of fragmentation. Its signature-agnostic infrastructure supports a wide range of existing cryptographic curves and can easily adapt to future developments, not only expanding its market coverage but also ensuring its long-term viability and interoperability across different blockchain protocols. By abstracting interoperability, XION not only provides a seamless experience for native applications but also serves applications built on connected chains.
Why Invest in XION
Depending on the statistical measure, the current number of users in the crypto world is between 100 million to 200 million. ArkStream believes that in the next bull market cycle, this number will increase tenfold, reaching 1 billion. This requires that the infrastructure of the crypto world be sufficiently user-friendly, and an abstraction layer is a feasible path to achieving mass adoption. ArkStream first encountered the XION team in 2021 when they were building an NFT marketplace based on Solana. ArkStream participated in the first round of investment. Subsequently, as the bear market set in, the NFT market did not perform as expected, and the project team made the difficult decision to pivot to developing an abstraction layer L1, moving a step closer towards their vision of mass adoption.
The universal abstraction solution proposed by XION quickly gained broad market consensus. In early February, just half a month after launching on the testnet, the number of accounts exceeded 100,000. Two months later, this number reached 1.3 million, with a total of 15 million transactions and 340+ WAU. Their hackathon attracted over 400 startup teams, and the majority of its more than a hundred ecosystem projects are giants influencing the development of the crypto industry, such as Circle, Axelar, Injective, IBC, Babylon, etc. These figures not only demonstrate XION’s influence but also suggest that they will eventually bring exponential numbers of users into Web3.
Project Introduction
UniCross is a Layer 1 asset minting, trading, issuing, and cross-chain platform on BTC Layer 2. It supports the minting, trading, and cross-chain transactions of Layer 1 assets such as BRC-20, Runes, BRC-420, ARC20, etc., across different Bitcoin Layer 2 platforms. Users can use UniCross to mint, trade, and issue multiple protocol assets on Layer 2 and support cross-back to Layer 1. The platform allows payments in multiple blockchain assets, including BTC, BRC-20s, ETH, and others.
Why Invest in UniCross
The race for Bitcoin Layer 2 began in earnest in Q1 2024. Before then, it was mostly theoretical, but with the launch of the Merlin mainnet, competition reached a peak. Through platforms like L2 Watch (https://l2.watch/), we see that nearly 100 BTC Layer 2s are poised for launch or already operational, offering diverse solutions. Sidechains, Rollups, and EVM-compatible solutions have all presented their cross-chain strategies, ultimately dispersing users’ BTC across various custodial/non-custodial wallets. However, we observed that most sidechains’ official cross-chain solutions do not encompass other native BTC assets. The priority has been placed on BTC hoarders, neglecting the most dynamic participants of the ecosystem — the users of inscribed assets. Native assets like BRC-20, ARC-20, and Runes, stranded on the BTC main chain, urgently need to reclaim their glory on Layer 2, especially as the mainnet Gas Fees for Runes after its launch far exceeded its trading value, confirming this need.
UniCross’s cross-chain solution effectively addresses this issue. Born from the second-largest inscription tool, IDClub, the UniCross team possesses a strong market perception and rapid iteration capability within the Bitcoin ecosystem. ArkStream recognizes the team’s product capabilities in this fast-evolving market and decided to invest in UniCross at the inception of the project, hoping that in the upcoming BTC Layer 2 battles, UniCross will capture the market with its unique positioning.
Project Introduction
Polyhedra Network leverages advanced Zero-Knowledge (ZK) technology to enhance computational capabilities, aiming to accelerate the adoption of Web3 by eliminating the limitations of traditional computing power. Polyhedra’s flagship product, zkBridge, is a universal ZK interoperability protocol that simplifies the integration between Web2 and Web3 environments. This protocol has facilitated the smooth transition of real-world assets across various networks for traditional financial institutions, completing millions of cross-chain transactions and generating over 40 million ZK proofs. Working together with Google Cloud, Polyhedra Network also launched Proof Cloud, the ZK proving platform for developers and applications. Proof Cloud is a cloud-based platform designed to simplify the development and deployment of applications. To further enhance its technological prowess, Polyhedra aims to integrate zero-knowledge proof capabilities into the Ethereum blockchain and expand its applications on Bitcoin, enhancing interoperability within major blockchain ecosystems like Ethereum and Solana.
Why Invest in Polyhedra
Since the advent of the first altcoin, how to perform cross-chain exchanges has been a persistent issue for developers. Initially, developers preferred to use atomic swaps in a more centralized solution to this problem. The emergence of Polkadot and Cosmos aimed to establish a unified standard, allowing all public chains to be built according to this standard, thus enabling barrier-free cross-chain swaps of compliant assets. However, a unified standard is hard to achieve in a decentralized world, and the market ultimately opted for more centralized cross-chain bridges as a temporary solution, until the advent of cross-chain interoperability protocols. Wormhole, LayerZero, and Polyhedra have emerged as three dominant players in the past two years, each launching representative cross-chain bridge products — Portal, Stargate, and zkBridge — and building their own cross-chain interoperability protocols based on these.
Compared to the other two players, Polyhedra targets the untapped market of the Bitcoin ecosystem this year. Using zkBridge, Bitcoin can now safely transmit its current and historical data, utilizing zero-knowledge proofs, to over 20 networks, including Bitcoin Layer2, Ethereum, Ethereum Layer2, and innovative protocols compatible with Ordinals, BRC-20, and Atomicals. This allows smart contracts on other blockchain networks such as Ethereum and Bitcoin Layer2 to access Bitcoin data and protocols without trust, and to perform various computational logics, with security guaranteed by zero-knowledge proofs. Furthermore, working together with EigenLayer, Polyhedra Network designs and implements the Bitcoin AVS, which enables other blockchain networks to securely write data and transfer assets to Bitcoin. Currently, their key players in the Bitcoin ecosystem have already partnered with Polyhedra, including but not limited to OKX Wallet, Unisat Wallet, Babylon, Merlin Chain, BitLayer, Bsquared, BEVM, Particle Network, many of which are also ArkStream Portfolios. ArkStream believes that investing in Polyhedra is a crucial part of its Bitcoin ecosystem strategy, which will help ArkStream further secure core resources in the Bitcoin ecosystem in the future and assist more portfolios in their growth.
Project Introduction
BEVM is a decentralized Bitcoin Layer 2 network that is compatible with the Ethereum Virtual Machine (EVM), using BTC as gas. BEVM leverages technology from the Taproot upgrade, such as the Schnorr signature algorithm, allowing BTC to be transferred from the Bitcoin mainnet to Layer 2 in a decentralized manner. Because BEVM is EVM-compatible, it enables all DApps that can operate within the Ethereum ecosystem to run on BTC Layer 2.
Why Invest in BEVM
The SegWit upgrade in 2017 allowed Bitcoin blocks to accommodate more data, and the Taproot upgrade in 2021 not only allowed for the inclusion of more complex data but also introduced the Schnorr signature algorithm, making decentralized Bitcoin multisignature transactions a reality. This, in turn, made decentralized Bitcoin cross-chain operations feasible, ultimately leading to the realization of decentralized BTC Layer 2. BEVM stands as a prime example of decentralized BTC Layer 2. The SegWit and Taproot upgrades have revitalized Bitcoin, transitioning it from the Bitcoin 1.0 era to Bitcoin 2.0, showcasing a richer Bitcoin ecosystem. The explosion of Bitcoin-based protocols like Ordinals in 2023 is a result of the SegWit and Taproot upgrades. This demonstrated to the Bitcoin community that issuing assets on Bitcoin was possible. Issuing assets is just the first step; there is a need to establish a richer and more diverse application ecosystem on BTC Layer 2. Thus, BEVM was born.
Over the past six years, the BEVM team has been dedicated to exploring the development of BTC Layer 2. In 2018, their first product, ChainX, achieved more than 100,000 BTC in cross-chain transactions. In 2023, the explosion in the Bitcoin ecosystem signaled the dawn of a new era for their team, prompting the development of their new product, BEVM. Bitcoin Layer 2 solutions are broadly categorized into two types: one, represented by Merlin, combines various solutions and initially adopts a more market-oriented approach, not constrained by whether the cross-chain solution is decentralized enough; the other, like BEVM, emphasizes Bitcoin’s nativity and decentralization, steadfastly developed over the past years. Both approaches have their merits, and ArkStream hopes the philosophy behind Bitcoin’s ecosystem development can extend to every corner of the crypto world. Therefore, ArkStream has bet on the most promising teams across a variety of categories, anticipating that BEVM will attract more members from the native Bitcoin community to join in the development of Layer 2.
Project Introduction
Merlin Starter is the first launchpad platform on Merlin Chain, primarily incubating native Merlin projects and providing promising projects and asset support for the Merlin Chain ecosystem. Merlin Starter offers a mix of single-pool and multi-pool IDO formats, including oversubscription, lottery, and first-come, first-served methods.
Why Invest in Merlin Starter
Asset issuance has always been central to the cryptocurrency industry, whether it’s Ethereum’s smart contracts or emerging protocols like Ordinals on Bitcoin. Throughout the development of the crypto world, from one-click mining to one-click coin issuance, to one-click chain launches, and one-click inscriptions, the first point of attraction for users has always been assets. The rise of each new ecosystem has been accompanied by the issuance and distribution of assets. ArkStream believes that following the mainnet launch of Merlin Chain, there will be a need for more reservoirs to hold its substantial TVL. Beyond the traditional DeFi triad of lending, exchanges, and yield farming, launchpads and IDO platforms are essential. Merlin Starter has distinguished itself within the ecosystem by seizing this bridgehead early. Through the issuance of benchmark projects and significant ecosystem capital attention, it has further attracted quality projects to launch on its platform.
Project Introduction
Nubit is a scalable, efficient, Bitcoin-native Data Availability (DA) layer deeply embedded in the Bitcoin ecosystem and actively engaged in Bitcoin modular expansion. Nubit’s DA layer services effectively enhance Bitcoin’s data capacity, supporting and providing modular services such as Ordinals, decentralized indexers, Layer2 solutions, and price oracles. These services help expand and enhance the Bitcoin ecosystem.
Why Invest in Nubit
In the past two years, many Bitcoin Layer2 projects based on the Rollup architecture have begun to shine. However, given Bitcoin’s non-Turing complete scripting language, most Rollup-type Layer2 solutions, despite academic papers like BitVM attempting to inherit Bitcoin’s security through simulated on-chain fraud proofs, opting for a professional native data availability solution aligns more closely with market evolution. ArkStream believes that the architecture of modular blockchains and the Data Availability (DA) layer concept proposed by Celestia provide an excellent framework that can also be applied to the Bitcoin ecosystem.
As one of the few DA projects in the Bitcoin ecosystem, Nubit holds a pivotal position due to its unique technical architecture and product solutions. Led by a UCSB Computer Science professor, its core team consists of top researchers from academia in the fields of blockchain and security, with advisors including a distinguished scientist from Chainlink, the former CTO of Facebook Diem Blockchain, top blockchain consensus scholar Dahlia Malkhi, and BRC20 founder domo, providing a strong academic and technical development background. Notably, Nubit, in collaboration with domo, is setting industry standards and has developed a Modular Indexer that is being integrated with major wallet dAPPs.
Nubit is also committed to leading the Bitcoin Season 2 narrative alongside top projects in the Bitcoin ecosystem. It has partnered with well-regarded projects like the EVM-compatible Layer 2 project Merlin Chain, Bitlayer, the Bitcoin Staking PoS chain BounceBit, the leading project focused on Bitcoin Staking and Restaking, Babylon, and the native Yield liquidity protocol, Yala Finance. These renowned cooperative projects are jointly promoting the steady development of the Bitcoin ecosystem, and through deep collaboration with these quality projects, Nubit not only refines its technical solutions but also solidifies and enhances its influence and competitiveness within the entire Bitcoin ecosystem.
ArkStream Capital’s investment in Nubit is not only a recognition of its outstanding technical capabilities and broad market prospects but also reflects a firm belief in the future direction of the entire Bitcoin ecosystem and the wider technology field. As pioneers and supporters in the industry, we see not only Nubit’s potential value but also the limitless possibilities and opportunities it brings.
Company News / Member Updates
Chung TszChung has been promoted to Investment Partner.
Educational Background:
- Undergraduate degree from the University of Hong Kong
- Master’s degree from the Norwegian School of Economics
- MBA from Lagos Business School, Nigeria
Professional Background: Before entering the Crypto industry, Chung was the only Chinese member working at the African Export-Import Bank, followed by a position in risk management at Allianz in Germany. Chung joined ArkStream Capital three years ago, primarily focusing on project investment, and currently resides in Chongqing. During his tenure, he has followed up on investments in several high-quality “white horse” projects, including SEI, IO.NET, and LINERA.
Expertise and Contributions: Chung excels at building cooperative relationships, maintaining regular communication with teams throughout the lengthy investment processes of individual projects, effectively aiding in their growth and receiving unanimous praise from multiple project teams. Several of ArkStream’s portfolios have proactively invited Chung to serve as a team advisor for ArkStream, offering regular advice on development directions and facilitating resource connections. Some project team members have even traveled to Chongqing specifically to meet with Chung.
Chung has established a rich network of top-tier international capital, engaging in close cooperation with leading global crypto VCs such as Symbolic Capital and MH Ventures. Starting from scratch, he has significantly expanded ArkStream’s international presence, making an outstanding contribution to the global development of ArkStream.
New Member Announcement
Ren Wang Zhaogan, EIR / Investment Director
Educational Background:
- Master’s degree from Bournemouth University, UK
- Bachelor’s degree from the University of Southampton, UK, in Cognitive Neuroscience
- Previously worked at the University of Southampton’s Institute for Cognitive Science, focusing on human learning and eye movements.
Professional Experience: Ren is ArkStream’s first Entrepreneur-in-Residence. He previously served as Vice President at Northern Light Venture Capital, a leading dollar fund, and Vice President at QingSong Fund/A8 Group (00800.HK). Ren is a scholarly investor who adheres to scientific methodologies, specializing in early and growth-stage investments in the Web3, AI, and TMT sectors. He is dedicated to bridging Web2 and Web3, with total investments exceeding $200 million. Notable investment cases include J&T (01519.HK), Zongmu Technology, Feibu Technology, and Dianjiang Technology. Ren has been recognized as a Forbes U30 VC Investor and received the Cyber Cloud Award for Best Emerging Investor.
Research Report
Arkstream Capital: Nine Alpha Prediction for 2024
Arkstream Capital: How to Fortify the Security Defense of Merlin Chain’s $3 Billion TVL
Arkstream Capital: Why We Invest in IO.Net
Organizing and Attending Events / Offline Events
Token 2049, Dubai
Streams with Degens, Hong Kong
The Private Dinner, Hong Kong
MIT & Harvard Blockchain Course, Boston
ETHDenver, Denver
Online Events / Twitter Space
When the Wind Rises Again: Third Edition: MEME, A Crypto-Native Political Movement
When the Wind Rises Again: Second Edition:Merging AI and DePIN in Web3’s Tapestry
https://twitter.com/ark_stream/status/1770695953194025023
When the Wind Rises Again: First Edition:：The Exploration and Breakthrough of Bitcoin Layer-2
AMA with GateUS
CMCLive: How fastest growing Layer2 shape the space
ArkStream Capital is a crypto fund founded by native cryptocurrency professionals, encompassing primary market and liquidity strategies. It invests in the most native and cutting-edge innovations in Web3, dedicated to fostering the growth of Web3 unicorns. The ArkStream Capital team, with members from prestigious institutions and companies such as MIT, Stanford, UBS, Accenture, Tencent, and Google, entered the cryptocurrency field in 2015. Their investment portfolio includes over 80 blockchain companies, such as AAVE, Filecoin, FLOW, Pocket, Manta, Sei, and Polyhedra.
Website：https://arkstream.capital/
Medium: https://arkstreamcapital.medium.com/
Twitter: https://twitter.com/ark_stream
