Capture the growth potential of unicorn companies? Check out the DeFi asset protocol Convergence

This article was published on ChainNews, author: Cyrus Ip, Head of Marketing at Convergence, translated by: Samuel.

For institutional investors seeking high returns and high growth potential, early investment in unicorn companies is clearly a good choice. However, for ordinary investors, finding reliable investment channels is an unavoidable issue for such investments. Although some intermediaries or brokers provide related services, they inevitably bring additional costs, significantly reducing the final benefits.

The rapid popularity of DeFi allows individual investors to leverage tools like the Convergence protocol to seize potential growth opportunities in unicorn companies without joining their venture capital funds or involving any intermediaries. The blockchain technology behind the Convergence protocol also ensures the traceability of asset ownership records. The Convergence protocol could change the game, significantly bridging the gap between the traditional financial world and DeFi.

Despite Uncertainty, Venture Capital Remains Strong

When we want to understand the growth potential in the unicorn sector, we can gain insight by looking at the sentiment of venture capital firms towards the market.

Uncertainty persists: the ongoing pandemic, the U.S. presidential election in November 2020, Brexit, and other geopolitical events are frequent. However, venture capital firms still seem eager to invest in disruptive and promising private companies.

A report from KPMG shows that in the fourth quarter of 2020, venture capital firms invested $80.8 billion in startups and private companies, an increase of $16.55 billion compared to the same period last year. The report points out that global venture capital firms have been focusing on unicorn companies and startups in sectors such as logistics, healthcare, biotechnology, and fintech.

Figure 1: The number of global venture capital transactions declined last year, but the transaction volume remained strong, source: KPMG

Unicorn Companies Will Lead the Post-Pandemic Economy

The COVID-19 pandemic may have dealt a heavy blow to global growth, but it has also created new opportunities for global unicorn companies, with China being a prime example.

PwC's latest China Unicorn CEO survey shows that only 38% of unicorn companies believe the pandemic has had a significant impact on their business.

The survey also indicates that among the companies that believe the pandemic has had a "significant/moderate impact" on their business, more than half of the respondents believe the positive impact outweighs the negative impact.

Figure 2: The Impact of the COVID-19 Pandemic on Chinese Unicorn Companies, source: 2020 PwC China Unicorn CEO Survey

PwC believes that unicorn companies have demonstrated considerable resilience during the pandemic. With the acceleration of digitalization and technological transformation, along with increased expectations for global economic recovery, unicorn companies are expected to achieve significant growth in 2021.

Top Private Unicorns Are Major Opportunities for Investors

Top private unicorn companies represent significant opportunities for investors. In early February 2021, following a new round of financing, Elon Musk's SpaceX was valued at $74 billion, a 60% increase from its last financing six months ago.

Analysts believe that SpaceX's valuation is based on the vision the company can achieve in the future. Some analysts even believe that SpaceX is paving the way to become a trillion-dollar company.

Canva is another unicorn startup that has excited investors. Canva's graphic design application raised $60 million in its latest round of financing in late June 2020, pushing its valuation to $6 billion.

Canva stated that the economic downturn caused by the pandemic may have threatened the macro economy, but it significantly enhanced user activity.

Private Company Investment Remains a Private Club

Even if you're not a rocket scientist, you can understand that if you are one of the early investors in these private unicorn companies, the returns could be quite astonishing. However, investing in private companies has long been the playground of venture capital funds and institutional investors, with retail investors having no entry ticket.

While some private equity trusts are available on the secondary market, there are numerous restrictions, such as ongoing discounted trading and management fees.

In other words, for ordinary investors, investing in private companies through trusts may not be the best option.

The Convergence Protocol Provides an Answer

Decentralized protocols like Convergence could be an ideal solution for both investors and private companies. The protocol allows real-world assets, such as shares of private unicorn companies, to be traded in a tokenized security format on the Convergence platform.

Figure 3: The Convergence Protocol Links the Traditional Financial World with the DeFi Space, source: Conv.finance

Why would asset holders (such as unicorn companies) want to use platforms like Convergence?

Increased Financing Efficiency: Data shows that the number of DeFi users has exceeded 1.6 million. Unicorn companies (and general asset holders) can reach this large active investor base through DeFi, expanding their investor base.

Price Discovery: Today, the valuation process for unicorn companies remains a mystery to the mass market. The value of a company largely depends on a few investors who can access this market. This situation may not be in the best interest of the invested company, as the existing process lacks a sufficient price discovery mechanism, leading to the company being easily undervalued or overvalued. Convergence connects the real asset world with the DeFi space and its vast user base, enhancing interaction between buyers and sellers, which can significantly improve the price discovery process.

Digital Ownership: The blockchain technology behind the Convergence protocol provides transparent and traceable asset ownership in digital format. Records can be updated almost instantly, adding convenience for both buyers and sellers of assets.

Figure 4a: Number of DeFi Users, source: Dune Analytics

Figure 4b: Monthly Total Trading Volume of DEX, source: Dune Analytics

From an investor's perspective, the Convergence protocol also brings unprecedented advantages to the market.

New Opportunities: Through the Convergence protocol, individual investors can invest in assets that were previously inaccessible, such as shares of unicorn companies, private funds, pre-IPO fundraising, and even small portions of real estate projects.

High Liquidity: Low liquidity remains one of the main pain points of investing in private equity trusts. Just like shares of non-public companies, low liquidity means that investing in other private assets can pose serious problems. Decentralized protocols like Convergence could become a channel connecting liquidity from the DeFi space. Data shows that in February 2021, the monthly total trading volume of all decentralized exchanges reached a new high, surpassing $60 billion since hitting $58 billion in January.

Backed by Real Assets: Real-world assets will be traded on the Convergence platform in the form of tokenized securities. These securities are backed by physical assets, and their ownership is legally recognized. This may be essential for some institutional investors.

Conclusion

The pace of innovation in DeFi has never been so rapid. Protocols like Convergence and tokenized securities may change the way the traditional financial world interacts with the crypto world. The protocol brings the liquidity, transparency, and high efficiency of DeFi to real-world assets while allowing all DeFi users to invest in real-world assets. Convergence may bring true disruption and create a win-win situation for all stakeholders.