Nail Dialogue with Chain Hill Capital Partner: Field Transition, Why Choose Crypto?

Author: Nail

Hello everyone, this is Nail's live show "Blocknow Celebrity Interview." I am Laura, co-founder of Nail. In this show, we will invite industry leaders from various segments of web3.0 as guests to discuss various topics related to web3.0, including the current development status, policy trends, technological breakthroughs, and some hot topics of great concern both domestically and internationally.

In this episode, we are very honored to invite Judy Zhang, a partner at Chain Hill Capital. Judy has held important positions in traditional fields such as Huaxing Capital and CITIC Securities. In January of this year, Judy officially joined Chain Hill Capital and became a partner, marking a transition to a new field. In this episode of "Blocknow Celebrity Interview," we will have a conversation with Judy to discuss cryptocurrency and crypto investment.

Laura:

Recently, there has been a piece of news that has attracted widespread attention in the industry, which is that senior financial expert Judy Zhang has joined Chain Hill Capital as a partner. Judy has held key positions in traditional fields such as Huaxing Capital and CITIC Securities, while Chain Hill Capital can be said to be one of the largest investment institutions focused on the crypto asset field. Judy has made a transition to a new field. Why did you choose the crypto asset field? How do you view the crypto asset field?

J udy Z hang :

My choice may seem like a shift to a new field, but for my personal career development, it is a natural extension of the same direction. This direction is comprehensive investment and financing services for clients, especially in the field of financial technology.

My undergraduate background in physics gives me a deep appreciation and respect for technology, while 17 years of experience in the financial industry has made me familiar and sensitive to the financial field. So when finance and technology come together, I can't help but feel excited and thrilled.

For example, in early 2014, when new economy enterprises began using big data systems and new risk control logic to provide internet financial services, I was just as excited and engaged as I am now: I completed the securitization services for several emerging basic assets such as Alibaba's micro-loan (which later became known as Ant Financial), JD's BaiTiao, JinTiao, factoring, and micro-loans from both a legal perspective and an investment banking perspective; thus, in 2016, I left the law firm to join CITIC Securities to start the new economy ABS team, hoping to engage more broadly and deeply with compliance, exchanges, and institutional investors in the frontline field, helping truly high-quality "fintech" assets achieve reasonable market pricing. After joining Huaxing, I was responsible for private equity financing and IPO services for "fintech" companies in the investment banking sector.

Today, choosing the crypto asset field is primarily driven by my attraction to its underlying technology. The potential changes that asymmetric encryption technology and blockchain technology may bring to the world are just beginning, and the future is full of imagination. Additionally, the first application of this underlying technology is in the financial sector, which I am very familiar with, giving me a natural advantage in understanding and entering this field. For someone like me, who has been navigating the new economy landscape, from web1 to web2, from computers to mobile phones, from work to life, I have had a very personal experience.

Who could have imagined in 2000 that even grocery shopping could be done online 20 years later? Today, who among us can say, who dares to say, that we have figured out what web3 will look like in the future and what impact it will have on various industries?

In our industry, we emphasize the concept of Builders, which means not just verbally supporting the industry but actively participating in its construction. I hope to dedicate my time and energy to what I love, what I believe in, and what represents the future direction. I look forward to envisioning the future together with everyone and eagerly building towards it.

Laura:

Recently, we have seen that Hong Kong is making great efforts to establish itself as a global leader in digital assets and digital finance, striving to become the world center for Web 3.0 (the third generation of the internet). From the perspective of a VC or investor, how do you view Hong Kong's policy? Does it have an impact on investment activities?

From the perspective of Chain Hill Capital, we are grateful for everything that is conducive to the positive development of the industry. The Hong Kong government's vision of making Hong Kong a global leader in digital assets and digital finance, along with corresponding policy attempts, has clearly injected confidence and vitality into the industry. For our own investment activities, the actual impact is not significant because, as a mature investment company, we have our own investment philosophy, strategies, and rhythms; however, we are very confident in the positive significance of the new policy.

From the perspective of industry development, the introduction of the new policy in Hong Kong is not accidental; it is an inevitable result of the overlapping international economic development pattern and the crypto industry's cycle. First, we know that laws have universal and normative characteristics; only when an industry develops to a certain extent and has relatively universal regulatory significance will corresponding normative documents be issued. Therefore, the introduction of new regulations is clearly a positive signal of the crypto industry's development and growing influence.

At the same time, the introduction of new policies does not mean that Hong Kong's regulation of digital assets is lax; rather, it reflects the government's intention to create a good crypto environment. The "normative" and "predictability" of laws will help regulate industry development and try to reverse the situation where bad money drives out good money, creating a better entrepreneurial environment for those who respect the market and diligently promote industry development.

In summary, we believe that the recent policies and judicial precedents of the Hong Kong government have shown a positive impact on the market, and we believe that the prosperity of Web 3.0 in Hong Kong is worth looking forward to.

Laura:

Just now, Judy introduced how to view Hong Kong's new policy from the perspective of investors, and as a well-known investment institution, Chain Hill Capital has invested in many high-quality projects. Can you tell us which characteristics of project parties you pay the most attention to when making project investments?

J udy Z hang :

Since Chain Hill Capital is an investment institution, this role itself determines that our core task is to seek the best returns for investors while finding certainty in uncertainty. Therefore, when making project investments, we place great importance on the value characteristics of the project parties. In simple terms, you need to be doing something valuable for users, and you must have confidence and a practical plan to develop products or services that users are willing to pay for.

First, as a startup team, you need to tell me how you make money and whether you have captured and can meet the real needs of users. We reject Ponzi-style income models. For example, in our web3 gaming fund, the first step of investment is to clarify how your game creates value and achieves profitability in the Web3 environment. After that, it becomes a matter of whether it can be done. So our second step is to focus on the steps and rhythm of commercialization, whether the product's expectations align with the market's larger cycles, and whether it can truly be implemented. We want to see practical, verifiable plans, not just a beautiful white paper.

The third step is to assess the professionalism and experience of the team. We conduct thorough research on the project team's background and expertise. An excellent team should have rich experience to handle various potential issues and also possess industry knowledge to find their footing in a rapidly evolving industry environment. For the Web3 gaming projects we invest in, team members typically have over ten years of experience in the gaming industry and substantial experience in major companies, making their professional capabilities and reputation easy to verify.

Finally, and this is also a core and important point, we pay close attention to the team's philosophy and character. We hope to invest in entrepreneurial teams that have a long-term vision and are willing to create value for the community and users, rather than those who are solely focused on making quick profits.

In the investment process, we are not just providers of funds; we also act as collaborators and companions for the entrepreneurial team. After all, in the crypto asset field, besides primary market VC funds, we also have the perspective of a relatively mature secondary fund that has been operating for many years. We will fully empower the carefully selected good projects we invest in, providing resources and advice in the web3 direction, as well as comprehensive strategic support.

Overall, our investment logic is quite clear. We hope to invest in projects with clear profit models, professional teams, practical implementation plans, and a willingness to create value for users and the community. Our goal is to help our LPs find as much certainty as possible in uncertainty, rather than pursuing crazy visions. In directions we can clearly see, we will adhere to our own logic, believing that the market will provide corresponding value returns.

Laura:

Research company PitchBook has released data showing that private financing for cryptocurrency startups fell to its lowest level since 2020 in the first quarter of 2023. Global venture capital funding in the industry dropped to $2.4 billion in the first quarter, an 80% decline from the historical high of $12.3 billion in the same period last year. How do you view this issue? Is it that investment institutions are losing confidence in the crypto field, or is it due to the overall market downturn?

J udy Z hang :

When we look at data, especially ratios, we need to have benchmarks and pay attention to the underlying reasons.

First, the decline in private financing in the first quarter is not a phenomenon unique to the crypto market. In the first quarter of 2023, global venture capital has slowed its investment pace. The total global venture capital financing in Q1 decreased by 53% compared to the same period last year. If we exclude the two large transactions of OpenAI and Stripe, this number is 62%, which can be considered a new low in recent years.

The underlying reasons are closely related to the global macroeconomic situation, particularly the risk exposure in the financial sector in the first quarter. We can see that as economic downturn risks increase, it is possible that risk assets will undergo significant adjustments. Although the Federal Reserve has paused its interest rate hikes this month, there are still expectations of about 2 more hikes of 50-60bps within the year. Indicators such as the deep inversion of the 2-year and 10-year U.S. Treasury yields suggest a potential economic recession. Currently, developed economies around the world are generally considered to be in the late recovery phase, which typically ends only after significant economic downturns and shifts in macro policies.

Returning to the crypto market, overall, market volatility, macroeconomic pressures, and investors' cautious attitudes have collectively led to a decline in financing amounts. However, it is worth noting that even in this environment, the number of transactions in the infrastructure and development categories still grew by 52%. From an investment perspective, I have always believed that successful investing does not rely on following trends and conforming to the crowd, but rather on foresight, calm and solid analysis, and strict investment discipline.

Laura:

As a final question, could you share with us what Chain Hill Capital's future plans will look like? Which sectors will you focus on more?

J udy Z hang :

Thank you, host. I am happy to share our thoughts on future plans. As you all know, Chain Hill has focused exclusively on investments in the Web3 field since its establishment in 2017. We look forward to providing asset allocation and management services in the crypto asset field for investors, so we have not only actively managed secondary market Web3 enhanced index funds but also primary market funds, particularly the Web3 gaming special fund that we began to develop in mid-2022.

Moving forward, we will continue to adhere to our investment philosophy, maintaining simplicity and purity in our secondary market strategies, insisting that "less is more," focusing on risk control and cycle management, and pursuing stable returns. In the primary market VC fund area, we will continue to seek projects with outstanding innovative technologies, professional teams, and clear market positioning and business models; particularly those that can provide innovative solutions and have the capability to commercialize these solutions. Of course, we not only value existing projects but also pay attention to emerging sectors with great potential.

We are currently very optimistic about the development of Web3 Gaming and have established a Web3 Gaming special fund with a scale exceeding $60 million, dedicated to investing in unicorns in this field. Additionally, this year we are also increasing our focus on the RWA (Real World Assets) sector and will pay special attention to innovative directions that attempt to use blockchain technology to solve real-world problems, such as companies that adopt blockchain solutions in the fields of energy, environment, and social governance (ESG).

We understand that as a fund or asset management service provider, we must not only create value for investors but also contribute to the healthy development of the entire industry. Because without the flourishing and prosperity of the industry, there can be no emergence of high-quality investment opportunities. Therefore, we hope to serve as a window and a bridge, serving our investors well, helping them see the future, and contributing to the healthy development of the crypto world together with them.

We will stay true to our original intention, consistently supporting entrepreneurial teams that align with our investment aesthetics, avoiding trends and drifts, contributing to "good money driving out bad money," and creating certain investment opportunities for our investors in an uncertain market environment. We believe that persistence in the right direction will inevitably yield the returns we deserve.