Wu Jihan moves to a new "continent", is Matrix his next gold mine?

"If you were given another chance to choose again, what would you do?"

For many people, this may be a question they often face when they think back to the turning points in their lives. Undoubtedly, not everyone will have a clear conscience about their past choices, even if they are put in that position today. The reason for this is that in most cases, everyone's choices are only "limited freedom" - although there are indeed multiple options in front of them, these options are often not satisfactory to them.

Wu Jihan may have faced such a situation. In early June 2019, the long-silent former CEO of Bitmain was exposed to blockbuster news: he will launch a new startup company by the end of July this year. The direction and reasons for his second entrepreneurial venture have also become the focus of discussion in the industry.

Matrix, a network of virtual markets

In the movie "The Matrix", the Matrix is ​​a huge network connecting countless people's consciousness. Wu Jihan chose to name his new "second entrepreneurial project" Matrix, which seems to show his grand idea of ​​building a virtual world.

Matrix was originally a trading and asset custody department within Bitmain, and was transformed into its subsidiary in February this year. With Wu Jihan's resignation as CEO of Bitmain at the end of March, the company also separated from the Bitmain system. Its main businesses at this stage are: first, over-the-counter trading services, and second, digital asset management and lending.

It is worth mentioning that although Matrix is ​​currently an independent startup company in terms of interest structure, it has utilized a lot of Bitmain’s resources during its establishment and development: most of its executives are former employees of Bitmain; and many of its customers (such as mining farm owners with loan needs) also mainly come from Wu Jihan’s accumulation during his time at Bitmain.

Therefore, although Matrix has no direct interest relationship with Bitmain, it is not an exaggeration to regard it as a project "hatched" by the latter in disguise. After the exposure of Matrix's business, it also attracted a lot of attention in the industry, and many observers also interpreted the new move of the former CEO of Bitmain as a sophisticated layout.

Traffic inlet

Transactions and digital lending are the main traffic entrances currently visible in this industry.

For institutional investors, it is difficult to trade virtual assets stably and in large quantities through trading platforms due to the large amount of funds involved.   OTC (over-the-counter) is a more convenient way.

How big is this market? At the end of 2018, there were reports that institutional investors were gradually entering the market through OTC. Companies such as Coinbase and Circle, which were the first to launch OTC trading systems, provided a sharp increase in OTC funds.

Data released by Circle, which is invested by Goldman Sachs and Bitmain, shows that it provided more than 10,000 OTC transactions for more than 600 different trading parties in 2018, involving 36 different crypto assets, with an overall transaction volume of US$24 billion. Although Circle has opened a branch in Hong Kong, there are not many companies in Asia that can provide related services and have sufficient influence.

Moreover, asset custody and mortgage lending are also financial businesses that have emerged with the development of virtual assets in the past two years. Providing custody services for digital assets after the entry of institutional investors is also a general trend. During the bear market in 2018, Coinbase and a large number of foreign financial service institutions launched digital asset custody solutions for institutional investors, among which Coinbase requires the custody balance to be no less than 10 million US dollars. According to Bloqboard's 18-year statistics: On December 31, 2017, the total amount of digital asset loans was 6 million US dollars. By December 31, 2018, the figure had grown to 71 million US dollars, an increase of 1083%.

The traffic mentality that is hard to escape

On the other hand, “traffic thinking” is the “Internet destiny” that the blockchain industry is trying hard to break free from, but is temporarily unable to escape. Because from the actual situation, the market opportunities may not be as high as they imagine. The reason is simple: timing.

Specifically speaking of Matrix's two major businesses: the trading platform, needless to say, is currently a very congested track both on and off the exchange; the OTC that provides large-scale services has a longer development history than ordinary OTC services. In fact, there are not many institutions capable of providing and purchasing large amounts of digital currency.

The necessity of digital lending and asset management business was more reflected in the period when assets plummeted and value investors were reluctant to sell last year. As the market went up in 2019, investors turned bullish, and the demand for digital lending has declined. However, due to the lag effect, the number of related service providers is still increasing rapidly.

In other words, for Matrix, no matter which track it enters at this time, it is equivalent to chasing the rise on the mountainside (or even the top of the mountain), and the opportunities are relatively limited, at least not as good as the mining machine business in 2014.

Under such circumstances, Matrix can only pin its hopes on another potential possibility: that is, to make full use of its own resources in its original business (mining machines, mining pools, Bitcoin Cash) to achieve overtaking.

However, large-scale cross-border resource calls are not a simple matter.

First, in terms of OTC transactions, the former Bitmain CEO’s relevant resources are mainly his mining pools. The “white coins” generated by them are freshly mined and have no transfer records. This is said to reduce the risk of traders being involved in “black gold”.

The demand for White Coin and how much competitiveness and traffic it can add to the Matrix platform are still unknown and difficult to quantify. After all, before the emergence of Matrix, OTC "White Coin" was not an OTC advantage widely noticed by the industry.

Secondly, in terms of digital lending, the resources available to Matrix are mainly the miners who are reluctant to sell and have large fixed monthly expenses. This group is the main customer of digital lending. However, as the digital lending field has developed to a certain stage, most miners have relatively stable service providers. Unless Matrix has a particularly obvious advantage, it is unlikely to suddenly change the track.

In the field of digital finance, interest rate spread is often not the only core competitiveness . Since borrowers are often required to pledge a deposit several times the amount of the released funds when providing lending services, they will be more concerned about the security of the pledged assets. In this regard, decentralized on-chain lending has more advantages than centralized asset managers in risk prevention and control . For Matrix, which lacks experience and operates in a centralized manner, how much advantage it has depends on the market's test of it.

From the above two points, we can see that the "traffic diversion" strategy in the Matrix plan, like many previous cases, is more likely to remain in theory. After all, no matter how close the relationship was before, in the business world, interests still matter.

Matrix's choice of business direction may be a wise move after careful consideration of the current situation. It can also be said that it is a limited choice when the original mining machine industry is on the decline.

Mining? Or selling water?

In the long-rumored story of the "California Gold Mine", some people mined and some delivered water. Miners made some money and some lost money, but those who sold water and shovels made money regardless of drought or flood. In fact, Wu Jihan's second choice was more like a blockchain service provider. In layman's terms, it means selling water.

Looking back at the development of blockchain, while the "public chain technology team" was struggling, the "service providers" maintained a relatively stable income. They even made money without doing anything.

Although Wu Jihan has resigned from the position of CEO of Bitmain, and Bitmain has not successfully achieved an IPO during his tenure, people still have reason to believe that the cash reserves of this "youngest billionaire in 2019" (according to Forbes) are still enough to support him to do what he really wants to do. In this case, he still rushed into the "water selling" business, which is already a red ocean and is oriented to the traffic business model.

In fact, for service providers, core competitiveness often does not come directly from the blockchain technology level, but more from the technology in other fields and innovation in business models. For example: the increase in the exchange's platform currency, the quality of the trading targets, the integration of global resources in the mining machine supply chain, etc.

For service providers that rely on non-technical factors and are business-oriented, although they can make a lot of money in the golden age, if the technology route or business model of the industry they are in changes, the foundation of the original business model will be significantly affected .

In the blockchain industry, a typical example is the transformation of the consensus mechanism, which has led to a gradual decline in the voice of Bitmain, once the industry leader; the rise of DEX and alliance chains has brought certain impacts to centralized exchanges.

Therefore, the business risks faced by blockchain enterprises that are mainly engaged in "water sales" and are business-oriented may be higher than those faced by some projects that are "technical breakthroughs" and are oriented towards scientific research and development . If you are not careful, you may be left behind by the times, and your sense of existence and voice will be greatly reduced.

summary

When Matrix was free to choose its own track, it still aimed at over-the-counter trading and asset management business as the entry point, which could best integrate existing resources. We don't know what went on behind the choice, but if it wants to make a significant impact in the existing segments, even if it is branded with Wu Jihan's "big IP", how to build a better business model and seek market recognition will inevitably require an indispensable exploration process.