Team Diligence in the COVID era
If you’ve been reading our other posts about our other investments, you will understand how team centric we are as investors. We obsess over the humans, simply because at the earliest stage of Venture Capital, those are the people who are going to deliver product-market fit.
1inch perhaps was one of the most unusual processes we ever experienced.
One of the biggest challenges during COVID quarantine is that our face time with Entrepreneurs dramatically decreased. In some ways we mitigated this issue by investing in people who we had already known for years such as Jesus Rodriguez of IntoTheBlock or Gabby Dizon and Beryl Li of Yield Guild. But the quarantine was long and the pace of long time friends starting companies can be fairly sporadic.
How we met 1inch
Perhaps the most brief way to explain it is: we didn’t meet them.
But without having met them, how could we possibly have come to a strong venture class conviction about the team? Two major factors contributed to this. One of them is a very strong feature of DeFi which is that there is a much stronger reliance on smart contracts and product than on people’s promises. But even with this factor under consideration, it’s still necessary that a team outperform all competition.
So how did we attain such conviction over a long distance? We were early users of the product, and daily users of the product. If you used 1inch in the early days the first impression was how readily the team embraced the degen aesthetic with animated flames, unicorns and wild colors. But over time one quickly saw how rapidly the experience evolved day over day. Day one 1inch had the largest token inventory because of its role as an early Dex aggregator. So having just about every DeFi token was a huge advantage. But over time increasingly 1inch would also always consistently have the best price. This remains true to this day, and they continuously make improvements such as gas reduction in V3 through assembly code optimization.
Watching a product improve day by day as you use it gives you a strong impression of an incredibly customer centric, hard working and super passionate team.
It’s fairly obvious that DeFi is going towards exponential growth.
Recent dip notwithstanding, the broad shape of this curve is an exponential one that will swallow $1T in Total Value Locked (TVL) and more.
But who will be the winners? The future is very opaque here, especially when it comes to the user experience and aggregation layer. More on the future below. But for us it’s very clear that we are still in the early days of DeFi and that there will be a lot more to come here.
When we invested
When we invested in November 2020, 1inch showed impressive initial traction, having done ~$4B in total volume with 34k addresses interacting with the protocol. Since then, their growth has accelerated, with current aggregate volumes of $36.8B:
Over $1.7B of that covolume has come over the last week, and almost 200K addresses have now interacted with the protocol:
Part of this rapid growth has been fueled by the cross-chain strategy employed by the team. With the rise in volume in the BSC ecosystem, the team acted rapidly and efficiently to build cross-chain liquidity aggregation with a seamless user experience which has paid off:
The future of aggregation at the user experience (UX) layer is unclear, but there are certain fundamental axioms that arise from our working with 1inch. The winner in our view will have these characteristics:
- Middleware Protocols
- Fast Execution
- Killer UX
Why do we think “Middleware protocols” are so important? Take a look at upcoming features such as the Limit Order Protocol proposed by 1Inch. While there are dedicated limit order services, having a limit order protocol that sits at the join point of so many DEXes and chains is simply a superior user experience. This carries the “best price” promise to the limit order space. Also, we think the “middleware integrators” will have access to provide user experiences such as “best price” which is much more than just a pretty user interface.
The speed with which 1inch went multichain supporting Polygon/Matic, Binance Smart Chain BSC and Ethereum is of course indicative of what this team is capable of, and they continue to out-execute. They have launched their own wallet service and their position is instead of trying to build a “Metamask competitor” to simply assert that “There are no plans to build an equivalent of MetaMask, as in future, MetaMask won’t be needed: users will connect their mobile wallets directly to dApps.”
Finally, since the beginning 1inch has shown “degen flavored” but absolutely impeccable UX taste. This is uncommon in a protocol-capable team. So we see full stack capabilities here and an very broad and deep vision to match. So while we feel that the future of DeFi is very hard to predict based on the compounding rate of innovation across many “money lego” teams, we have the utmost conviction in the 1inch team because of these incredibly powerful abilities.