Jeffrey Ren Yunan is using the funds available from the venture arm of crypto exchange OKX to support projects that aim to make the Bitcoin network capable of more than just supporting the speculative asset’s trading and settlement.
Ren oversees both equity and token investments into nearly two hundred crypto projects, according to Pitchbook.
He also serves as chairman and CEO of OKG Technology Holdings, which is listed on the Hong Kong Stock Exchange and is a subsidiary of OKG Group. OKG Tech drives blockchain development and serves as a data analysis platform.
OKG Group is majority owned by its founder, Star Xu Mingxing.
Upping utility
Last year the firm committed more than $100 million of investments across 60 projects and funds. Many of these are supposed to support innovation within Solana, Sui, Aptos and TON ecosystems.
Speaking with DigFin, however, Ren highlighted a focus on adding utility to Bitcoin through layer-2 solutions.
And a related theme is to invest in projects that enhance OKX’s strategy of combining its centralized exchange with its decentralized wallet.
“When the Bitcoin white paper came out [in 2007] it was about peer-to-peer digital cash payments,” Ren said. “Our strategy is about that.”
CEX + DEX
The first wave of crypto exchanges, including OKX, were centralized. They introduced globalized round-the-clock trading, and the assets traded were created on blockchain, but their operations and their ownership was no different from those of a traditional stock exchange.
Meanwhile, following the establishment of Ethereum, the industry developed smart contracts to automate trading, which led to the creation of decentralized exchanges (DEXes) and markets (DeFi).
OKX has sought to play in both worlds. It launched a user app that allows people to access its centralized exchange while also serve as a self-custodial wallet – “your keys, your coins” – and aggregate access to many DEXes and dapps.
“If crypto is a new asset class, then Web3 is the new infrastructure,” Ren said. “We bring assets onchain, not just to trade Bitcoin or altcoins, but to connect the ecosystem, to be like a superhighway running beneath many layer-1s.”
L1s and L2s
Layer-1 refers to the blockchain protocol with a settlement function, such as Bitcoin, Ethereum or Solana. Layer-2s are third-party protocols that integrate with the layer-1’s functionality.
The first layer-2s were built on top of Ethereum. Ethereum was invented to provide utility with smart contracts, and has attracted the largest community of crypto developers, but their dapps (for trading, gambling, etc) suffered from the L1’s inability to handle a transactions at scale. Thus transacting on Ethereum was slow and expensive.
L1s generally face trade-offs between scalability, security, and decentralization. Ethereum’s backers eventually reconfigured the network to focus on scalability, at the expense of decentralization. This was its pivot from a consensus mechanism based on Proof of Work, like Bitcoin, to Proof of Stake. Meanwhile competitors to Ethereum, such as Solana, used new formats of Proof of Stake to operate even more efficiently.
This has left the Bitcoin network behind in terms of utility, and sidelined Bitcoin in the world of DeFi. Bitcoin’s decentralization and origins make it crypto’s bellwether coin, but it’s only been a speculative asset. It hasn’t lived up to the vision of Satoshi Nakamoto’s white paper as digital cash. Instead, stablecoins have taken that role within crypto, and as digital assets go mainstream, it’s possible that central-bank digital currencies will take that role – fiat triumphant.
L2s as investments
There are also other question marks about the future of Bitcoin. Structurally, it faces uncertainty around security once mining new coins ceases. Value-wise, this decentralized network could be vulnerable should a ‘whale’ like MicroStrategy be forced to sell its bitcoins. Of course, Bitcoin could also be primed for another huge rally. Boom or bust both present problems to Bitcoin’s utility.
Ren says about two years ago there was an explosion of new projects focused on layer-2s for the Bitcoin network. OKX’s wallet, through the venture arm’s investments, is meant to attract more developers to such projects.
OKX Ventures invests in projects through equity, like a traditional corporate venture capital fund, with token warrants spelled out in SAFT contracts (Simple Agreement for Future Tokens is a commonly used legal structure for investors to receive tokens upon launch or completion of a project).
Ren notes that the fund doesn’t invest in US-based projects, although he says OKX is keen to get a license in the US, now that regulations there are turning crypto-friendly. OKG is licensed in Singapore, Dubai, Japan, Australia, and the Bahamas, and has been approved for a license-in-principle in the European Union. In Hong Kong, though, the firm retracted its application for a local virtual-asset service-provider license.
His focus on Bitcoin L2s is meant to revive the spirit of the Nakamoto paper. “Bitcoin has always been for geeks, but we want to make it easier to receive assets created on the Bitcoin network,” Ren said. This could include creating NFTs on top of one’s bitcoins, and those NFTs can be more than just trendy graphic images – they could function more like a futures contract or an operating lease.
Why Bitcoin L2s?
While OKX Ventures spreads its investments across other ecosystems such as TON and Solana, none of these has the Proof of Work consensus that makes Bitcoin different. And the appeal of Bitcoin L2s is that they integrate with this base layer, which is valued for its decentralization and its security.
Bitcoin comes with major disadvantages for developers. It’s slow: blocks take 10 minutes to create, and it can’t handle more than about 11 transactions per second (versus 900+ tps on Solana). It lacks a framework for smart contracts.
In response, L2s have emerged to enable payments, NFTs, DeFi functions and multi-chain compatibility, while final settlement remains on the Bitcoin network.
The first Bitcoin L2 dates to 2015: the Lightning Network, which supports using Bitcoin as a payment tool by moving the transactions onto its own, faster chain, and then returning to the Bitcoin network to finalize settlement. It lacks smart-contract capabilities, so there’s no DeFi play with this, and its capacity is limited, as it requires users to pre-fund transactions.
Babylon Chain is a rollup (specifically an ‘optimistic’ rollup, which means the system assumes the validity of these transactions) that allows for off-chain processing, while also providing time for parties to challenge the transaction in case of fraud or a dispute. Babylon doesn’t require pre-funding and can handle larger trades. But it’s still focused only on bilateral trades. It has since been subsumed into another project called BOB (Build on Blockchain), which is attempting staking functionality and inter-chain compatibility.
Stacks is promoting smart contracts and dapps, using its own consensus mechanism for its token (called Proof of Transfer), which miners generate by ‘staking’ bitcoins. The idea is to leverage Bitcoin’s security and liquidity to create new decentralized apps for lending, prediction markets, or connect bitcoin holders to DEXes.
Other projects include Ordinals, for building NFTs on top of bitcoins; Merlin Chain, a rollup to add zero-knowledge proofs to Bitcoin transactions; and Blockstream’s Liquid Network, for enabling digital assets to utilize Bitcoin’s final settlement.
L2 limitations
These projects all come with their own weaknesses. Sidechains like Babylon involve vulnerabilities that hackers exploit. There remain issues around capacity and efficiency. Final settlement on Bitcoin still involves slow speeds and high fees.
The biggest issue is simply that Bitcoin, by nature of its volatility, is not suitable as money. This may explain why El Salvador, which mandated all merchants accept Bitcoin payments four years ago – and whose self-styled “World’s coolest dictator” combines coercion with carrots to get Salvadorians to use it – continues to see Bitcoin usage fall.
According to El Salvador’s central bank, in October 2021, when the country began acquiring Bitcoin and pushing its use, nearly 5 percent of remittances back to the country used a cryptocurrency digital wallet. The number halved by December, and since 2023 has hovered consistently at 1 percent.
Similarly, surveys by the Central American University show that while in 2021, 25 percent of Salvadorians said they used Bitcoin that year to pay for or buy something, that figure in 2024 fell to 8 percent.
Not just payments
Ren says he is looking at projects that bring other types of utility or support the creation of new markets. For example, he participated in a $80 million Series B raise, led by a16z, in Story Protocols. This automates the licensing, franchising and dispute-resolution of intellectual property, which could transform IP into a tradable asset class.
While one day this could help large IP-owning corporations (Disney etc) automate their IP management, says Ren, it could also help creators, startups or entrepreneurs assert the rights to their work so that they can get recognized and paid by generative-AI agents that scrape and pilfer their work.
He also mentions interest in projects that support scientific research, by creating digital currencies or vouchers that reward, say, PhD students for collectively solving math problems. Such tasks might have social value without being commercial. Instead of traditional means of funding these projects, PhD students could trade their time for, say, access to corporate databases instead of money.
In the tradfi world, such arrangements are called ‘soft dollars’. For example, back in the day when analyst research was bundled into sell-side commissions, broker-dealers might pay for an asset manager’s subscription to Bloomberg terminals, or extra ‘shelf space’ in the broker’s retail sales platform, as an extra service meant to secure more trade flows. Conveniently, these didn’t have to go on either side’s books as a transaction fee.
Which is to say that soft-dollar arrangements fall into a gray area of incentives. What about when the ‘soft dollar’ itself is tokenized and tradable, built upon the number-go-up incentives native to all crypto?
Ren said, “To succeed, anything needs a priest, a speculator, and a builder.” The priest is the true believer who promotes the idea. The speculator creates a marketplace for the idea, whose behavior creates a price, and value, for investors. And OKX Ventures is a builder, investing to enable liquidity, stability, and mass adoption.
“I want that speculative element,” he said. “It creates a natural market.”
Squaring the circle
But the industry also needs to find ways to get people to want to use Bitcoin for something other than speculating. Although many people have gotten incredibly rich off of Bitcoin, not to mention the pump-and-dump schemes that dominate altcoins, the industry as a whole is still on shaky ground.
For example, OKX Group now has a substantial amount of assets, with $22.3 billion of assets on its OKX Exchange (according to CoinMarketCap) and another $50 billion of assets that users self-custody in its wallet (according to Ren). Ren is proud of the fact that the wallet is now bigger. It also creates more business opportunities: the user data in the wallet, such as reactions to price movements, can be packaged as an extra service to CEX clients.
The OKG Technology Holdings 2024 annual report, however, shows the business recorded a HK$40 million loss, despite HK$337 million in revenues. The company attributed the loss to its business trading in digital assets, even though Bitcoin began a surge in Q1 (the company’s fiscal year ended March 31, 2024). The company’s interim 2024 report, ending September 31, also reports a loss. The company’s assets are in Bitcoin (which it’s sold down), Ethereum and, mostly, stablecoins.
The annual report says the rise in Bitcoin prices “created market price distortions and risk challenges posed by extreme volatility”. While this is unrelated to OKX Ventures or the OKX Group’s exchange business, it does go to show the challenges of making Bitcoin ‘useful’, L2 or no.
