We just published our Managing Director’s Report and audited final results for the year ended 31 December 2019, please find the annoucement directly on the AQSE exchange website.
Financial markets tend to explore the boundaries of an asset’s value, spiking upwards to test highs, and capitulating downwards at moments of deep uncertainty. These last few years in the crypto markets have seen both ends of the spectrum in full force. The one constant has been the ever-expanding number of credible and exciting startup projects launching new disruptive systems using blockchain and decentralised technologies. KR1 has been continuously investing in these new projects through this market volatility cycle. We continued to add new investments to the portfolio knowing full well that with the increased number of decentralised platforms finding real product market fit, the markets would soon return to a more favorable outlook. Currently we are seeing many of our earliest investments in the decentralised finance (DeFi) space gaining huge traction and recognition as the market catches up with the leap forward that the technology has made.
The last year saw a major step change for KR1 as we became income generating and we are pleased to report £241,633 in income from the Company’s staking activities, mainly resulting from our participation in the Cosmos Network during the 2019 financial year. Going into 2020 and beyond, staking activities are becoming an evermore important area, as further promising portfolio projects such as Polkadot, Dfinity and Ethereum turn on their Proof-of-Stake blockchains. On top of our staking success, we undertook active advisory work with one of our portfolio companies, Vega Protocol, resulting in revenues of £180,748 in their native token. All of these activities combined with our successful track record of investing, have made 2019 another successful year for KR1, resulting in an unrealised profit of £2,053,608 reflecting the gain in fair value on our digital assets investments with a realised profit on disposal of digital assets of £693,665 for the Company.
Since December 2019 we’ve entered some very turbulent and uncertain times in the global economy, the catalyst being the recent Covid19 pandemic outbreak. Yet even before the virus swept across the globe, there was an ever-growing unease at the weaknesses within the global financial system, the unfairness and inequality the system creates, and the staggering size of the debt that burdens the world’s largest economies. Bitcoin’s growth is in direct correlation to these now critical and unsustainable weaknesses, and is seen as a hedge against the untrammeled fiat currency printing by the world’s central banks. Respected investor and fund manager Paul Tudor Jones of the Tudor Investment Company recently allocated a portion of his fund into Bitcoin, joining a long list of influential traders and investors in this momentum shift to Bitcoin and the crypto markets.
In March 2020, Bitcoin and all crypto assets saw massive volatility, mirroring the wider market panic on the expected economic damage from Covid19, but subsequently weathered the storm. KR1 experienced no operational or structural portfolio issues in these challenging times, as the Company is not exposed to unnecessary risks and has a modest cost-basis. The fear and uncertainty in the global economy has set a new backdrop on which Bitcoin is poised to take its place next to gold as a safe haven asset with Bitcoin acting as the ‘bellwether’ or ‘blue chip’ asset in the crypto markets. This is potentially very positive for KR1 which holds a solid position in both leading cryptocurrencies, Bitcoin (“BTC”) and Ethereum (“ETH”), in its portfolio.
KR1 specialises in seed and early stage investments into projects that use decentralised technologies to create innovative products and services to disrupt current systems. More recently, it is DeFi that has come into the spotlight with billions of funds flowing into that ecosystem. KR1 was one of the earliest investors in the DeFi movement, investing into Melon Protocol in 2017, which was when we first realised the potential for programmable money to upend the financial system. Since then we have continued to add more DeFi projects to the portfolio including Acala, Argent, Nexus Mutual, Vega Protocol and Union to name a few. Each project aims to solve a different aspect of the DeFi puzzle, from uncollateralized lending through to stablecoins, decentralised exchanges and insurance. We have further balanced the portfolio with meaningful stakes in important infrastructure blockchains, including Polkadot, Cosmos and Dfinity as well as a wide range of disruptive projects in other areas such as privacy, scalability and staking.
The big bang of decentralised money and applications continues to expand at an ever increasing speed and at every corner of the blockchain ecosystem we are seeing increased adoption; from the amount of transactions on-chain through to hash rates, active wallet addresses, billions of value locked up in DeFi and more. At KR1 we are fully involved in experimenting and using these new DeFi platforms in our day to day operations, all of which is being built on the Ethereum protocol. The fly in the ointment for Ethereum is its creaking under the weight of its own success resulting in high transaction fees and network congestion. These issues will be addressed by the long-awaited release of Ethereum 2.0 but the road to launch of a fully featured version remains unclear. In the meantime, newer, more advanced layer one protocols will seek to take advantage of these pain points in the coming years, opening the door to Ethereum competitors. While we are huge proponents of everything Ethereum has delivered to drive this space forward and believe it will dominate the decentralised space for years to come, we have major positions in relevant Ethereum competitors, who will drive forward experimentation and innovation and promise a universe of many blockchains.
One of these innovative blockchain projects is the Cosmos Network, which has become a major position in KR1’s portfolio since Cosmos’ launch in March 2019. Cosmos is positioned as a critical hub that will route transactions between different blockchains, analogous to the TCP/IP messaging protocol on the World Wide Web. KR1 participated in the first Cosmos funding round in 2017 and, as mentioned above, staking revenue from our Cosmos staking activities started to flow into KR1’s balance sheet ever since the network’s launch in March 2019. To blow our own trumpets for a moment, KR1 was one of the first institutions to recognise the compelling potential of ‘Proof-of-Stake’ blockchain networks, where the early investments are not only seeing great appreciation in the crypto markets, but are also proving to be profitable yield bearing crypto assets.
Similar to the above, two other highly anticipated yet-to-launch ‘Proof-of-Stake’ blockchain networks in the Company’s portfolio are Polkadot and Dfinity, which are the largest investments that KR1 has made to date. Polkadot is in the middle of its launch process as we write and Dfinity recently unveiled the first parts of its project, which they executed in stealth, gearing up for a launch process starting as early as later this year.
Since the Initial Coin Offering (ICO) fervour diminished in early 2018, KR1 has been at the forefront of participating in newer token distribution methods and models. The need for crypto networks and protocols to distribute tokens to active participants who add value in order to be fully decentralised in nature has not disappeared, rather it became more important than ever. One of the most compelling new token distribution mechanisms, called a ‘Lockdrop’, was pioneered by the Commonwealth Labs and Edgeware team, which saw a huge influx of funds. Buoyed by this success, KR1 is participating in more lockdrops and distribution mechanisms, prime example being the Plasm Network and aforementioned Edgeware lockdrop, but there are many more projects in the pipeline.
For much of 2020, Bitcoin has been sitting ‘still’ under the $10k resistance level with low volatility, however this has changed recently with a major break to the upside. Ethereum has also seen a strong price surge, which, given the massive success of DeFi projects in generating economic activity on Ethereum, was an expected move. These are all very encouraging developments and we are in an excellent position to take full advantage of this.
While maximising staking yields and the utilization of our portfolio assets has become an important area for us, our focus has always been and continues to be researching the bleeding edge of this transformative ecosystem, backing the brightest and best teams to help build out the new decentralised world of Web 3.0 and beyond.
— George McDonaugh and Keld Van Schreven, KR1 plc
KR1 is Europe’s leading digital asset investment company supporting early-stage decentralised and open-source blockchain projects. Founded in 2016, KR1 has been a notable first investor in many key projects that will power the decentralised crypto assets, platforms and protocols that form the emerging Web3 infrastructure.
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