Innovating Capital on investing in Layer 1 protocols

0:00I'm Ashton Addison from Block West capital for investment pitch media and today on the cryptocoin show we have Anthony giorgiotti's General partner at innovating Capital Anthony welcome to the show and thank you for taking the time absolutely thanks for having me on you're very welcome excited to dive into uh what your firm's been working on in the blockchain space but I'd love to

0:21start out with just a little bit on yourself personally your history in investing blockchain what led you to this part yeah definitely definitely so I first got involved in crypto actually from the context of a developer I was contributing to a couple early gaps in the ethereum ecosystem when I was finishing up a computer science degree so I was an open source contributor to

0:49those applications and you know that really kind of opened up the world for me as it pertains to really what web3 is and what it can represent in the future what token economics really mean what these new types of digital economies can really become so we launched innovating Capital back in 2017 to really dive deep into the world of web 3. in particular

1:10we really focus on the Deep Tech infrastructure side of things so both layer one and layer 2 protocols as well as off-chain infrastructure a huge part of our thesis is predicated about being large Network constituents and what I mean by that is we're very very active and every single Network that we partake and whether that's by running validator nodes whether that's by on-chain

1:34governance in certain D5 protocols we're very active in Market making and things like that so in any project that we invest in we're very active in terms of both our overall long-term contribution to those networks themselves wow very interesting and I love the fact that you have that Dev experience I feel like it's a huge competitive Advantage versus other investors that are just on

2:00the business side and you know a lot of the times especially when projects are in their very early stage people that they don't read the the smart contract or they don't know how to read the smart contract or they don't know how the the devs actually coded the application and I think having an extra level of understanding there can really be a Difference Maker for you know if you're

2:22looking at a project at the beginning to know if this is going to scale to millions of users absolutely absolutely yeah very cool and I'd love to hear you know when you started in 2017 um looking at you know layer one protocols Layer Two protocols what were some of the First Investments that your team made definitely yeah so a couple that come to mind in particular uh we were early

2:49investors in in Solana and we were pretty excited about that Network at the time just given you know really a couple of The cryptographic Primitives that it was built off of uh verifiable delay functions and and a few other schemas that were coming out of um Stanford and whatnot more recently I'd say you know we've been really focused on some of the application

3:11specific layer 1 blockchains such as injective protocol and we've been early investors and injective I'm actually an advisor of injective I'm an injector's just been a great project to see you know really from the onset it's done a tremendous job both really developing a you know IBC enabled chain but also focusing on its own layer one Primitives and more recently we've seen a ton of

3:33traction with respect to a few dapps that have been built on top of it such as the Helix app and whatnot and that's a project where you know we're both running a validator as well as actively Market making for the Helix application most recent one as well would be pastel Network personal network is also a layer one specific chain that's focused on both permanent data storage as well as

3:55new duplicate detection for you know security and authentication for really the nft as well as low friction low velocity web 3 ecosystem yeah it's um I I've actually had pastel Network on in the recent past and it's an interesting take that they have focusing on the nft uh Solutions which I think is a big market right now but I also feel like uh it's

4:24very early stage in that you know currently what nfts will be very huge with real world assets and be able to tokenize almost anything but we're still seeing you know speculation and profile pictures sort of a very small Market at the moment um I'm curious on your thoughts on that one specifically moving forward to the years to come yeah it's really exciting right because

4:46I think what we've really seen in the nft ecosystem so far to date has been just a small sliver of what the underlying technology can and will become and it's you know moving away from ownership as membership to particular communities collections of 10 000 jpegs whatever it might be um you know when when the ERC 721 standard really came out a lot of the

5:12technological prowess was more underpinned pertaining to the world of defy and and really trying to actually come up with a better way to replace you know what was a big Trend stos and basically you know securitize tokens and whatnot and so it's super exciting to see a lot of the recent use cases emerging whether it's you know the bridge with T5 whether it's gamified

5:37assets you know skins or whatever it might be we're seeing use cases as it pertains to IP and real estate and whatnot and so all of this technology needs to have basically a decentralized you know permanent storage layer whether that's a piece of collateral whether that's a photo or you know a 100 gigabyte game whatever it might be that needs also itself not just necessarily

6:03be represented by a token on ethereum but you know that underlying data needs to live somewhere um in a pure you know in a Peerless uh permissionless Network such as pastel and then to your point it's also that level of both new duplicate detection authentication is this completely rare you know is this infringing on potentially copyright you know is this

6:25an outright scam whatever it might be and being able to actually provide that technology in a completely decentralized way is is totally imperative to the future of web3 yeah great points Anthony and to further touch on that on the gaming sector I feel like nfts are going to be you know one of the main use cases that's going to be in gaming and we're already seeing

6:46some what you would call major AAA games you know blockchain based that are in the works you know it's not it's not an overnight thing it takes years to build an amazing game I'm curious on your take on you know which potential networks you see you know is it pastel is it others that will help aid bringing web3 gaming into the web 2 Gaming space so there's a couple sides of it you know

7:13you you obviously when it comes to the world of gaming a huge component that's key is the underlying Network and community so you know to No Surprise we will likely see a lot of the most successful gaming applications built on and tapping into some of the largest web 3 ecosystems whether that's you know ethereum or polygon whether that's you know the Solana ecosystem or potentially

7:38even Avalanche right in terms of being able to actually make use and and interact with the games themselves now to ensure the longevity and success those games need to be deployed on those layer ones or layer twos in such a way where every single aspect of the value chain and proposition of the game anything from storing a skin to the full collection

8:08itself or you know the full metadata of the game itself right that needs to continue to live in permanence on some ecosystem within web3 that still maintains and upholds those values of decentralization permissionless access and peer-to-peer accessibility hence the importance of really the sort of interoperable world where you know pastel can interact with

8:32you know a polygon or whatnot about the IBC and even the cosmos ecosystem it seems that a lot of these blockchains are working towards you know building a cohesive holistic environment where it's easy to it's not you don't have to worry as much of the about the you know siled uh blockchains that that have a hard time communicating with each other is that

8:59something that you look into when you when the firm is making investments into layer ones and layer twos you know how how easy it is to click this into the greater blockchain ecosystem yeah as it pertains to I guess if you do you mind just repeating that question yeah just as it pertains to you know having an interoperable blockchain uh that that is

9:25easy to whether you're porting dapps or communicating or across asset swaps between other layer ones yeah interoperability is you know a loaded term um in terms of you know really what it means and there are a ton of quote unquote bridges that you know promise the ability to both Bridge but that's data or assets or tokens and

9:53I'm sure you can understand why there are pros and cons to bridging each obviously when it comes to underlying assets or tokens there's derived economic value when it comes to bridging data there might be the underlying influence or value extraction that that data can have on or you know how it can influence certain decision making on a particular Network or chain

10:17so there's been a ton of bridges out there but unfortunately a lot of bridges that exist today don't necessarily have the underlying decentralized nature associated with them you might have two decentralized chains that are bridged by some sort of you know centralized gate or intermediary yeah the future of interoperability is the ability for these blockchains to communicate and

10:40interact in a completely decentralized way you know you don't need some sort of centralized bridge to be able to let's say I'm going to lock up assets on this chain and burn them on the other one or whatever it might be in the future of kind of interoperable access you might have let's say Salon of validator nodes that are running full copies of the ethereum

11:01state and then at that point in time there are basically stateless transactions where you know Salon is able to actually you know via these validators um you know mint and burn data tokens assets whatever it might be on both chains in such a way that it's totally relayed in a way that it cannot necessarily be susceptible to centralized attacks or some of the

11:25shortcomings that we've seen so far and we're still a bit of ways away from you know that future you've obviously seen some use cases in kind of layer zero communities such as cosmos or polka dot again it's limited really to those underlying l1s that are yeah either IBC enabled or pair of chains in the case of of polka dot but it is exciting to see a

11:46lot of the work in progress that's that's being made so far yeah no great Point Anthony and the bridges there definitely are some flaws uh one way or another you know it seems that Bridges keep getting hacked um or there's a risk of you know exploiting uh it when you're moving a lot of assets across it um and maybe it's not fully decentralized maybe they haven't made it

12:10perfect but on the other hand those two that you mentioned there polka dot with the pair of chains and Cosmos with IBC I feel like they're moving it in the right direction but it seems like you know the adoption of blockchains that are using Bridges is just way more abundant than you know the IBC um if I know they've been working on these for years and but in the pair of

12:34chains in polka dot you know the the marketing or the user adoption just hasn't picked up in that ecosystem I think Cosmos IBC is is doing pretty well as well but I personally haven't spoken to a lot of people that are actually using applications inside of that ecosystem I know that there are quite a few but it's nowhere near you know Solana and ethereum and binary smart chain that

13:00are Bridging the assets back and forth what do you think about you know those ecosystems and the approach that they've made to interoperability and will that take off eventually mm-hmm it's a good question and you know we go back and forth on this a lot because you know polka dot had a significant amount of promise and obviously it's founder base had spent a lot of time really

13:26developing ethereum and so for a while it was looked upon as being you know the ultimate kind of eat color and whatnot there's a few things right you know if you look at like the ethereum ecosystem they have the advantage of really being a first mover in the space and tremendous development mind share in terms of both the amount of progress and Innovation you know that's obviously

13:47lent itself to more dapps being built on ethereum or more L2 such as polygon which you know to an extension then support more dapps that obviously then settle on ethereum itself and obviously you know this has kind of a nice flywheel effect the more development share the more you know the more accessible it is the launch adapt the more success you might have actually

14:07entrenching yourself in a user base and so on and so on so a new dap that might want 10 of the market obviously you know ethereum is a top fit in the case of Solano as they emerged you know they had the advantage of being built on a underlying coding language that was heavily known in the financial technology community so they were able to recruit a large amount

14:31of you know real world web 2 developers to immediately start developing on the salon Network itself they also have the benefit of being super fast the problem with some of the layer zeros you know in particular polka dot is there's a really high technical barrier to entry it's somewhat complicated to be able to figure out how to deploy a pair chain and how it interacts with layer zero how

14:56does you know cross-pair chain communication work how does data relaying work and things like that and so there is that an inherent disadvantage of being maybe a little bit too technologically adapt for a lot of you know new projects and users that are coming into the ecosystem the same can be said of Cosmos to an extent but I think that they've done a great a better job of abstracting

15:21away a lot of that quote unquote challenge with you know nice sdks or easily accessible grpc calls and things like that and they've also done a great job really marketing themselves to new dapps and communities and and really bringing over a lot of projects into the IBC ecosystem you're not to mention the evm component which is an inherent Advantage as well mm-hmm

15:47yeah I agree Anthony and not even launching a pair chain but even just using the the polka dot wallet um that the the developers built polka dot dot JS you know it's like you almost have to be a JavaScript developer to figure out you know all the functionality and the user experience um it's compared to something like metamask uh or an easy to use interface

16:10for a wallet I feel like that's going to be important for for mainstream adoption so I'm hoping that they push through because I like their projects but I think that it needs to be more user friendly or something that allows more non-developers to get involved very easily and understand how it all works so um how that how that plays out in the future

16:35um no we don't have a lot of time left Anthony but I want to look forward with innovating capital and what you and your team are are looking for throughout the rest of us here and into next year is there anything specific uh in terms of new Investments or catering to your current Investments that's on the roadmap for the firm mm-hmm it's been an exciting time

16:59um there's been just a ton of development progress you know I gotta be honest in 2020 2021 you know even part of 2022 one of the biggest challenges that a lot of our projects had was was Finding and retaining developers you know just with basically being a super hot Market um you know and obviously being in kind of startup mode you know not a lot of

17:23these startups you know contrary to what people might think about web3 aren't as flush with cash as some of the traditional web 2 spaces and you also have that kind of inherent risk of joining and jumping into the web free space um you know in terms of you know a lot of development Minds being somewhat risk-averse to that so I think we've seen a lot of that soften up and that's

17:44been a huge Advantage you know people might say all right well the Market's been tough there's been a lot of uncertainty but one of the biggest advantages is that it's been a little bit easier now and it's softened up in terms of the ability to both recruit and retain on top down in the space and you know right now we're really hyper focused on assisting a lot of our

18:03projects in that effort um and that's that's been a huge area of focus of ours another area of focus has really been around refining the inherent business models of web3 and a lot of people don't necessarily you know maybe into it or they might Overlook what the actual underlying prominence and importance of a token economic model might look like you know a lot of people

18:27get a little too focused on some of the D5 analytics like total value logged or ltvs or whatever it might be you know but from our standpoint what's we really really focused on the fundamentals and Foundation right how are we generating protocol Revenue are we generating token burn and deflationary mechanics that will support overall sustainability in

18:50terms of both the actual utility of the token itself and the potential value that can be derived from that token in the future um a lot of time with projects really sharpening the pencil and Hyper focusing on that aspect of of their vision amazing great great points I think you know often when you get into web 3 people just throw you know revenue and

19:12all these basic uh terms that have been around for decades and decades sort of out the window and they're like it'll come eventually uh but to focus on that I feel like it's very important um and great points about sort of building in the bear and having room to breathe I've talked to a lot of VCS that they're they're happy that we're not a peak 2021 uh and where there's Madness

19:31because they actually have time to analyze their Investments and and where it's going and not just trying to throw money out the out uh to companies because it's a mad rush to to get into every project so um I'm looking forward to seeing I will be following innovating Capital um I will look forward to seeing uh some of the progress over the rest of this

19:52year I would love to have you back on the show because you have great insights into these layer one layer two ecosystems that are near and dear to my heart as well I feel like that's where the the most growth in the network effects going to happen so it's very important to be following along uh with these what is the best way to follow along with innovating Capital uh through

20:13the communities or you know personally yourself is there any way that we can stay in touch yeah absolutely I definitely say you know follow us on Twitter you know at innovatingcap um my personal Twitter as well you know at P Anthony LG um you know obviously we're always posting a lot of updates on portfolio companies Market sentiment thoughts you know if we publish market research we'll

20:37post that on Twitter as well and I think those are just great great ways to to stay in touch and up to date on everything we're up to sounds great Anthony I'll leave those in the description box below as well uh all the best with innovating Capital moving forward and let's follow up in the near future sounds great thank you thank you