Blockchain Spaces to Watch by Jake Brukhman of CoinFund

hello everyone thank you for joining my talk my name is Jani Rickman I'm the founder of coin fund which is a sort of early us today's focus is fun based in New York today I'd like to get a talk called watching spaces to watch where I present a few sort of interesting areas of blockchain with me as investors and more importantly researchers you know have been studying and I think are interesting this is by no means comprehensive so I'll just try to run through a couple there's many other areas first I'd like to talk a little bit about point fun because that helps to frame you know how we think about technology development how the companies developed in the blockchain space cortland as I said is pretty early we launched our first fund in July 2015 have a long resume in the blockchain space in March of last year we partnered with folks at Ben Rock David Pakman make DC firm in the US to look at crypto together and so far I've got two investments and together with them doing crypto Kitty's doctor labs as well as free box most recently when people ask us what do we invest in we like to say we're sort of full stack investors across a centralized network talk about their pieces is really about networks but also the the rails meaning the companies that facilitate the growth and operation of these networks furthermore we are pretty technical team and we like studying the technology down to the lowest level of layers and we do something called generalized mining or in other words as a fun we'd like to participate in the decentralized networks that are in our portfolio generally our thesis is around the fact that these networks long-term can create massive disruption in many traditional markets but kind of the insight that we're working toward is that the way that you capture the value that is not in the long term operation of those networks but rather the transition from centralized world into a world where these networks exist and there's a lot to talk about there so I'm not going to deeply into us but happy to talk to folks after the talk and because we think that that's the thing that we're investing in the way we invest is is tailored to these idea of decentralized networks kind of coming to fruition growing becoming bootstrapped and eventually you know becoming enough of a force in the traditional market our fun therefore sometimes giving accept because people call us a VC fund but we're a crypto finding what that means to me is that we do something called Network lifecycle investing it means that in the early stages of decentralized networks we might be back into teams and their private equity of their private companies or building the networks and in the middle of stages is the network's are coming online we might be helping to bootstrap those networks with capital or by running a validate or note or staking or doing software mining like we did it in life here which is a subject of my talk and you then were to take a look at and finally when those networks come to production we can engage in trading the liquid assets of those networks and hopefully what's happening to us so in the light of the fact that that's what we you know think about investing in blockchain the most interesting things to us our area is that first of all have technological breakthroughs we're very flexible fund and this technology is constantly evolving in our space and always turning over number two we look for things that have viable business models and Kokomo because interacting with tokens allows us to manage risk more effectively we look for networks that have what we call generalized blending or supply-side strategies and in other words open networks we do things like running nose mining you know participating somehow in a supply-side that actually helps the network come to fruition this is very different from what let's say a traditional Wall Street hedge fund does when it especially trades the stock of a company not really carrying necessarily about the underlying business of that company but when we participate in the bootstrapping of networks we deeply care about the long term success and that's what we're doing it we look at underappreciated sort of beachheads into markets or communities that are better suited to change which I'll talk about shortly and especially in Reeboks is a great example of this sort of products that have both crypto native and traditional demand so when you talk about self sovereign identity and storage is what three bucks is working on you can clearly see a need in in web 3 for identity right in various contexts but more interestingly there are very traditional consumer tech companies building things like IOT devices and collect collecting loads of private user data and don't necessarily want the liability of holding that data in centralized services and so they're looking for ways of putting it into stuff that we're more Orson more skeptical about better IP and I tend to think that like people often overestimate the ability of big tech companies to launch crypto currencies and things like that constantly see startups that are great ideas but just too early or too late a lot of times when folks build decentralized networks and then start to build a company around say say what's your business model and they say well we're gonna build value added services we're gonna run nodes for people we're gonna allow like one click a node services but we see companies providing that across networks and getting like massive economies of scale that are not issuers and networks themselves so we're kind of skeptical about that and perhaps the hard way just being in the space you know for for many years now and watching different token models kind of come to fruition right we are we've become a little bit grumpy and more skeptical about models that capture value so let me jump into interesting spaces and I've never given your stuff so I'm not sure how a long time I'll try to adjust my pace NFT origination what do I mean by that I mean companies that and products that enable an artist to take a piece of artwork turn it into a non-physical token or perhaps collectible and the insight here and as I said I based in New York might have a great like art tech community in New York and so what I see is an excellent fit between that community and blockchain technology like artists folks are super curious they want to play around with new tech they're willing to pay a little bit of money to do weird things like buy a digital cat and generally they have really embraced sort of a lot of these origination platforms like you know origin and super air that even open see it was here and I think it's a great kind of beachhead into a market upper houses in his obvious to people who are not in those communities moreover when these folks have now gone and created a bunch of digital artwork but there's no real place to display that artwork or to really do anything with it and that's one of the challenges and problems of the space what we see is virtual worlds coming online one that's in production today is called crypto voxels another one that's going to be really shortly as decentraland and when you walk through crypto voxels today most of the buildings inside that were all their art galleries so moreover and you can also walk through these art galleries using a VR headset like an oculus quest and the reason I said oculus requested class is because this is the first headset we don't have to tether to a giant computer you can just kind of put it on anywhere and go that's really cool they've been selling fast so there's this early signal that maybe VR is gonna help virtual worlds in virtual worlds gonna help people display their tea art there's still a lot of challenges here like as an investor I think it's super interesting this this market because it has the opportunity to create a new market for artists to sell their art but also for retail users to have a new asset class in art that they didn't have before but creating a new market apart we need more places where entities can be used you know digital picture frames we have three or four companies doing that but none of them are connected to like an NFC marketplace for example so that's an interesting area when you are an issuer of NF T's how do you create defensibility like why should someone use you versus your competitor there's a lot of questions around that and most interestingly and no one has really quite dug too deeply into this yet is if you're an artist you want to make a cut perhaps every time your piece changes hands that means you don't just make money when you when you first sell sell your art you make money every time you know a new person enjoys your art and artists get really excited about that model have a couple lawyers in the room right artists have told me like in the traditional world of using paper contracts this has never worked because nobody honors that but using watching technologies you can enforce those kinds of business models and artistically excited by let's get technical you know when I watch folks like I don't know Nouriel Roubini testify in front of the US Congress and say watch chains don't scale I get the sense that he doesn't know what he's talking about because I just came back from Berlin and have been watching a ton of progress in the scalability of block chains and side chain technology in particular and very distantly and this a gives you rollers that the colleague has described these are technologies that solve TPS and throughput they solved the decentralisation of the operators of the side chain they spelled privacy and they also now come with what's likely to be you know fairly operative programming languages and practically what you can achieve with these things is 500 to 2,000 TPS I think like as an ethereal sidechain even more in certain technologies you can achieve like 50x the improvements privacy centralization as I said but why is that kind of important well when I think about side chains I think about like Dex is right Dex is don't have good liquidity today but my bed is the reason that they don't is because it's incredibly expensive to be instead of launching when you take this kind of technology you lower the fees you increase the throughput it now becomes a lot more financially viable to market make the centralized exchanges and I think the liquidity of Texas goes up so I think in the next 12 to 18 months and I see quite a bit of that and just at this conference we have at least two side-chain projects that I just heard talks up and probably many more so the challenge with these kind of sidechain tech is kind of sidechain checkers of course new programming paradigms when you're on top of like zero knowledge of crews you get some limitations in your programming languages to build this stuff it's a fairly complex math and computer science challenge you might sometimes inherit limitations of the bass player like ZK we're all of us you know they have to put in a bunch of grooves into the theory of chain but they're limited by the size of the transaction that's actually going to improve a little bit the cost that will improve it with the hard work is happening aetherium and of course you know as always with any kind of watching community you need a developer base and so you need to think about its rapper ability with other programming language with other faculties defilements super exciting area sometimes I've felt in the last couple of weeks that the number of defy wallets is doubling every two weeks or something like that a lot of folks have presented like high u.s. experiences if you've seen an argent to just some Dex wallet you know there's there's a ton of them and what these wallets are solving for is and creating a case for is mainstream user experience so they're getting rid of the transaction fees that you need to to move assets back and forth they're getting rid of pass phrases that you have to write down and replacing that with a multi-party computation or you know social recovery as you see with guardians and argent and then adding a fiat to crypto rails in the app so now you can go to your bank account and you can convert like ten dollars into Tendai and then go legit what's really really interesting is like if you're a layer 2 project especially state channel projects you want to integrate with all of these wallets because you know that primary like crypto native use case here's token transfers you've got something like you know five hundred thousand two million transactions a day on aetherium maybe like half of them are transferring tokens and so actually does anyone have a sense of like what's the median what's the median size of an ether transaction in a given day in dollars and want to take a guess fifteen fifteen dollars five it's five hundred dollars so as you take metamath reported right there's 1.5 million transactions on that a mask and April this year you know while parking times five hundred dollars some stolen that's eight point eight billion to huggers so there's non-trivial like market share to be happier you know didn't just and just transfers wallets potentially and especially in like State Channel earlier two technologies that want to serve that that use case wallets are tough though like what's the business like if you're an investor like why do you make money by investing how does the wallet big money a lot of wallets they put forward this model Inc will say well well offer like defy services of lending to the user and it will skin the skin a little transaction to be off the top but of course that's a problem like if you're using compounds that has variable rates and you on board a hundred thousand real users well the rate goes to zero so it's you know it's tough like you need more and better sort of defi services that will enable you to monetize if you're curating which g5 services are available in your wallet then some competitor is going to come along and like open it up right and maybe give the consumer more choice and maybe eventually consumers will prefer that wallets there's a lot of competition there to open protocols and not a lot of well let's really have thought about crypto made a business model is something like TCR is on what app surveillance at war smart tokens I just kind of made that that when I say smart tokens I I just mean things like set protocol history I've seen set protocol yeah so I think this is like super interesting that you can put an entire like trading strategy into a token and the thing that sort of blew my mind in Berlin when I was thinking about this is like imagine a token that gives you exposure to following strategy you look at a stable coin that's stable coin falls below $1 you buy it and if you if it goes above $1 you sell it so it's like a pure arbitrage strategy on a on this table point and then you can package that up into a token so you just can the capital that by putting money into a smart contract than getting sort of a set protocol take took it back so what's interesting about that space is that has like a really large design space for what you can do with some more tokens you could put this strategy to put that strategy you can create a basket of goods you can create some sort of dynamic a training scenario that they're getting exposure to and why that's interesting to us is because in the backend someone has to rebalance these things right if you guys have seen like forget the idol idol finance right you have 20 lending protocols they all have different lending rates for die however there's another protocol that optimizes and gives you the best rates out of the 20 and someone in the back under balances them so when I hear about opportunities like that and I think toward you know an increase in the usage of these things I think oh there's an opportunity for rebalancing and making some capital there as a fund and again by doing that we're making money but we're also making the system operate that makes me feel good very early in that space there's a lot of friction it's still a lot of work to create a smart token and there's certainly not enough fruit but therefore rebalancing to create a new strategy big enough for a fun today with like maybe not changes over the next several years and defy as a whole you know it's not clear if there's a market fit I think it's very promising and I think Millennials will really go for the idea but to expect that defy will be sort of integrated into large the world I think will take some work somewhere time of course there's also a challenging regulatory field to get the lawyers here because you can easily accidentally create some kind of derivative that is regulated and finally thousand doubt tech you know I was around during the time when the Dow happened and spectacular exploded and we had a couple years where we needed to calm down and cool off and it really seems like this year we've come back to down technologies this has been a high experimentation area this year Dow is have now millions of dollars now you know at least two million cars in the UM Impala there's a bunch of Molech Forks including medic cartel yang down is it down that's a test with creating means for Andrew Yang's 2020 year's presidential campaign of course Aragon and doused at platforms for these kinds of technologies and I think on the 15th of this London Edgware is launched and polka dot with an eye toward and a big of governance later well to me dolls are much more general than oh we're taking a company and making that into a smart contract I see them as like very gentle you know human coordination technology so for example if you live in New York and you're a young person and you have three roommates and everybody has to coordinate on paying rent every month well you can use this technology to facilitate that kind of coordination and that's probably like not as most people think about Dallas and it's not in most people's minds when they think about building defy wallets that give people financial services but hey that's a micro service that's a micro financial service Dallas also love memes and have very successfully proliferated across the internet and if you don't believe me check out what yang has been doing so you know Ross talked a bit about making dows work with legal jurisdictions someone told me today here at the hackathon that they couldn't even submit their iOS app unless they had a company and so if you're a gal that wants to build I was products unfortunately you're gonna have to have an LLC or some kind of record to do that still very early in the tech it's very critical doubts there's a huge barrier to entry but that being said at ease Berlin someone created a way that you could fork Molech that was now very quickly now on the more theoretical side I think dows are very biased toward voting systems we always thinking about using tokens to vote on proposals and there's a group of people that say you know oh that collapses into glue tock recede because the people with the most money take the most votes and if there are other people use case but overall voting systems are just one way to coordinate people there's also things like cooperation games there's also something like you know defuse this bomb in 24 hours of cooperate to do that where you guys all die right there are many different ways to coordinate people in a in this manner and so whereas humans existed for like you know hundreds of thousands of years governance has existed for much less time for thousands of years and companies as we know them probably existed for many hundreds of years right and voting systems have been studied mathematically for about 200 years but we still have so much to learn about the idea governments and I think dowser like the perfect venue where you can you know experiment with this kind of stuff and that's what we've been doing in the space employment so in summary this is not comprehensive but there's a lot of very interesting innovation happening as you head to the hackathon or your next hackathon think about these areas if you're an investor your incredible investment opportunities in the transition to these kinds of technologies and there's so much warm kind of experimentation to do please do it thank you little lady okay and I don't know where Preston is yet okay perfect you might be just outside okay but yeah question you idiot jockeys yeah all the time - like I immersed myself in Tennessee were all like first quarter this year I built in digital galleries while the whining the voxels I built a curated gallery of entities that artists have created about first edition too hard you can check it out so absolutely oh yes sir can you talk about a pile logs but you didn't say that which ones realistic I'm not sure I would all right so defined laws that take some skin off the top do you really think that like you could just interact with the comp on contracts yourself like if I if I wasn't brave enough to launch my own version our diary for example now there's a cool day you can just get together in a pool and then the goes to the third party all that is is launching a smart contract they don't charge anything yeah so there's there's this kind of idea that there's a lot of people in the space that are building things with our business model and that's okay and like how do you think those people are are they hurting the possibility for making more sustainable companies by doing that I don't run are you I don't think so I I mean I think people will just experiment with things and they'll come up with business models that work at the core of your question is a question of whether like skimming interest off the top worse I think it's not that likely to work because if you do that then your competitor just goes around you like and returns that spread back to the consumer consumer gets a better rate and prefers that wallet um wallets are really tough like like d5 side right it's just like how do you make money as a wallet most applications like that are sort of like lost leaders that's gonna ask do you think about the central bank's having I think it's great I think it puts our industry sort of in the forefront it gets us in the news it validates the thesis the cryptocurrencies should be a thing in the world are they going to sort of co-opt our space I think that's a good open question but for now it seems to be a good thing in terms of Pilar watching