In this episode of Vertical Blocks, host Juan Angel is joined by Michael Kong from Fantom Foundation to speak with Ganesh Swami from Covalent about business metrics, monetisation, user acquisition, and moat.
Read our notes below to learn more.
Introduction of Covalent
Data provider for blockchain space.
Scrape and structure on-chain data across 50 different blockchains.
Offer that data via their products such as the flagship product, Unified API.
Devs can pull the data from supported blockchain to build products.
Covalent acts as a bond between centralised and decentralised system databases and blockchains.
Metrics and Information When Analysing Blockchain
No one-size-fits-all solution, specialised tools needed for specialised use-cases.
Finality and security are a spectrum, includes expensive Layer-1s followed by lower security requirements for different use cases such as NFTs, databases.
Believes that multi-chain thesis started to come true in 2020.
Multi-chain thesis is a must because people and use cases are diverse.
App-chain thesis is booming.
In business analysis, 3Rs - reach, retention, and revenue are the focus.
Applying it to blockchain:
Reach is the number of wallets, new wallets, and transacting wallets.
Revenue such as wallets that pay the most gas.
Retention is the stickiness of those wallets.
Every chain can be categorised based on this 3R framework.
Examples of Web2 vs Web3 Parallels in Business Analysis
AAA Gaming studios moving into blockchain.
Managing revenue and stickiness across their portfolio of mobile, console, and blockchain.
Unified business metrics are required for analysis and portfolio optimisation.
Example of how finality might not matter in their portfolio management.
Ganesh thinks it is important to normalise and standardise business metrics across Web2 and Web3.
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Michael on GameFi
Misconception that gaming on blockchain means putting all of the functionality of the game onto the blockchain.
Usually change of state is put onto the blockchain as a data saving point.
Example that the animations are not on the blockchain but rather changes made to the environment or character in an RPG are on the blockchain.
This is to keep a business record of changes to the character.
Because the character is an NFT that gets upgraded over time and blockchain stores all of the transactions made, data analysis can be carried out.
Natural use case for Covalent to repackage the data for users.
Key difference between a centralised and decentralised database is that data is consistently saved on the blockchain.
There is no possibility of rollback where game progress for the past half hour never occurred.
This gives reason for game studios to choose to use blockchain as a database.
Stickiness in DeFi
TradFi products are generally sticky, e.g. using same mortgage for years.
In current DeFi, liquidity is not that sticky with ongoing liquidity mining initiatives.
DeFi is going through rebalancing/price discovery as incentives dry up.
As incentives dry up, it is mostly the speculative value of the token.
Ganesh believes speculation is important in discovering new use cases.
DeFi is going through a renaissance with true utility and stickiness.
Ganesh thinks what comes out of this will be more similar to a FinTech DeFi merge.
Michael on Speculation
Speculation is how we end up creating innovation.
All new technology is speculative.
Blockchain has evolved beyond BTC and its limitations to many different technologies such as DeFi, P2P, and GameFi.
Moving forward, more transactions done by more people in the network will be seen.
Feels that blockchain is like the early days of the internet.
Sees no reason why blockchain tech cannot become a substantial part of the internet as the tech develops, network effects grow, and user experience improves.
Monetisation Structure
Covalent is positioned as a community driven project.
Data alchemist programme is a data bootcamp that pays people to complete it.
250 people will be attending the programme to learn about on-chain analysis and Covalent products.
Ganesh expects these people to work in Web3 after a year and take Covalent products with them and sign up for higher products.
Ganesh sees this as a cheap way of customer acquisition while benefiting the crypto space.
Commercial offerings are needed at enterprise level.
Covalent has a public goods entity, Covalent network, and multiple products in the pipeline.
Covalent was to be the first to have a public goods entity and a commercial offering, where one does not work without the other, similar to data platforms like MongoDB and Confluent.
User Acquisition Methods
As Covalent grows, enterprise-level features such as audits trails and role-based access controls are needed.
Methods to acquire early adopters and early majority are different.
Such as using airdrops for early adopters.
Early majority cares more about utility, substance, and resolving company’s problems.
Covalent’s audience are developers.
Covalent hosts 4-5 hackathons every month for early adopters.
Whitepaper works for acquiring early majority.
Covalent wrote a GameFi book this year that did well.
Web2 giants entering the space are taking inspiration from innovators to acquire.
Creating Moat in an Open-Source World
Ganesh thinks brand is the only defensible asset.
Example of how on-chain data is free on Etherscan, free at Covalent, but pay for Covalent Enterprise.
Branding, trust, being customer-centric, standing for your values is the way.
Service delivery is where the value accrual happens.
Ganesh says the relentless pursuit of innovation will always win.
Michael on Moat
It comes down to first mover advantage and network effects.
For example, anyone can recreate or integrate ETH tech, doesn’t mean it will get same numbers of users as ETH.