About the Frontier3 Podcast
Welcome to Frontier3 by PatSnap!
This series is dedicated to unpacking the innovation ecosystem of Web3. Featuring our Co-Founder, Ray Chohan, and various industry experts, Frontier3 explores how Web3 will fundamentally change how we live, work, and play.
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In This Episode of Frontier3
Ray is joined by Alex Valtingojer, the CEO and Co-Founder of the digital crypto manager, Coinpanion. Alex’s journey into Web3 started from his student days where he and his friends ran a DIY mining operation. These days he is leading the charge by making investing in “innovative new assets more accessible” and joins the Frontier3 podcast to discuss the huge potential in the future of crypto, NFTs, and all things Web3.
- The maturity curve of the crypto and NFT markets (according to Alex’s perspective)
- Alex’s major “ah-ha” moments on utilities for web3 and cryptocurrency
- Where mass adoption is likely to happen. Spoiler alert: it’s gaming
- The power of smart contracts via the blockchain and how they remove the “inefficiency” of the middle-man
- Coinpanion’s unique position in providing smart portfolios for all types of investors, and their plans to move into the NFT space
- Other big players coming out of DACH and what previously held this market back
- Want curated insights into innovation across deep tech, IP and more, straight to your inbox? Sign up to the Connected Innovation Intelligence Newsletter.
CEO and Co-Founder of Coinpanion
Coinpanion is a dynamic fintech, that was founded in 2019 and is based in Vienna. By providing smart portfolios for all types of investors, the start-up specialises in making the crypto world more accessible and transparent.
Connect with Alex Valtingojer on LinkedIn
Co-Founder & VP New Ventures at PatSnap
Ray started PatSnap’s western operation from his apartment in 2012, helping grow the team to 400+ by 2020. PatSnap now serves 15,000 companies worldwide – supporting R&D, Innovation & IP teams with market and technology intelligence research. Their SaaS-based platform helps Deep Tech innovators connect the dots between technology, markets, and people. PatSnap officially became a Unicorn in 2021 and now has over 1,100 employees and 15,000 companies using its software across EMEA, North America & Asia. The ultimate mission is to provide intelligence that improves R&D and Innovation productivity to help innovators bring their ideas successfully to market. Ray also works closely with Blockchain & Web3 community and is a passionate angel investor in this space.
Ray Chohan: Alex, welcome to Frontier3. Really excited to have you on the show today. I know we’ve been going back and forth on LinkedIn. Your business really caught my imagination, in specific your location on the great work you’re doing in the DACH region. Alex, we’d love to kick off with your journey. How did you get orange pilled, blue pilled, red pilled-
Alex Valtingojer: Red pilled.
Ray: Red pilled. What happened, Alex? And how you got sucked into this world.
Alex: Yeah, actually it started quite some while ago in high school. So back in, I don’t know, 2014, 2015, I was going into a technical focus high school, and I was earning some pocket money by buying and selling and digital games, like Steam games. You know this gaming platform, Steam, from Valve?
Ray: Steam as a… I’m not a big gamer. I used to be many, many, many years ago, but Steam rings a bell as-
Alex: Yeah, it’s not-
Ray: …I think one of the brands of the game shops.
Alex: Yeah. Now it’s a digital platform where you basically have a collection of your games and you can basically play with your friends, and it’s completely PC focused. It’s pretty big. And back then, what I did is basically I started buying and selling game activation keys on different forums. And by buying and selling them, I often got paid via bitcoin. I don’t know. I was like 15. I was like, “Ah, wow. Okay. This is like a digital version of money. Pretty cool. Pretty cool. Nothing too special. To be honest.”
I was just using it as a medium of exchange, similar to PayPal. And what I found interesting, as just a technical concept, okay, I can limit it through an algorithm. And yeah, just by earning money on the side of selling and buying these game keys, I kind of got into this bitcoin game. And through that, this whole journey of me being a crypto- obsessed person started. Then in the end of high school, I actually developed a PayPal bitcoin marketplace because I always was so annoyed to exchange these two things. And just by doing that, I got a bit deeper into how the technology actually works with, okay, this is the mining, you have the wallet; okay, this is the private keys. Before of that, I just used blockchain.com and it was like, “Okay, let’s just earn digital money.” And always going forward, forward, always was a bit in context with the technology and bitcoin, especially.
But I never really got too deep into it until 2017. And I think everybody knows what happens in 2017. It was-
Ray: Price action. That was the price action year. Wasn’t it?
Alex: Yes. Yes. It was that moment where everybody noticed, “Okay. Crypto could be something.” The first time. I would say the first cycle of public mainstream acknowledgement of the industry. And I just kind of… I was following news and I saw this Bitcoin thing going up and I was like, “Hey, wait a minute. I still have some Bitcoins from my high school days, somewhere on a wallet. On Poloniex or blockchain.com. And basically I run to my wallet and checked it out and I was like, “Okay, fuck. I have a lot of money.”
So, this red pilling moment actually started of me just being like a 19-year-old student, luckily dropping into this crypto chaos and making some money on it. And yeah, now, that I actually have this personal stake into this whole industry, I got more excited about it. I started reading about it. I got super into this ICO game, checking out all these initial coin offerings, started trading around. And because I also had a technic background, I got really excited with this smart contracting thinking. Like Ethereum. And so, “Okay, wow. I can basically it develop on the blockchain. It’s so easy. There are so many possibilities.” And I started then doing freelancing on the side as a smart contract consultant, solidity developer. And also my student apartment, I’d built up a pretty big mining farm. So we were like three students living in an apartment and we were buying graphic cards together to eBay, everything we could get, just mine more. Just mine more.
Ray: So you and your friends are just ordering ASICs and just creating your own? And mini mining-
Alex: No, no more like normal graphic cards because ASICs, we bought one initially and the issue was, they were so fucking loud that the neighbors came complaining. They were like, “What are you doing in your apartment? We cannot sleep at night.” And we like, “Okay, shit, we have to sell them.” But Ethereum miners were just quiet enough, we could leave them.
Ray: Alex, just pausing there, because I can visualize you and your gang doing this. How old were you at that…? Like how old were you?
Alex: 19. I think I was around 19, 19.
Ray: Nice. Nice. So you-
Alex: I was studying here in Vienna, business and economics, and basically doing that on the side because, yeah, I just liked tech.
Ray: Brilliant, makes sense. So, okay… Sorry I interrupted. So obviously you kind of freestyled mining with a few buddies and then, yeah. Please carry on.
Alex: Yeah, basically it was all everything at the same time. I basically started mining down. I started jumping on and set selling: jumping on ICOs, selling, buying 'shitcoins', also, researching them, getting excited about what could be possible, and in the end finding out, okay, it’s a bit too early on the other hand. But I really got excited in the end, but also in the tech, like I said, also started developing on it.
And then what happened in end of 2017, beginning of 2018, was I was lucky enough to meet my today’s co-founder, Matthias, which is also our CTO, where we just talked a bit about crypto, what is possible, how is our work going to change with it? And we basically discussed this problem, I would call it, that it’s so fucking complicated to follow up with the space and to just passively invest in it. Because I was basically spending my whole day just trying to grasp what is going on. And lot of people I met during these days went, “Okay, this sounds exciting, but it’s just too complicated.”
So we started developing, as a side project next to university, as a first solution of this problem of asset management in crypto, some sort of crypto copy trading platform. So the idea was, “Okay, it’s too complicated for most people to manage their investments in the crypto space. Cannot just a professor take over it?” And what we did is basically interconnecting different exchanges like Crack and Binance and re-routing their orders. So people could just basically re-replicate portfolios. And from that on, basically we were developing that, did some other projects on the side, and with the time, with the status, I got more and more into basically asset management, investing, also started like doing ETF investments, stock investments, did some startup investments as well.
And in end of 2019, beginning 2020, we basically were at the end of the university, we had this copy trading platform and we were like, “Hmm, this is actually quite a shitty product we built. Because it had no nothing to do with actual investing. It kind of developed just into a gambling platform. And that was then the point where we said, “Okay, now it’s actually a good time… Do we want to be entrepreneurs? And do we want to do something in crypto space?” Yes and yes. What could we do? And then we decided, okay, we still are excited about just making accessibility easier and decided to basically build a digital asset management platform of crypto: cryptocurrency focus, which is based basically Coinpanion on what I’m doing today.
So the idea today is really to basically build a BlackRock for digital assets to make it easier to invest in different crypto categories. Like, “I want to invest in NFT space. I want to invest in a Metaverse. I want to invest in DeFi space. I want to invest in digital art. I want to invest in gaming items.” All these new innovative asset classes, to one platform in a simple manner. And that’s what we are doing today. So this whole high school years starting kind of developed into building a platform around investing in that space.
Ray: Okay. Makes sense. Thank you. Very organic, natural story there. So it looks like in your kind of mid- to late teenage years, you were red pilled or orange pilled, and then you kind of experiment and then kind of find your journey with Coinpanion. And just going back a few minutes, it caught my attention, you mentioned there were specific technological primitives, which really ignited your passion. I think we are similar in a certain way. It was really the smart contract capability, which caught my imagination because I’m from a B2B enterprise software space, and you could kind of connect the dots together on how that could be applied in a B2B context. Just for our audience, especially the folks on LinkedIn, I still think 85 to 90% of really talented Web2 professionals don’t really have a fricking clue of what smart contracts really are and what they will enable. So could you unpack that for the audience in a very simplistic format on, A, what it is, and what do you think the potential of that technology is, 2022 and beyond?
Alex: Yeah, sure. I can. I can at least try. Let’s say it like that. Yeah. I mean, I always had like a bit of a technical background, so Bitcoin… I’m not a Bitcoin Maximalist, but for me, mostly, okay, this is like digital scarcity. Makes sense. You have an algorithm which basically limits you to produce more than any initial asset. The smart contract thing was for me a way more efficient solution to more problems because it automatically automates away middlemen.
So in traditional products and traditional finance and traditional internet, you always have a middleman, which basically is a source of trust. So we too want to do a transaction, basically, or to have some sort of agreement; we have some somebody in the middle, which is this trusting entity we both trust, and in the end helps us to execute our exchange. And if you break down, a lot of things, a lot of things are just breakdowns, just exchanges between people. We exchange likes, we exchange images, we exchange money, we exchange everything, basically. It’s always this connection between people of sharing and giving away. And a lot of this happens with intermediates.
And the nice thing now with smart contracts is you basically can just automate it away. So you have this source of truth, which is basically blockchain because you know, okay, the code basically makes sure this transaction executes. And so we too agree: okay, if you do that, I give you that. And we don’t have somebody in the middle, which is basically escrow system. It’s just, if that event happens, the contract automatically executes and gives you your part of the agreement. Right? So, so that’s the interesting thing about it because I always like it on a DeFi base because I’m a bit more in a financial space. It’s like, why do I need banks or auto-notaries, or insurances as intermediates to move around people’s agreements? I can just like do it with code. If we two agree, if I give you, I don’t know, a house now and you pay it off, you can just basically tokenize it and do it through the blockchain and have the security there.
Ray: Yeah, yeah. It’s interesting… That’s what… I think we’re on the same page then. I mean, that abstracting away the arb and, sorry to offend anyone, the shitty middlemen-
Ray: …in the middle, who don’t really offer value, let’s face it. They offer no fucking value. They’re just arbing a scenario, and adding as a middle man proxy. And in essence, they layer in inefficiency-
Ray: …into the market. Right? So I think… Who said it? The name slipped my mind, but he’s a… , I’ll try to remember the name later, but it’s kind of the analogy that code is law and these languages can arb out any big law firm or an individual so-called specialist who tries to manage a transaction. So that pretty much makes sense. And on that curve, in your opinion, Alex, where are we? Because I know we are ultra early on the impact on what smart contracts will make in society and in the business world. Where we are in terms of time mark, are we where the internet was in 1995, 96? Or are we slightly further along, in your opinion?
Alex: That’s a really tough question. I would say we are still super, super early. I think especially like 2021 was the kick-starting year for all these technology developments. You also kind of see it with how the market developed around NFTs, which are like a super interesting concept, Web3 as an actual thought of, “I have like a decentralized wallet, a unit, which basically then connects to centralized institution to execute agreements.” So I would definitely say we are in 1995, 1996, of crypto and digital assets in general.
And you also see it still in the prices. I mean, 2 trillion, 3 trillion, crypto market capitalization sounds like a lot, but if you compare it with the potential it could have, it’s actually really, really low. And also with the NFT space going up, now it seems like it’s getting higher, but it’s still really early in the curve. If you look at the prices and the volumes, I think we are in a total of 60 billions right now with market capitalization around NFTs, which are mostly digital art. And we have in the classic traditional markets a US$1.8 trillion locked in art.
So I feel like, okay, people start now to recognize this is something, but it’s still in the early phase. I feel like we are running a bit into this .com bubble mechanism. So it’s like this moment, okay, technology is here and there is a use case, and we see the use case is developing, so people get super, super over excited. It’s always the same, this Gartner hype cycling here. They get super over excited. “Oh my God, the future’s going to be that and that, and it’s going to be soon and it’s happening. And Facebook is now Meta and they are going to be the Metaverse. The Metaverse is going to be built on NFTs. We are almost living there.” So that there’s this influence of a lot of hype, a lot of hype, a lot of hype, which gives you the feeling, okay, we are way further along the journey than we actually are. And then it will eventually pop.
And I’m also the opinion like 99 or 95%, whatever, of all these digital assets with we currently know, is it DeFi applications, is it cryptocurrency, is it the NFTs, will still go down and implode, basically. But what we definitely are, there, is we have the anchor point of adoption, of technical adoption. So I feel like, okay, we are early in the curve. We are way high with the adoption-wise. We are high on the hype, which then will pop, but the adoption will continue and will take another couple of years.
Ray: Yeah. I would share your sentiment. It’s that famous phrase, history always repeats itself, but it always kind of rhymes in a slightly different way. So if you look at that run up in the mid-’90s to the dot-com boom, you had this huge markdown and implosion, and you had, what, probably four to five meaningful players left. Your Ciscos, your Amazons, and a couple of others, who are still around today and built category-defining businesses. I actually think within this Web2 hype cycle, I completely agree with you, Alex, it’s going to be huge markdown. 95% of the projects will go to this zero or have a huge dropdown and be immaterial. But I think you might have, instead of four to six companies like they were on Web2, you might have 18 to 20 projects which are meaningful and build that out…
Alex: I definitely believe that too. I think it’s going to be more distributed.
Ray: Yeah, more distributed.
Alex: Because the impact is so broad on so many level. Basically we have a revolution on financial services, the complete financial sector. We have a revolution on a complete artist/creator movement. We have a complete revolution on internet in general, so I feel like this is going in so many directions that there will definitely be more than just three, four, five projects and companies which will succeed from it.
It’s always a bit hard. Where do you take the line? Where’s the line of what is digital asset, what is not? For me, it’s basic everything which is based on DLT [Distributed Ledger Technology] technology. So if you really say, okay, DLT technology, everything which is based on that is crypto, then I’m for sure that this is going to be the biggest space ever we can experienced. Bigger than the internet because it goes so, so far deeper.
Ray: I couldn’t agree more. And so moving away slightly from market and kind of price action forecast and just some of those areas. Back to the smart contract piece, so that made sense in terms of how that grabbed your imagination. But what are some of the other primitives, which made you fall out of your chair when you came across this whole space? Because again, there’s still so many people out there who don’t even understand the fundamentals of the blockchain and know how it actually works and how that is just a far more superior database ledger, it’s distributed. So is there any other specific slivers of that tech stack which made you think, holy shit, I want to spend my career in this space? Something which can catch our audience’s imagination, allow them to go in and do their own homework.
Alex: I mean, in the last couple of months, what catch my attention a lot is definitely the NFT space, but this is probably no surprise because it got really, really hot. What I find interesting is we already had it in 2017. You probably remember the, I mean, CryptoPunks are from 2016 or something. I don’t know exactly, but we also had the short hype of CryptoKitties. Actually back then, I thought, okay, what a bullshit. Now that I spend more and more time into the industry and actually connect us with more people around it, I see it becoming more and more a thing.
Also, a bit with the combination of this metaverse and this general idea of Web3, that we have unique things in the internet as well as in real life, so that caught my imagination when I started thinking about myself. Also, back when I was gaming, I started spending money. For example, game skins. I played a lot of Counter-Strike, so I bought game skin so people knew, okay, I have a nice weapon. I am a pro gamer.
I try to always look at bit from a macro level. If you see that the generation and the digital shift, which we are currently experiencing, you just look how much time you spend on digital mediums. I mean, we are doing this podcast through our web browser in a digital way, right? And the moment you are born to nowadays, the moment you are born, more or less at the same time, your digital self is basically born. Kids spend time on YouTube. They generate their feed. They start hanging out in communities. They start gaming at super early phases.
Once I really understood how deep this digital self or digital identity goes, which you already see like Instagram, Reddit. I mean, there are like thousands of examples, which you do it on the Web3 platforms, it kind of grasped to me also this sense of NFTs, why this is such a huge space. It’s like, okay, when I say my life’s is more than 50% digital, it is basically this. It doesn’t make a difference if I buy, I don’t know, a clothing for my avatar or I buy it in real life or I buy a luxury car or I buy it in the metaverse or buy it in real life. All these prestigious things for sure would be even bigger space in the internet, or in a metaverse, or whatever you call it, because more people can see it. And I’ve been pretty sure this will be based on blockchain technology.
And the second thing is I also see it on the interoperability when we really say, okay, our life is going more and more digital and we have this metaverse thing coming up. It kind of has to be blockchain-based because it won’t be that you have the silos of, okay, Facebook has their own system. And then you have, I don’t know, Microsoft their own system. I think you need like a common layer of interconnection of these things. And I see a lot that basically crypto tokens will be that intermediate. Because you, again, have this trust this database or trust this layer where I can store my things without having the central authority deciding of it, and I can just access it through different parties.
So going deeper and deeper in NFTs, I wouldn’t say I’m still 100% in it, but I definitely feel like this is something really, really deep on a macro level, especially always looking at Gen Z millennials.
Ray: Interesting. It’s really weird, this one. Our journey sounds very similar now because when I heard about NFTs, what is it, literally, it would’ve been Q4 of 2020, where I just started loosely looking at it. And then you had NBA Top Shots, right?
Ray: In early part of last year. And if you look at OpenSea’s revenue, I think 2019 … Shit. I think it was like 2020 OpenSea’s revenue was $24 million.
Alex: Yeah. It was super low.
Ray: And last year, it was $15 billion. And if you look at last year, it was January when NBA Top Shots. That was NBA’s first foray into it. I remember showing my wife going, “Oh,” because I used to collect cards when I was a kid, so I was trying to just…
Alex: You’re always connected with the real life thing. Right?
Ray: Yes. That’s it.
Alex: It’s just a digital thing, right?
Ray: Especially at my age. I mean, I’m 40, so I’m 41, so I grew up with sports cards and collecting stickers and albums and obviously in the ’90s, the internet, Web1 and Web2. But it’s really dropped for me in the last two months, thinking about the whole surface area of what NFTs encapsulates. It, basically, if you look at culture as an asset class, that asset class is huge. It’s just self expression, right? And we express ourselves in so many different ways. It could be through clothing. It could be through, I mean, expressing ourselves online through pictures or liking or supporting certain causes in a digital format. It could be the car that you drive, where you live. We’re basically, as human beings, always signaling on what we believe. NFTs just amplify that and make that surface area a lot bigger.
And it’s interesting. You’re getting excited about this space, and I’m sure this might feed into the Coinpanion product roadmap, but we had some of the great team members from Adidas on our pod, a chap called Diego Borgo. Really talented NFT thought leader, and actually he works in Adidas. And obviously you can see in Adidas, you see Nike really ape into this space and kind of have the NFT and then back it up with a physical item. So if you buy, say, the Air Jordan 15 NFT, you get then gated access to X privileges, blah, blah, blah. But that’s the early design space. I think it’s going to be mind blowing where the design space evolves to. We probably can’t even imagine it right now on what it can become. So we’re definitely on the same page. So, digging into that further …
Alex: I really like how you call it the asset class of the culture. I think that kind of describes it perfectly. And culture is just such a huge thing. And especially now with more optimization, I feel like this whole creating stuff for pleasure and culture will always become bigger and bigger.
Ray: I mean, it’s been going. If you really think about, it’s been there for hundreds of years in the world, culture as an asset class. We now have a digital layer to kind of evolve it and allow people to exchange. This is the first time you can truly exchange value at scale and culture is the underlying kind of primitive behind it, so that’s interesting.
Going to Coinpanion, are you exploring an NFT product line? Is that something, I mean, obviously I know you can only discuss certain things, but it seems like that would be a compelling offering to get people involved into maybe an ETF, which is tracking top NFT. Is that something that you guys are exploring? If so, what does that look like?
Alex: I’m actually laughing a bit when you said that. That’s exactly what we’re currently exploring. I mean, we already had our feet a bit in DeFi, so we are excited about a lot of things in the crypto space. Like I said, I really think it’s going to go into every aspect of our lives. But especially NFTs is something we started exploring intensively the last three to four months, and that is a product coming up this year.
So I’m not going to go too deep into it, but I think that’s going to be our first step to basically offer access to NFTs in general as an asset class. But we also plan to go deeper into subcategories again, because NFTs is, again, such a huge and broad topic. Now it’s just starting, and like I said, I think it’s around 60 billion of market capitalization, the whole space. But going further and further, it’s going into all different aspects again. It’s going to go in music, it’s going to go in art. It’s going to go in gaming or it’s like just whatever you can imagine basically. And there will be, for sure, products around that on Coinpanion because our mission, basically, is we really make innovative new assets accessible and NFTs are such a fundamental thing of that.
Ray: Is the form factor, I know you can’t go into the detail, but in essence, will it allow folks to index-
Ray: … into the asset class in a broader sense?
Alex: Yes. Yes. I mean, I can go that deep. Yeah, definitely. It’s exactly like that. What our focus is always be like exposure to the new things because if you go really deep in alternative assets, which crypto and NFTs still are, it’s like super complicated where to start off. Because, I mean, we notice there’s happening a lot of in digital art space, but it’s really hard to catch up with it. So I feel like for most investors, we just want to have exposure to certain industries and technologies. It’s just best to have like an index portfolio view of it. And that’s basically where we see our angle.
Ray: Because I think for Joe Public in retail, trying to cherry pick meaningful NFT projects, you’re going to get butchered because the big players in that space are the, I think, the individual players who are big on Twitter. I think Gmoney’s one of them, but I was listening to his story and he's got a long history in understanding culture and how that converges with gaming and future kind of customer demand. And I think DC is another chap I think in the US who’s got an insane collection, which is basically the who’s who of the big ones. So I think you guys are heading down a compelling route of allowing retail to have exposure without having to think about all the bloody different projects because it’s a landmine and you’re probably going to end up in a blood bath by going individually into projects, so that’s great.
Alex: I think, in general, cherry picking is it’s the same for stocks. I mean like for NFTs and less known, asset class is always more complicated. I would generally say cherry picking is always really, really hard. And for the average Joe, not to the right thing to do.
Ray: Okay. Makes sense. And now going into, in region, your profile caught my imagination on LinkedIn because I was like, I really want to unpack the DACH region because … So PatSnap, we've got loads of amazing customers in that part of the world. And I think Crypto Twitter, and a lot of what we might see on Masari or CoinDesk, it’s always kind of North American slanted. If it is Europe, a little bit of UK, but not much global exposure on what’s actually happening in Austria, Germany, Switzerland. So just backtracking slightly, obviously you’re doing 60 million Euro in trading volume on the platform right now from what I can see on your landing page.
Alex: Oh, it’s actually way more. I think that’s outdated.
Ray: Cool. Okay, so you smash well past that. I think you should update it.
Alex: Yeah, actually I just did. The moment you said it I was like, okay, we definitely have to update that.
Ray: What’s the trading volume now?
Alex: Well, I don’t know it exactly, but it’s way over 100.
Ray: Oh, a hundred million Euro. Congratulations.
Alex: Thanks. Thanks.
Ray: You’re trending in the right direction. At a retail level and just institutional level, what’s the adoption been like in Austria and neighboring countries?
Alex: I mean, Austria has a really good and known player, I would say European-wide, which is driving a lot of the adoption for the last couple of years, which is Bitpanda. I guess you know them, right?
Ray: The name rings a bell, but I had no clue they’re originally from Austria.
Alex: Oh, yeah. They’re originally from Austria.
Alex: The main issue with Europe in general, or EU in general, is like that there is a lot of regulation, but it’s unclear regulation. There is some sort of regulation for crypto businesses and basically asset manager under it, but it’s not regulated enough that you have a European solution. So I think that basic, that stops a lot of the innovation at adoption of it. But a lot of companies are now breaking through.
So it’s always hard to say how far out of the adoption curve, but I’m pretty sure that I would say that Europe lags behind Asia, US, and the UK. The EU is lacking behind the English-speaking parts and the Asian countries, just because of its harder to access these products, especially through European players. There are not a lot of new players. PART 2 OF 4 ENDS [00:32:04]
Through European players, there are not a lot of new players. So we are definitely one or two steps before most other countries in that regards. But what is cool is that we see a lot of development, especially happening in Austria. So there is a pretty vivid crypto scene in Austria, with Bitpanda as the biggest player are there with, I think, 4.5, four billion valuation nowadays. But also happening a lot on the NFT space, I know a couple of developers and companies which are now working on new FT products, I know a couple of people working on DeFi.
So with the big player, which showed, “Okay, it’s possible to build a huge crypto company out of Austria,” that also gives the incentive for more people to start companies in that space, which then is this rolling effect, which also transfers in the basic general public. So to summarize it again, I think it is happening, I also see the growth there. Our product is basically the image of mainstream adoption, the average show wants to have exposure in that industry, but we are still a long way behind other players like Asia, US and UK, but it’s happening.
Ray: It makes sense. And I can see your offering, you’ve got cautious, balanced, adventurous, and obviously the NFT and Metaverse ETF. Is it out or maybe coming out soon?
Alex: No, you can already invest in it. But this is mostly technology based, so it’s not real exposure to NFTs. You don’t own a fraction of a Bored Ape or I don’t know, Crypto Punk. It’s more like the technologies of new use for this product.
Ray: Okay. Also the L1, L2s and all the infrastructure picks and shovels. Okay, great. Brilliant. So looking at that offering, How does it work on the back end. When you are constructing an index, what is your methodology? Because this can sometimes turn into a black hole, right? Because there’s so much nuance and there is no official methodology on valuation, it’s still quite ambiguous. So what does it look like backstage at Coinpanion on your differentiators, on how you can index things in a compelling way?
Alex: Yeah, actually you said it right, that’s one of the hardest things. So when we started out, we actually worked with an open sewers ranking system was scoring system for crypto, which was called the Fundamental Crypto Assets Score, FCAS, perhaps you’ve heard of it. But in the last two years, we started evolving from that and basically built an own scoring system for crypto assets, which you used to select cryptocurrencies. And this one is based on four pillars, so it’s completely database and we look at four pillars. So the first pillar is blockchain activity. So we scan, okay, how much is happening on the specific blockchain? How many wallets are created, how many transactions are executed, how many smart contracts are got executed, et cetera, cetera. And basically get the metric out of that. The second pillar is the development activity on the blockchain. So we look at okay, how many GitHub commits are, GitLab, et cetera, you know it. So how much development is happening?
Again, get a metric out of it. Then the third one is sentimental data. So we use different tools to scan Discord communities, Twitter communities, telegram communities, to see, okay, how much is any community going on around this project? Is the community growing, is the actual exchange, are this people in this community or just bots? And get a metric on their sentimental and social score. And the third one is classic market data where we look at especially money flows. So how much is going in exchanges of specific cryptocurrency? How much is going out of exchanges? How much is not moving around? How scrum are they holding hands? How concentrated is the whole holdership? Who holds most of it? Is it just 1% holds 90% of the token or is it pretty distributed?
And basically it’s done a mathematical system where we just bundle up these four pillars of data and get out of a score from zero to 1000. And if a cryptocurrency’s above 700, we say, “Okay, this is a project we will include in our portfolio selection.” There’s one more thing, which is happening in the end, there’s one more human touch to it that we check the project that not something really strange comes into it or that we have client regulatory issues in it. So then this is basically a selection process. And in the end we bundle them up together in a separate wallet per customer and balance the portfolios using risk parity. And risk parity is a state of the art management solution, so it’s almost not a secret how we do it.
So you basically analyze the volatility of the asset. And if you see, for example, Ethereum starts jumping up and down, jumping up and down, there’s a lot of market volatility happening in that specific asset, the algorithm starts reducing the exposure, so you are closer to the mean variance portfolio. Which basically then is an optimal mix between risk and reward. And I think the cherry of the whole system is really the selection mechanism. And we are currently working on a project to also make the public. So although this is not going to be a secret, how does exactly works, we are currently working on an own page where you use the Coinpanion crypto score and have a kind market cap page and you see all our fundamental assessment of the assets.
Ray: Nice. I think that would be cool. That reminds me of… God, there’s a business called HubSpot back in the day, very Web2, but you could grade your website. So upload your URL and it’ll grade your website for being fertile for SEO or driving inbound leads. So it’s great you’re-
Alex: It’s a similar concept, exactly. Exactly, that’s the idea. So I see there’s a lot of companies specific and niche popping up trying to assess crypto like, “Okay, how is it fundamentally a good product?” And we just said, “Okay, why don’t we just make our system public to the degree that people can just look it up if they’re interested in it?” Because in the end it’s a win-win situation, the industry becomes more professionalized, and we position ourselves also as a knowledgeable player in the feed because we provide the score.
Ray: There’s been a huge burst of analysts, shops and houses in this space. I’m actually speaking to one soon called I think EVI.io. I forgot where they’re based. Actually, they’re based in Dubai and they have a certain research methodology to come to an evaluation number, a network effect number. But then you have Masari, I love the team at Masari, I love their product.
Alex: We use a lot of their data.
Ray: Yeah. Yeah. You use Masari and then obviously I think there’s Nasan in Singapore is another one. And then you’ve got Into The Block who are interesting, I think they’re based in Europe where they do a lot of on chain analysis. There’s a whole bunch of players. This reminds me so much of the nineties and you had obviously Reuters with their terminal products pop up, you had SMP Global have a whole number of variety of debt products, credit products, market research products. A company I worked at when I was a kid called Data Monitor had a whole variety of market intelligence offerings. So the same’s happening in this world, but just a lot faster within Web3. So that’s cool, your methodology makes sense. I was actually making a note of some of the indicators, and you mentioned the GitHub analysis. And electric capital released a really cool report this week. I don’t know if you saw-
Ray: … Electric Capital’s developer report, which I thought was a cool proxy, gives you a rough idea where the ship’s heading, but it’s only open source submissions. We know a big part of the community is closed source, especially some of the folks in the Solana community and some of the other L1s. So in terms of developer adoption, where do you think we’re at? Because I think trick capital had what, 18,000?
Alex: Yeah. Yeah. I think something like that.
Ray: What do you think that number really is if you were to bake in close source, just roughly guessing?
Alex: It’s really hard. I think it’s at least 10 times bigger or 15 times bigger than that. Because like you said, because you said it like, and it’s always a question, what do you call blockchain or crypto developers? Because I feel like especially companies like Coinbase, BitPanda, et cetera, et cetera, I know they employ a lot of people which are also working on crypto products, the products are just not opensource.
Ray: Yep. Yep.
Alex: And I actually read a nice article a while ago from, I think it Wall Street Journal or something, where it is [inaudible 00:41:24] actually now a pretty big outflow of the classic Web2 companies like our Facebook, Google, et cetera,. Companies like this, where the mainstream and coolest company you could work for five years or 10 years ago when you were a developer. That they have a real outflow now of really good and talented people going into Web3 companies. So this is the new hot space, and I think especially tech people acknowledge it, that there’s so much you can build and there’s so much which will be built and they just want to be part of it now, same as the internet rush.
Ray: I couldn’t agree more. You know what I’m seeing, even outflows are happening everywhere, even legacy companies or incumbents who are trying to be cool and launch their Web3 motion ala Meta… Well, let’s face it, they’re really Facebook. All the top players from their Novi team and the Novi wallet team have left. You can actually see it, it’s all over LinkedIn. And I think there’s one business, I’m trying to remember the name of the organization, but if you go on LinkedIn, the entire team are ex Novi within Facebook and they’ve just left. And like, “Holy shit, this takes too much time in a large incumbent. I can just raise money very quickly, let’s just build this ourselves.” So yeah, I think they’re called Mysten Labs, you might want to check them out. They’re more of an infrastructure.
Alex: I’ll definitely check them out.
Ray: The Mysten Labs team are all ex Novi.
Alex: Yeah, mate. It’s always a bit of a risk if you put a couple of really smart and passionate people in a room and you cannot try to use the methodology on them, which you use on classic Web2 products, that they get too excited and just want to build on it and do it themselves. Because I feel like, especially now for a player like Facebook or Google, they have to be limited to a certain point, which probably doesn’t comply with all their really good people.
Ray: Yeah. No, I couldn’t agree more. You’re seeing that shift, it’s all the incumbents. If any of them launch a… I think the only… Well, I won’t call them incumbent because I really like their founder, but actually, Jack Dorsey’s cool, but I disagreed with his Web3 view when he had his little Twitter burst. But generally he’s-
Alex: He’s a cool guy, yeah.
Ray: He’s a cool guy and he’s smart. But it’s companies like… Well now they're called The Block, they're not called Square anymore, but I’ll just call them Square. Square can attract people, I think, because they’re still not that big where they’re not cool. And it’s a founder led business and the founder who a lot of people genuinely believe in and follow. So I actually think the only one who’s going to probably attract good talent is probably going to be Square and maybe one or two others.
Alex: Yeah. I think what Facebook or Meta has a big problem is just, they have a really bad public opinion now. It’s just not the cool company anymore. And it’s not like, “Oh, wow. I’m going to work for Facebook.” It’s like more like, “Oh, wow. Yeah, I have to work for Facebook.” I don’t know. The excitement is just not there anymore. It’s really hard, I feel like the rebranding helped them a bit on my personal some impression on them, but I can imagine it’s really tough for them to keep most talented people nowadays. Because if you’re really talented, you can work everywhere. That’s also just a fact.
Ray: Yeah. I think the rebranding, I think, it’s not going to work. I can already see it’s not working, because you have some people saying, “Yeah, Facebook.” They’re not even it Meta, they’re like, “It’s fucking Facebook, man. Forget that shit. Forget that video they launched.” That video they launched as well, it was too stiff, it was too corporate.
Ray: People were cutting up clips off that video and just posting on Twitter, LinkedIn and just laughing at it because it didn’t… And if you analyze that video, there was nothing mentioned around interoperability, about being open. If you look at the script of that video, the true things that people give a shit about, they’re kind of-
Alex: Yeah, I think Zuckerberg needs a-
Ray: Never mentioned ownership, never said that word once because they’re not all in. And the hardcore Web3 people can see that and like, “Forget that, it’s bullshit.” What are your thoughts of that video?
Alex: Yeah, you’re right in the video, they didn’t explicitly say that. But I saw a couple of weeks ago, I think I was on LinkedIn, I feel like they’re always the news collect. Zuckerberg did a video about his opinion on NFTs and he definitely said that this is going to be something they will use in the Metaverse. So I think that he acknowledge that he cannot really touch that wave, and has to rather work with it if he doesn’t want to be left out.
Ray: Yeah. That could be a perspective as well. I think we’ll-
Alex: Yeah. I’m not a huge Facebook fan. Actually, I don’t really use the product, so really hard to say. And yeah, we said it before, it’s just not cool anymore, it’s not exciting. It’s old, it feels old.
Ray: Yeah, for sure. So it looks like the NFT space, I think that’s definitely the one application which has had that broad appeal because people understand it very quickly. Hence Open Sea’s revenue and a couple of the big marketplaces. Where do you see the design space evolving to? Are there particular layers of the NFT capability? I know this might be looking out into the future, which made you go, “Holy shit, this is going to be huge.” Because you’re right, it’s tiny at the moment, Alex, 60 billion market cap is nothing. So in terms of design spaces is there any use cases or any brands getting involved with makes you think, “Wow, this is going to be massive”? If so, what does that look like?
Alex: I think it’s still too early. A lot of companies said that they committed to NFTs and building on the Metaverse, but there’s not that much which happened. I think Nike is definitely the forefront from the established brands and that. The most excited around NFTs are actually more in the gaming space because I just see the application, they’re so, so, so obvious, but again, I know that Ubisoft recently announced the NFT project. I don’t know if you heard of it. It actually was also a bit of a joke in the industry. I think it's one of the most disliked videos on YouTube ever, because they’re just trying to get money out of it. It is actually a question if there’s really a established player who builds on top of that, or is it new players building on it? I rather guess it’s the second one.
I think we will see companies like OpenSea just basically just doing the same on the gaming space. I think gaming is, in my opinion, will be the first mainstream adoption of NFTs because it’s just … you have the target group which is used to digital goods and you have a space which is super growing. I feel this just comes hand in hand that okay, gaming is becoming more and more mainstream and the use case is just clear. You tokenize basically items and you make it interoperability, interoperable between the different gaming worlds. Then you have the gamers which already I use digital items and see value in it.
I feel like that’s just really fitting for first mainstream application of it. But in my opinion will be not an Ubisoft who builds the layer for it, it will be some other company which now evolves. Could also be the new company of the former founder of Twitch. I don’t remember his name. It’s like Jack or Jan, but I know they are working on a new gaming platform for NFTs. It’s called Jack or Jan.
Ray: It’s interesting because if you look at the existing players within gaming, the incentive structure really isn’t there really for them financially to kind of really jump in to Web3 immediately, which is weird, because some of the roots of owning dish assets is from gaming. In fact, it’s from gaming, right? It’s linked.
Alex: I mean Ubisoft tried to make the commitment. Are they going to just build the new gaming world based on NFTs and it’s going to be … and you have a timestamp when you got it and you saw which play you used it, but it’s always with Ubisoft also, it’s again a huge branding issue. Ubisoft doesn’t have a good brand and people are not really looking for that. I feel they’re looking more into the operability space that I can use it on different platforms. I think they missed the point of this blockchain NFT combination.
Ray: Do you think it could be Tim Sweeney at Epic who pushes this through?
Alex: That actually…
Alex: Actually, I think they are in a really good position for that. Especially also how they design the games and how they build the worlds up, it’s always pretty open and they also embrace a lot of items in their games. That definitely could be, could be a potential player to really steer it.
Ray: My guess is someone Tim Sweeney, I mean, he’s been talking about this for a long while and he’s a huge advocate for this. There’s not one metaverse, it’s going to be many universes kind of where you can jump around. I’m guessing his business is larger now so he might just have internal people in his board saying I love your idea, but shit, we’re going to lose revenue for the first three, four years. I think it is going to be interesting.
It might be an Epic who makes a meaningful move, but to your point, it’s probably going to be the native net new companies who’ve got no legacy who go all in and build something meaningful.
Ray: I think there’s a great investor called Chris Dixon who's part of a16z.
Alex: Yeah. I follow him. I follow him. Yeah.
Ray: I mean his tweets are just fuck … They’re amazing, right? The way he just wraps things into a mini tweet storm, but he mentioned the term skumorphic where he goes, a lot what’s happening within Web3 are basically Web2 ideas with some Web3 DNA, and that’s okay because the real big hits are going to be the native use cases where it’s … I think there’s one project called … I think it’s called Loot. Have you checked out Loot?
Alex: It rings a bell, but don’t know it.
Ray: It’s great. That is like hardcore native Web3 project where you own… It’s a bit like … it makes things where you can just buy the original story and then people build on top of that story, so it seemed brilliant.
Alex: Oh yeah, yeah. I actually heard of it. Yes.
Alex: It’s this adventure gear generated somehow.
Ray: Yeah. Role playing game. You can see it’s projects like that, random stuff, which I think might be meaningful in this space. In terms of just wrapping up on the future of Coinpanion, so congrats Alex. Over a hundred million Euro in transaction volume. What do the next two years look like? Obviously you mentioned the NFT product but where do you see Coinpanion in three, four years time?
Alex: I would definitely say we are a European company and we just want to go for … Not just, but our gameplay is we want to be the biggest player in Europe and basically be the BlackRock of digital assets. I always like BlackRock because they did such a huge thing for the financial industry. We just want to do the same for the digital asset industry because we think that’s the asset class of our generation.
Why do I always say digital assets? I think is really important to mention that we are not just a cryptocurrency company, but we are a digital asset company, which means the whole pallet of TFI to currencies and NFTs. And NFTs, again, go so, so, so deep. What will happen in the next couple of years is basically expansion through Europe, expansion of product line, offer new products around NFTs and TFI and basically make this whole space super easy to invest in for the everyday Joe.
Ray: Okay. Makes sense. As a Web3 entrepreneur, what’s been really difficult in building this business. Are there two or three areas which are just fucking hard always in terms of … and Web3 specifically?
Alex: I would say the hardest thing for us is often the regulatory uncertainty, especially on things which are really, really new. I mean there are so many exciting things happening also in the DeFI space which you think, okay, wow, we definitely have to build something on that, this is something people are going to love, but in the end there’s so little regulation around it that they can’t really offer it in a regulatory manner to people in Europe. I feel that’s most of the blocking things.
From the technology perspective, I think especially now … I mean we are not a decentralized company. It’s not that we do … we basically do it custodian, custodial. So we hold the assets for the customer. The idea is really to make it easy so there’s a lot of simplicity in just combining the decentralized nature of many products with decentralized nature. It would be definitely more complicated if you do it completely decentralized. I think the hardest thing for us is really how do you get new stuff to people in a regulated way?
Ray: Yeah. I’m guessing that must keep you awake up at night because it’s changing all the time, right?
Alex: Yeah. The good thing is also the US actually pushing forward with the marketing crypto assets regulation. They are trying to build up a framework for regulating crypto, DeFI. not NFTs, they’re not mentioned there, but at least some parts of it. I feel like now in 2022, we are reading this year where regulation has to come, not just for European players, but for every country. Basically worldwide adoption of it because a lot of the things we see now and a lot of the possibilities, in my opinion, are just blocked out by uncertainty. Is this allowed? How can I actually really implement it? How can I make it also accessible for institutions? Because in the end, we also need always institutions to really drive adoption.
I feel like 2022 will be that year where we get this fundamental layer of certainty, how we can applicate a lot of the use cases on a legal manner, which then is, again, a snowball effect of mass adoption.
Ray: Okay. Makes sense. Yeah. I think there was a hearing before Christmas in the US where I think FDX turned up, the CEO from Circle, I think Coinbase’s chief operating officer turned up. Actually the questions were really good, Alex, weren’t they, from the Senate who attended. It actually impressed me, the quality of the questions, because normally it’s bullshit questions.
Alex: Normally it’s really embarrassing.
Ray: Yeah. Like what the fuck is going on when you listen to those things. But actually fair play to the attendees, there were some really thoughtful questions there.
Alex: Yeah. I feel also there are a lot of people now in really high positions also in the political landscape of the US who have an understanding of digital assets. This is just like this, that the right people with the right mindset are in the Congress helps the adoption in the end. It really seems like that this year is going to be a year where we can finally figure something out which works for both partners, for the regulator and for the providers who are building stuff on top of it.
Ray: Yeah. I’m optimistic. I think we share the same school of thought on that one. But another thing which is interesting Alex, and maybe this is where my age probably will help a little bit, Web2 was Web2, right? It didn’t have too much to build off. Web1 was kind of just web websites and links so Web2 was a big, big journey. Web3, I think, seems a lot more quicker because it’s got Web2 to build off. Also, the way we communicate now through YouTube, Twitter, I mean the information flow now is exponential. It’s changed shitloads even in the last seven, eight years. What that means is you now have got all of these high profile figures, right? Mark Cuban, Kevin O’Leary, even Elon Musk putting BTC on the balance sheet. You got Michael Saylor who it looks he doesn’t even work at MicroStrategy anymore, he’s just doing podcasts.
Alex: He just buys Bitcoins.
Ray: He’s in fucking podcasts all day long. But we are now living in this really connected, ultra-connected world where information flow is instantaneous and it’s global. Now governments and regulators, regulatory bodies are operating in a completely different paradigm. They kind of have to move faster. They kind of have to meet folks in the middle a lot more than the past because there’s so many high-profile people already in this asset class, and a lot of those high-profile people actually sponsor a lot of those politicians and a lot of those parties. It’s all kind of converged in a way which has never converged in history. Does that make sense?
Alex: That’s actually a really good point. Yeah, I can see that.
Ray: That’s why I think there’s this unique context. But don’t get me wrong, I think still there’s going to be huge challenges. Alex, just to wrap up, your top three predictions for the next year or 24 months in terms of just bullish predictions. They might be wrong, but just things that you think yeah, this is going to happen.
Alex: Okay. Yeah. The first one I already mentioned before. I think 2022, we get a general regulation around crypto in most countries. I think definitely in the EU and I can also imagine it in the US, which basically will steer a lot of innovation in the next couple of months then. The second one is I think we see at least 100% growth in VC money in crypto in Web3 and crypto companies. I think the space is especially going on the private company site getting hotter and hotter. I think especially this year is going to be a peak point.
The third one is we will at least see two more major companies going into NFTs, like major companies, top 100 companies in the world.
Ray: Okay. On call, on point two, are you getting so many inbounds from capital allocators? Well we’re looking at Coinpanion, that’s why you’re bullish on the venture space? You’re getting really frothy approaches?
Alex: I mean yes and no. Yeah, we definitely get poached a lot, but I see it more now with really this … I think this is like this self-enforcing effect of NFTs actually getting a mainstream adoption. You got the money. In the last couple of years, you got money last year, people are building products, people are building products, more and more adoption. I know a lot of VCs are really future driven, future focused. I see the point that they really embrace the space more and more when they see okay, I don’t know, Facebook commits to it, even though it’s Facebook. Or I don’t know, Square commits to it. This just gives the … how do you say it … the final check mark from the outside industry. Okay, that’s going to have my massive innovation. In the end, in my personal opinion it’s like there is no such huge innovation anywhere else happening than Web3 currently.
Also not the next couple of years because I think this is going in so many directions and there’s going to be so many tickle points with Web3 with classic industries from internet, but financial industries. I also think it’s going to go into health, medicine, et cetera. Just the space is so overarching that I think they will just go a lot more money into the space.
Ray: And geographical split, where do you get the most bullish approaches from in terms of parts of the world?
Ray: US, yeah. Not surprised. Alex, I really enjoy the exchange today. I think this is going to be super valuable for our audience. Congratulations on your success so far, and hopefully we can catch up for part two and see some of those predictions. Alex, it was awesome connecting, and look forward to seeing you again soon, my friend.
Alex: Yeah. Talk soon. Was great. Have fun.
Ray: Cheers. Bye.