Dusan Kovacic on venture investing in crypto infrastructure and gaming

0:00I'm Ashton Addison from Block West capital for investment pitch media and today on blockchain interviews we have doosan kovacic the chief investment officer of the Rockaway blockchain fund also known as RBF doosan welcome to the show and thank you for taking the time thanks for having me you're very welcome eager to learn about your investment

0:24thesis where you're seeing the growing Trends in blockchain moving into this next cycle and I'm guessing your team's looking long-term into even farther beyond that so I'm eager to hear your insights on that and I would love to just kick it off with sort of a overview of RBF and what you guys have been investing in and where you see the market going and then we'll dive into

0:46all the details okay perfect so let me let me start with the short intro my name is I'm the chief investment officer in the RBF we are a venture fund we started investing into 2017 today we managed roughly 500 million of assets VRC to csb investor these days we prefer leading deals we invest like 500k to 5 million check sizes into

1:13Verticals that belong to our investment thesis right now our core focus is a infrastructure because we still believe for the blockchain infrastructure to be able to serve one billion users like a lot has to improve and the second is consumer especially gaming which we see like the next place of adoption of users will come from this segment and because people are looking

1:35for like real life experiences which which which has to serve this consumer market so this is the this is our main business VC in addition to that RBF also has a Yield Fund that we are offering pretty much a bootstrap liquidity for D5 protocols that we invest in or we want to support it's pretty much a standalone fund today it manages roughly

2:0250 million and we provide we generate deals for our investors with Market neutral strategies when there are no defined opportunities available we also do C5 today most of the year is coming actually from C5 it's it's a large part of our strategies today is pretty much lending lending to market makers in a diversified way and the third the

2:26third part of what RBF stands for is engineering we have always been Tech guys Victor who is the CEO and the managing partner and me have a technical background Victor founded a technology company in Nova tricks we I have been software engineer I have a software engineering background I have been building mining farms for example for Monero or ethereum back in 2016-17 I was

2:53also working as a software developer back in the days developing software to protect companies from datalics which are coming from like employees in some kind of My Confession where they you know were addressing their own interests rather than the company's interest so we have been obviously guys and we like to also approach the market in very I would say data driven

3:17way and historically there has been a lot of noise in crypto and that's why we actually utilize our technical background first you know like understanding the data themselves we started to run the node to extract the data ourselves for example we hear investors in Solana but we didn't know about the traction of Solana was back in like 2017-18 so we started to explore

3:41that and we started to pretty much build our own infrastructure and we expand it into staking so right now we are running roughly 20 nodes we have our own physical Hardware we contribute to the decentralization we don't like to support like concentration on the AWS or Google cloud or anything else so engineering is a large part of our mistaking is large part of our

4:07engineering efforts but in addition to that we have lab streams which pretty much builds products on top of on top of platforms that we invested our overall this is for the fund is that we help Founders shipping product faster because like we have the VC fund that can provide the capital we have the youth fund that can bootstrap the liquidity and we have the engineering

4:27team that can either help the founders do the with the Consulting on the technology or that can build initial products on the platform that we invested amazing Tucson and I think it's a huge advantage to have that technical background and sort of understand the inner workings of the company rather than just being only on the business side I think that's important

4:49And to have the yield and the engineering side and be building with the founders it's more of a strategic investors and helpers rather than just giving your money and hoping that the team you know does what they say they do you're able to actually help them with that so I think that's a huge Advantage there and you mentioned at the beginning

5:08about the infrastructure I think that's obviously necessary for mainstream adoption to have the infrastructure or when these applications get to a level of millions of people using them and they can't scale because the underlying infrastructure isn't ready for that then you know you've sort of gone too far without fixing the fundamentals so

5:30obviously infrastructure is important there I would love to hear more on you know you mentioned their Solana and running the nodes but yeah what other infrastructure plays has RBF been looking at and where do you think the most important parts of infrastructure need to be continued to be developed to get to mainstream adoption and blockchain that's a good question so we are big

5:51Believers on the multi-trained world and we are not a big fan of the EDM or our solidity itself because it fundamentally doesn't allow development to scale especially if you look at like for example like today's software development in web 2 it's all about like time code time to Market and ease of use of the programming languages yeah so we have JavaScript you can code easily a

6:17front-end or you if you want to do like the machine learning for example you have Python and only if you want to do like low level programming you use languages like C C plus plus or RF it's cool to develop in C plus plus and I have been a C plus plus developer myself in the past but the problem is that it takes ages yeah and we see that the

6:39space is evolving into into platforms into development platforms where you optimize for time to Market in blockchain though right now we see the EDM and the solidity as something that doesn't allow you to scale at least not in our eyes I know there is a large part of investors that believe like the evm is like the JavaScript type of situation back in web 2 where a lot of

7:04like JavaScript was not ideal it was slow it has like security issues but even it was so popular that it survived anyway and it scaled but I think JavaScript the comparison to solidity has like had like one really large advantage and that it was really easy to develop in JavaScript while in solidity it really takes ages so we really look at the execution

7:26models and the programming languages that this blockchain support and are looking for a solution that can really address the development need quite well in context of like security and time to Market so that's one angle and of course we are also looking for other part of the of the multi-chain what infrastructure that includes for example Bridges we invested in excellent

7:50other thing goes like data or RPC platforms so we invested in pocket there are also oracles as a large part of the infrastructure be for example invested into sewage board recently so that's like version one of the blockchains that BC as of today that the multi-chain world as as we understand it today but what is coming in our view is the evolution

8:17Brought by the zero knowledge cryptography and we really see the evolution to be quite substantial because in the early days cryptography today asymmetric creature as you can only prove like two things one that you can encode the message to be only read by the desired reader or B you can prove your identity but what zero knowledge actually and allows is to prove any

8:42computation yeah so you can design any computation you want and you can execute it locally and then you can prove the result together or you can prove that you can have the proof of the result together with the result and everybody doesn't only have to like replay the computation as they have to do now but they just validate the result together with

9:04the proof which which I would say has quite substantial impact on the scaling of blockchains because as as I said not every node has to recompute the computation but just one node's compute and everybody else just validate which I think will will really enable blockchains to be used by a billion people great point and going back to the part where you talk about you know the

9:32future being multi-chain I'm curious on your thoughts on other you know multi-chain platforms for example the cosmos ecosystem is supposed to be designed with this IBC inter blockchain communication protocol to help the future be multi-chain so I'm curious on your take on that and as well do you see a need for you know more layer one protocols to be popping up or

9:57do you think you know that is eventually going to become saturated I think that the question on layer one is quite interesting so I will start answering that and that's because like the process on how to launch layer one is actually quite figured out yeah like you have the validating companies you just initially like partner with them they start to run the

10:18network and you start the whole chain first in the test net and then in the in the minute or production phase and what is actually what we have actually seen or what the history shows like launching a new blockchain is much easier than upgrading existing Solutions I think it because you have all the historical technical depth and backwards compatibilities that you have to keep

10:38and it makes like any updates really difficult so I think we are still in the face where there will be a new layer ones launched because it's quite easy to learn with a from the history on what worked in layer one scaling and what didn't and just and just learn from that and figure out like okay this is my solution and enlarge a

11:02new comparing to like when you need to upgrade the existing social so I believe there is an opportunity for new layer ones to belongs and it can be it can be like it can be anything it can be pretty much approaching the scaling from parallelism fashion like like sui or Aptos are are going or it can be it can be with the modular stack like the cell STI and

11:27then the lighter tools are are approaching so I am happy to invest in this vertical like moving forward and it's because like the current problems are or the main challenge is to serve the billion users and there is no infrastructure to do that right now definitely and you mentioned earlier about investing in bridges and we've seen in the past even still there's

11:52still a lot of exploits and you know it doesn't seem that the bridges are perfect to sort of bridge these different blockchains together I'm curious on your take on you know the IBC and sort of Cosmos infrastructure and being able to sort of communicate these blockchains together more efficiently do you think that's something that will be more prevalent as these blockchains

12:11continue to grow I think that's a that's a question that remains to be answered so the cosmos model is like we have like app specific chains which has I think the IBC itself is okay but it has the challenge with like availability of those chains yeah because like each of the changes like its own set of validators which which can which can have the

12:34consensus on that particular chain but I think as long as the industry is aware that or the users are aware that such thing can happen this can be about model to scale on the bridges though I think the if I find the analogy very much in the exchanges when there were exchanges back in 2016 or 15 or earlier that were hacked and people were

13:02claiming okay exchanges can never be secure like you're you're not your key is not your Bitcoin yeah this meme is always out there on Twitter once in a while and I think but if you look at the exchanges today I mean the hacks are very rare and even if they occur the Exchange covers it from from its own balance sheet so I think it's all about like majority of the

13:25technology and the bridges are not there yet but eventually they will be there the challenge with Bridges though is the users lose money and it's painful but I mean after a while when when there are best practices figured out I expect these problems to diminish definitely and you know in the recent case with the binance smart chain

13:55there was I believe it was an exploit in the in a bridge as well because typically there's two blockchains simultaneous on using Finance smart chain and there was a exploit in the bridge between them and then all of a sudden almost 600 million was started to be minted and siphoned out and you know the you know finances sort of went in and sort of freezing things and

14:19turned halted you know the blockchain sort of took control for a minute to mitigate all the losses which is good in a sense but on the other hand you know there's the decentralization maximalists who say you know that maybe having a centralized entity that can turn off the chain or change things is not the ethos of decentralization in blockchain what's your take on you

14:47know how that was handled and do you think that it you know it's it seems you know there's a little bit of centralization in all of these blockchains nothing's really fully fully decentralized so yeah is that the way that it just is and we should all accept that I think it's I'm very practical I in terms of like having it does like everything has to be decentralized I'm

15:11not a big fan of that because like the more decentralized the less practical or upgradable and if you want to if you want to be fully decentralized that means or like Bitcoin for example you are not evolving when you are betting anti-innovation and you're like keeping the status quo forever which allows like the competitors to front running so I think there has to be

15:34a tight balance and it's pretty much it's pretty much I think the it's pretty much an angle of practicality and use cases that you are serving yeah I like to compare it for example you have you have a wallet that you have in your pocket and you have like the treasure where you store gold you don't you don't need to you don't need to you

15:55probably don't have all your savings in the wallet and you don't carry it like everybody and that's that's called it okay these are the these are the app specific chains and then you have to do your savings in the bank and let's call the bank the or you know in about like under the ground if you have a lot of money and let's call it Bitcoin yeah so I would I would assume like I

16:15would I would I would think about it in a way where really the decentralization level is really related to the use case that you that you need and I we are actually a big I would say a big one of other concerns in lab's team is actually about decentralization because it's not only decentralization of stake it's also decentralization of

16:43the state like within the data center or within the country or between an ASM block that can have like a that can have an application on the availability of the change because for example EDC a regulatory attack and there is like 40 percent of nodes of for example like osmosis running in the United States and the United States providers like shut down the nodes

17:06the contents of the chinese-hearted and the chain is not operating anymore so we have developed an application for monitoring of decentralization across all these Dimensions called Observatory Zone check it out it's observatory.zone and it's pretty much focuses on the cosmos zones here we have aggregate XLR we have roughly 20 chains that's great knowledge and that sort of

17:30makes me think about the recent SEC news as well where they're trying to claim that the ethereum transactions are are sort of in the U.S jurisdiction because you know 40 of the nodes are are in the US or at least that's what they're claiming yeah with the recent transition you know you spoke earlier about how it's a lot easier to make a new blockchain than it is to upgrade an

17:57old one because of the backwards testing and making sure things don't go wrong and that's why I believe part of the reason that ethereum took seven years to upgrade to proof of State because it just kept keeps growing as they're trying to change it what's I'm curious on your take on that move to the consensus mechanism I feel like it definitely adds more

18:21centralization and perhaps makes it more unfair in the consensus of making it easier for people that already have a big stake to earn more do you see that as in terms of the infrastructure play and like growing adoption does that really matter what the consensus is if it becomes more centralized or not

18:50for me for me the transition to POS from Pro work it is not I found the risk in the transition itself but even if the risk has not materialized and it went quite smoothly I don't find that it's to be there I think ethereum itself is not about earning it's about like offering like the trustless platform anybody can run the operational I find the risk of 40 of blocks to be produced

19:16in United States quite substantial but there is also this risky mining as well I mean you have you have the nodes that are operated in certain jurisdiction the same way you have mining Hardware in certain new restrictions yeah so I find I don't find it like very different in this case maybe maybe in the transition to Proverbs to exchange this jurisdictional

19:39dependencies but they are still there so for me this is this is not something to Really worry about unless there is a there is a regulatory attack from the United States on ethereum itself somehow trying to affect for example the transactions that are being processed like pushing on censorship or pushing on The Operators to I don't know to

20:08certain actions which which are not really wanted yeah well we're already seeing a little bit of that I just saw this morning there was a usdt address that was blacklisted and we've seen the usdc addresses blacklisted from the U.S sanction of the tornado cache so it's not too actually if I can jump in this is something we want to

20:36understand more in detail so right now our Observatory project was focused on the cosmos zones but we see a lot of like like ethereum proof of stake transition is Big topic not well understood so they are focusing our efforts to understand and at the ethereum as well and then we will have more info but yes you are correct this is this is a challenge okay and design I

21:00want to jump to another another topic for a minute on gaming because I know your team is also investing in gaming and it is a huge potential Gateway for millions of people to join into web3 you know there's a lot of most of the AAA games are not touching nfts and you know GameFly yet although I'm sure they're looking at it but when they when one does you know

21:26some of these games have millions tens of millions of players that could easily move into web 3. what tracks are you and your team looking at in ways that RBF is trying to break into the gaming and GameFly industry yeah I'm looking for an amazing Founders that are that they have been proven in like web2 gaming and can bring the execution now to develop a game into

21:50into battery in combination with light native crypto economy experts because I think that the whole challenge is here like I see I see the way how the web 3 games or gaming studio disrupt I found the analogy or comparison in initially big financial institutions the banking sector was not able to accommodate defy and I really like

22:18fight if I think or I really like didn't really consider it as something to care about and I find this comparison also in gaming now where the big companies like blizzard or EA are I'm not really taking it seriously and the web 3 Model opened just drastically disrupts their existing business model so they are not really incentivized to figure it

22:40out so I think this allows the early stage star or the startups really breaking and disrupt disrupt the traditional game publishing companies that the same way like li-fi is disrupting the traditional financial sector and I think that is I think the game is on and I especially think that if you look at the history or if you look at the

23:04the gaming market right now I believe Graphics is not actually driving the innovation in gaming anymore it was in the past yeah like when when it was like the cases of like Half-Life or Doom but right now it's all about like Creator economy if you look at the most you if you look at the most played games like for example Roblox there's like 15 million daily active users it's all

23:24about like the part of the user base creating experiences for the other part of user base and Roblox is actually taking a cut but if you look at the at the cut they take 70 of the Creator here which is which is quite dramatic and the Creator itself becomes a victim to the to the platform themselves so we have a platform blocking you are really dependent they can change they can ban

23:48you they can change the terms and conditions regardless of your of your needs which is why I believe that get open for this option because I mean as everybody knows like blockchain democratizes access to digital assets assets which also means it democratizes assets access to assets that are in games yeah so now the challenge is like how does the new business model look

24:10like so it can be either so it will not be the traditional business model like as we see now like for example from selling like skins or like really creating the user and giving him like items based on whatever you program yourself but it will be either from secondary Market royalties this is prawns and cons because like they can be bypassed

24:36everybody knows that it can be from the primary offering of like new items but also this has to be like really producing new content every day or it can be something else like for example the harburger tax everybody's talking about where where it's all about like paying rent on the asset that you are using in the game like continuously but I would say these models have not

25:00been figured out how to scale the economy moving forward but I think it has been already proven that it will that there will be a model that works because for example even though like everybody cared about axi at some point and it was very interesting and it really like globalized like the market where you saw like part like in Philippines people were playing

25:21And making money who that were paid by by the people that they're holding the axis so we see this model to work to be working but the economy aspects themselves has to be figured out yeah yeah actually was cool but the economics responded so it was like doomed to fail yeah even though other people made a lot of money but that

25:50applies like a lot of people lost money but it just gives us the taste of the opportunity that is out there definitely and I like your approach what you said at the beginning of this part on gaming where you're looking for Founders that have had success in web 2 games and they're not so focused on the token economy inside a game that the game itself isn't really focused on you

26:15know and I think a lot of people got into axi Infinity because they heard that they could make a lot of money and you know it sort of was unsustainable because it went all the way up and then it went all the way down and people if they weren't making money people weren't interested in playing the game right and I think you have to go back to the roots of gaming

26:35and that people want to play the game because it's fun and they enjoy it and the token part of it is an added value but it's not the entire thing or it won't be sustainable so yeah yeah and I think the fun factor is the key factor to consider here so that's why I like the experience proven teams that know actually how to develop the entertainment Factor but I think

26:58also the concept of like crypto economic expertise is quite important because you need those two to coexist together otherwise the economy will not will not scale and as you are a Founder you will probably not figure it out on the first time yeah because like there is that the concept on how to make the company or the project successful

27:21from the economic stands Point are not known yet so there is a lot of pivoting needed and you need to be really good at I would say edit and you need to become an expert in pivoting and looking for this economic model that is the right combination that will lead to success so I think you need these two aspects in a in a gaming company early stage that

27:47has a good change chances to succeed and I also think because we will need a lot of pivoting initially you will not be investing a lot of like upfront into Graphics yeah so I find particularly interesting to think about it in a way where it's all about like search for the fun for the fun aspect in context of this open economies and I find it very low probability that

28:17it will have like a triple A Graphics because there will be no time to invest and revert the graphics all the time so it's very likely that the successful games initially as you actually saw in the axi case would not be really like a heavy graphically development yeah it's interesting to see you know the current games and the graphics that they have compared to some of the games

28:41you see on PlayStation 5 and you know these these traditional consoles it's all about you know it pretty much looks lifelike at this point in these traditional games and I'm seeing quite a few blockchain games that are coming out you know they're not trying to rush to the market but they're putting a lot of value into the graphics and I think eventually that part will catch up as

29:02well and who knows if decentraland has their sort of low quality Graphics will be the go-to metaverse or we'll be sitting in life like metaverses in you know the coming years but there's it's definitely a huge opportunity I like your analogy that you've made in you know the D5 was like At first that the banks didn't know how to handle D5 and now they're sort of jumping into

29:24it and I think that's happening in game five as well so I'm really looking forward to seeing how that all grows and if I get up to the metaverse I actually I actually find like like The Meta versus like the Holy Grail of Internet economy like you have this environment where like everybody finds their own business model to contribute

29:48or to extract value but I think this is still like a lot of years out I would say five to ten years because even the very Niche economies where you have like very limited audience are not really working in a production setting yet so I think the steps in the success would be okay first we will see like a niche I would say

30:11in-game economies that will work in this web 3 format of openness and eventually I would call metaverse like a niche economics generalized yeah so there is like a lot of small economies that combine into like one big economy that we call metaverse and we will have a Triple A ux on top of that so I think like first there has to be this Niche economics and then there can be a time

30:33to talk about matters I think talking about like meta where it's straight from the start is like do you think a generalized AI I mean no the generalized error is not really working or is we are not there yet because it's not good for anything yeah so you are building like very special A specialized area like for the image generation or solving some other

30:54problems so I find this analogy also quite interesting like you just need to have like very specific go to market with very specific use cases and then if this works you can like generalize it great insights and we don't have a lot of time left Tucson but I really appreciate your insights into you know the infrastructure and in gaming both very exciting parts that I think

31:17will have a lot of growth in the coming years for the viewers that want to learn more about these topics or just about RBF is there a place where they can go to learn more and get involved yeah feel free to visit our page rbf.capital or my Twitter account it's a rampage 4551 that's that's the number of the crypto Bank and also

31:43Feel free to check out the observatory.zone which is our platform for analyzing the centralization metrics across the cosmos zones and hopefully future also ethereum incredible thank you so much Tucson I will leave those links in the description box below as well all the best with everything and the fund moving forward and let's follow up in the near future

32:05thank you Ashton thank you