Vessel Capital: Interested in infrastructure, the market will be good by the end of next year

Interview: flowie, ChainCatcher

Guest: Mirza Uddin, Head of Injective Labs and Co-founder of Vessel Capital

Vessel Capital, a Web3 venture capital fund, announced the launch of a $55 million fund to focus on investing in Web3 infrastructure and applications. Vessel Capital was founded by Mirza Uddin, Head of Injective Labs, and Anthony Anzalone, CEO of Injective Labs, and Burnt co-founder.

Although Vessel Capital has only recently been officially announced, it was actually "secretly" formed as early as 2021. Vessel Capital's pool is entirely derived from the personal funds of the three partners, Mirza Uddin mentioned that this investment business was originally a side hustle of theirs, until the subsequent investment returns allowed them to not raise funds from LPs (Limited Partners).

! [Dialogue with Vessel Capital: Interested in infrastructure, the market will be good by the end of next year] (https://cdn-img.panewslab.com/panews/2023/10/11/images/7t07h8kjJ5.png)

Vessel Capital co-founders Anthony Anzalone, Eric Chen and Mirza Uddin

At present, Vessel Capital is more focused on infrastructure investment, and has successively participated in projects such as Coin98, Astar Network, Galxe, Omni and others.

As one of the co-founders of Vessel Capital, Mirza Uddin, graduated from Harvard University and worked as a venture capital in East Ventures, Index Ventures and Two Sigma before officially joining Injective Labs as a business executive in 2020, where he was responsible for the fund's crypto venture capital business.

Why would Mirza Uddin and two other partners start Vessel Capital, a Web3 fund that doesn't plan to raise money from LPs, outside of Injective? How are Vessel Capital and Injective's investment business related? What is its investment philosophy? **How does Mirza Uddin see the current cyclical crypto market and infrastructure developments? Around these issues, Mirza Uddin shared in depth through an interview with ChainCatcher.

ChainCatcher: Can you introduce yourself first, how did you first get into Crypto and become interested in it? What was your experience before starting Vessel Capital? **

Mirza Uddin : I really started getting into cryptocurrencies around 2012, I started playing Bitcoin with my friends, but unfortunately Bitcoin was going up so fast at the time that we didn't quite hold it and sold a lot in 2014. In 2015 I joined an investment firm called East Ventures, an early investor in many Ethereum, other Altcoin projects, and Bitcoin. The experience of working at this investment institution brought me back to the crypto space.

I then invested in Index Ventures, a large venture capital fund, and Two Sigma, a large hedge fund, where I led the investments of my VC funds in the crypto space. At that time, we participated in a lot of interesting companies and became one of the LPs of the well-known venture capital firm Placeholder.

Around 2018, I met Eric Chen, CEO & co-founder of Injective Labs, who was working on Injective's white paper. After Injective completed its seed round in 2020, I officially joined Injective Labs and became the first staff member to work in commercial activities (similar to sales, marketing, BD, etc.).

Injective is now one of the largest blockchain networks in the cryptocurrency space, growing to more than 40 people and raising more than $56 million from many well-known investors such as Pantera Capital and Mark Cuban. At Injective, I am currently managing the entire business team, such as marketing, business development, partnerships, etc. **

Why are we starting a crypto fund, Vessel Capital, in 2021? **Because we realize that there are a lot of VCs in the crypto space who don't really understand the industry, most VCs just give you some money and a logo that you can put on the website without really doing operational work.

But Eric and I have both gone through this entrepreneurial process, so we have a more practical understanding of the operation of crypto startups, like how to list on an exchange? How to deal with market making business? How to properly build and grow a community? I believe our investment can not only provide funding, but also provide some help in the operation of the business.

So since 2021, the investment business has been secretly opened like a side business, and in addition to focusing on the work of Injective, we have also incubated some projects to help them grow, such as Burnt and Omni, two blockchain projects. They have raised more than $30 million from well-known investment institutions such as Spartan Group and Multicoin Capital.

We are also an early investor in Coin 98, Astar Network, Galxe, etc., and we hope to continue to leverage our strengths in this way and help more project founding teams grow."

ChainCatcher: Can you share more about Vessel Capital's process from "secret" formation to official operation? What are some of the most impressive things in it? **

Mirza Uddin : As mentioned earlier, in the beginning we started out of interest as a side hustle for investing. But then we found that our investment returns allowed us not to raise funds from LPs, and we could use our own pool of funds to invest in projects, which was also an important opportunity for the birth of Vessel.

So in the following years, we invested very successfully with this money, and the pool of funds became larger and larger, and then we increased investment and incubation, forming a virtuous circle.

One of the stories that struck me was my experience with the project at Burnt, whose co-founder is now one of the partners in Vessel. That's because we burned a painting by Banksy and minted it into an NFT. In this way, we also helped Burnt raise funds, which was an interesting experience, it was covered by CNN, BBC News, and we were able to announce to the world that maybe real-world paintings could actually enter the virtual world.

That's why I love Vessel because it's our own investment firm and can experiment with a lot of interesting work that traditional VCs can't. I think we will be more innovative and adventurous than traditional investment firms.

ChainCatcher: Why did you name the fund "Vessel", and what is the meaning of the name? **

Mirza Uddin : We were inspired by a place in New York called "Hudson Yards", which is home to a very famous statue called "Vessel", which attracts a lot of sightseeing. And the word Vessel has the meaning of "ship". We want to be able to sail with the founder, work with the founder to succeed, not just be a standby.

ChainCatcher: Do you currently have some goals for Vessel Capital, and what is the approximate pace of investment? How big is the current Vessel Capital team? **

Mirza Uddin :*Team size is the easiest question to answer, and we don't plan to expand the team significantly. It will still be me, Eric Chen, and Anzalone, because we want to streamline to make sure we're a different venture capital venture in terms of investment horizons. **

We want to be very selective and usually don't invest more than once or twice a month. But once we get it, we're very committed to the project. Our goal is to see the companies we invest in incubation launch their tokens, survive and continue to go strong, and the aforementioned Burnt and Omni that we invest in incubation, both of which have been running for over 2 years and continue to go strong.

During the bear market phase when most venture capital firms almost stopped investing, we actively invested in operations, hoping to invest in as many companies as possible before the bear market ended. Because we bet on the founders and are involved in the early stages of the project.

ChainCatcher: As the head of business development at Injective Labs and Eric Chen, CEO of Injective Labs, both co-led Vessel Capital, we know that Injective Labs also established a $150 million ecological fund at the beginning of the year, what business connections will Vessel Capital and Injective Labs have? **

Mirza Uddin :** That's a good question. We are trying to separate the two as much as possible, so they are completely separate entities without any relationship. But Eric Chen and I do both work full-time at Injective, and we have access to a lot of projects here, which is also helpful for Vessel Capital's investment, and there may be some intersection. For example, some early-stage projects invested by Vessel Capital may also cooperate with Injective, or some projects that Injective has cooperated with may also become potential investment targets for us.

ChainCatcher: Vessel Capital's initial capital is mainly funded by your three partners? Why did you decide to establish venture capital funding with zero external funding? What are the disadvantages of venture capital funds through the financing model? **

Mirza Uddin : A very simple difference, taking your own money and investing other people's money is not the same mentality. I believe that when you have to pay for something, you do better. Investing your own real money will be relatively more cherished.

Traditional venture capital firms, on the other hand, usually receive funding from high-net-worth individuals or large companies, known as investing with LP money. VCs generally automatically charge a management fee of about 2%, and if you raise $100 million, you automatically earn $2 million a year. That is, basically VCs don't matter even if they lose money, their annual salary is still $2 million, but if they make money on some investment, then they will get 20% profit. But such incentives are dysfunctional because you are using other people's money and you are not risking anything with your own money, without consequences.

This has led to the majority of the investment philosophy of expecting 95% of companies to fail, but betting on the next Facebook or the next Google. So they're actively investing, it feels like they're playing the lottery, and their mindset dictates that they also make a lot of bad bets. After investing, there is rarely more in-depth communication with the invested company.

But we use our own funds, and we want to make sure that the money we invest will not be lost and return as much as possible, so we will also work more with founders on the ground to ensure that the company is doing well and growing.

ChainCatcher: As mentioned in your recent interview, Vessel has invested in "dozens" of companies, including Burnt and Omni. What is Vessel's current investment focus? **

Mirza Uddin :**Injective focuses on infrastructure, so infrastructure is the area we know best. **So Vessel is also investing primarily in infrastructure, with a goal of investing one or two projects per month. In addition to infrastructure, we will also focus on some applications, such as games. **

At the moment, the most interesting trend in the infrastructure space is Rollup-related content, but there are too many Rollup and ZK solutions. And most of it is still based on the current hype narrative, so I am not actively investing in ZK, and I think in the end the market is still winner-take-all, which is why so many people like Polygon and ZK Sync, and the other twenty or thirty ZK products may not do very well.

In general, we want to focus on getting to the heart of developments in some areas, rather than just following hot spots.

One thing I've learned over the years in crypto is not to follow a hyped narrative lightly, and often when it's overhyped, it means it's dying quickly. For example, in 2021, almost all users in the crypto field are chasing the boom of Play to Earn mode chain games. But this economic model didn't make much sense to me, so I didn't really invest in it, and two years later, most of these projects are dead, even the head Axie is dying.

Our strategy is to make smarter and prudent choices, focusing earlier on valuable areas that others aren't paying attention to, so that we can ultimately achieve higher valuations and returns.

ChainCatcher: So you think a lot of Rollup and zk schemes are a bit homogeneous now, how do you see their performance in the next cycle? **

Mirza Uddin : I don't have a conclusion at the moment, because the only real zk Rollup or zk Layer 2 I have used is zk Sync, and we have not seen any token airdrops at the moment, and solutions like zkSync are very hyped at the moment, mainly because of airdrop expectations.

But I question the veracity of the hype, which many of us like to exaggerate as the decisive "next big thing." But after the airdrop, we know that many users will leave after getting the airdrop, and how many real users and transaction volume the project can retain is also a problem. **

At present, many zk solutions are facing such a reality, Polygon such a big project, its zk plan has been running for nearly a year, but TVL is less than $50 million, which means that it has not received much market demand, and Polygon is the same, how can other zk Rollups get traction?

ChainCatcher: The concept of infrastructure is very large, can you share what areas or characteristics of infrastructure will you focus on investing in? In addition to Rollup, what are the infrastructure developments that you have been paying more attention to lately? **

Mirza Uddin: First of all, I focus on industry-specific blockchains, not just general-purpose public blockchains. For example, blockchain that focuses on industry-specific applications such as games. Having a focus means you have the potential to do more extreme and ultimately gain the ability to dominate this vertical. Traditional Web2 is like this, and Facebook started with a very simple idea and didn't start trying to do dozens of different things at the beginning. But most infrastructure projects at the moment seem to try to do a lot of things.

This is followed by liquidity staking, which can naturally become a multi-billion dollar agreement if you can unlock huge amounts of liquidity.

In the Ethereum community, only Lido can currently be called a large-scale LSD protocol. But in fact, in the large public chain ecology of Avalanche, Near and Polygon, there is no large-scale LSD protocol.

In terms of liquidity staking, we want to see more experimentation and innovation, such as cross-chain LSD protocols, which I think are interesting, which means that you release liquidity not only from Ethereum, but also from other chains.

The second is account abstraction, wallets are also the direction we pay attention to, how can we abstract important things, I think the application and the chain itself must be abstracted, and our current experience with crypto applications is complicated, for example, our parents' generation simply does not know what MetaMask is and does not know how to use the wallet address.

If there is no good user experience, forcing users to use it is harming consumers. How to improve the user experience of portals such as wallets is an important thing, for example, whether you can sign with email or face ID on the iPhone, it will be automatically linked to the back-end wallet, but users do not have to know the private key they have created in the background. I think the real account abstraction, even if this cycle doesn't materialize, will definitely happen before 2030.

ChainCatcher: Besides layer1 and wallets, what other segments are you interested in? **

Mirza Uddin :*First of all, I think Layer 1 will still dominate forever. Looking at the previous cycles, you can see that the best performing tokens, or consistently best performing tokens, tend to be Layer 1.

You've probably heard of the "fat protocol" paper, for every dollar the DApp layer captures, the protocol layer will be able to capture at least the same dollar, so Layer 1 is very tempting.

But the interesting thing about cryptocurrencies is that there is a new generation of Layer 1 in each cycle, and I don't think Solana or Polyon, which dominated the previous cycle in the next cycle, will still provide users with the best options and returns. While they are still the top 50 tokens, only the new protocol may offer brighter innovation and returns.

Layer 2 is still relatively early, and in my opinion, it is still the most noteworthy of Arbitrum and Optimism. In addition, I think the Layer2 launches of some of the top crypto companies are interesting, such as Linea, a Layer2 network developed by the ConsenSys team, and Layer2 Network Base, incubated by Coinbase. I don't think Base will have a token because Coinbase is a public company. But Linea probably has.

They will all get a lot of use and ecological applications, and there will even be some top-level projects involved. But I'm a bit bearish on OP stack's rollups. Because Coinbase uses the OP stack, a lot of projects have been following suit lately, but I think it's most likely the current hype narrative and this trend will disappear soon. Because most of these applications don't have enough users to scale as much.

And I think in the coming cycle, RWA is a huge narrative that cannot be ignored, and RWA tokenizes real-world assets like treasuries and even stocks. And I believe that building a quality infrastructure for any RWA will do well.

I also have reservations about some tracks, such as NFTFi**, which is very dependent on the price of the NFT itself, and the NFT itself is positioned as a niche product, so I don't think it can advance to the top 100 by market cap.

ChainCatcher: Do you have some clear plans for the investment phase, investment region, etc.? **

Mirza Uddin : I don't have limitations in the investment phase, but I want to try to get into the early stages as much as possible. We also don't have a clear preference in terms of geography, and we have invested in projects in many different regions such as Japan and Vietnam.

It's true that a lot of the big infrastructure projects right now come from the U.S. and Europe, but I think Southeast Asia, East Asia, and the U.S. dominate to some extent in terms of talent distribution. Europe, on the other hand, is a bit behind in innovation.

**12, ChainCatcher: Web3 scenarios and applications seem to have failed to achieve a huge breakthrough, what type or characteristics of applications do you think will be the first to break through the bottleneck of user growth in the future? What are the application directions that you have paid more attention to recently? **

Mirza Uddin :* One of them is to transform DeFi into a low-barrier application like traditional fintech applications. For example, without needing to know about cryptocurrencies, if I could use a normal app on my phone and put my money into earnings, I think that would be a huge use case.

I also think games could have the potential to attract a large number of users, such as millions. Because what is certain is that gaming is indeed a unique track that can attract cryptocurrency applications.

So cryptocurrencies are interesting, infrastructure projects because they can be airdropped to users to bring huge returns, so no one cares more about their large-scale adoption. At the same time, users of the app don't really care too much about whether the app is built on Arbitrum or Optimism, they just care about whether it's easy to use. So it's not infrastructure that's about mass adoption. It's applications built on infrastructure that are being adopted at scale.

ChainCatcher: In what ways do you examine the investment potential of the project team, and what qualities are founders and founding teams more interested in investing? **

Mirza Uddin :* Usually, I prioritize one – do they really understand cryptocurrencies? Because cryptocurrencies are very different from the traditional world. Even if you have members from Stanford University, Goldman Sachs, it doesn't necessarily mean they understand cryptocurrencies, as the cryptocurrency industry is very different from traditional startups.

So, first I try to evaluate core topics such as how long the founders have been in the cryptocurrency industry and whether they know how to grow their communities. Some entrepreneurs may have great ideas and seem clever, but whether they really know how to actually acquire users, build communities, get financing, etc. needs to be examined.

Second, can they cope with volatility? Because cryptocurrencies are always volatile. The reason why we like to invest in a bear market is also because building in a bear market means that he may be a fairly determined entrepreneur with a greater chance of surviving in a bull market.

In addition, I also look at whether there is at least one technical founder in the founding team, because if not, it will make subsequent development much more difficult, such as you need to hire a developer, but you don't know how to evaluate him, and you can't discuss key technology routes together.

**14、 ChainCatcher: You mentioned that the entrepreneurial backgrounds of the three partners of Vessel Capital can better understand and provide more practical guidance and advice to your investment companies, can you share your post-investment help cases? **

Mirza Uddin :* First, we may help them familiarize themselves with some different exchanges, for example to help with the listing process.

Second, help them build community and social media. Many of the founding teams come from technical backgrounds and may be very smart, but they don't know how to raise awareness about their projects.

In addition, there are some general but important issues that we will try to assist with. For example, in tokenomics, many projects will simply provide a large number of rewards and liquidity mining incentives, but once these incentives end, the token may face zero. As an investor, you have to stop this from happening as timely as possible and get them to redesign the incentives and how the tokens are used.

Also help raise funds and introduce some investors we are familiar with to them. Even, some experiences in building teams, hiring employees, and structuring compensation packages will be shared.

**15, ChainCatcher: Grayscale wins SEC, making everyone look forward to the arrival of Bitcoin ETFs and the bull market in the crypto market? What are your judgments on when the next bull market will come? **

Mirza Uddin :** The main concern that a lot of people worry about is regulation, but I don't think it's a thing to fear. After Ripple and Grayscale win the case, the SEC may not be as aggressive about cryptocurrencies and will instead try more cooperation. This also allows more traditional financial capital to be less afraid to enter crypto.

The entry of traditional financial conglomerates is also the beginning of each new cycle. First, we do see traditional financial institutions like BlackRock apply for Bitcoin spot ETFs, meaning they see Bitcoin as a real asset. If it does, more users can buy more bitcoin through ETFs, and the money will slowly flow into retail retail and other channels, thus getting rid of the fear and uncertainty of the market, and the crypto market will gradually recover. It's not going to happen immediately, but I think the next few months will see more agencies step in and deploy funding.

On top of that, the emergence of a Bitcoin ETF will happen early next year or a few months from next year. It will once again suppress the supply and ideally increase the demand for Bitcoin. Now that the market has received large sums of money from the capital of traditional financial institutions, the supply is even tighter. Bitcoin may rise to $35,000 or even $40,000.

Then the retail market will trigger the hype again, and the market will gradually explode. After Bitcoin, it will be easy for institutions to study Ethereum. After the theory about money permeates all currencies, that's when you'll see the whole bull run.

Obviously I can't predict when it's going to happen, but my expectation is that by the end of next year, we'll see some really good market trends. We still have a few months of sideways movements where the market is just sideways rather than up, not super down, because there are no major factors like catalysts or movers to make the market go up or down.