Interview with Vessel Capital Co-founder Interested in Infrastructure, Market Will Improve by the End of Next Year

Interview with Vessel Capital Co-founder Infrastructure Improvement Expected by End of Next Year

Interview: flowie, ChainCatcher

Guests: Mirza Uddin, Business Director of Injective Labs and Co-founder of Vessel Capital

Recently, Web3 venture capital fund Vessel Capital announced the launch of a $55 million fund dedicated to investing in Web3 infrastructure and applications. Vessel Capital was founded by Mirza Uddin, Business Director of Injective Labs, and Eric Chen, CEO of Injective Labs, along with Anthony Anzalone, Co-founder of Burnt.

Although Vessel Capital was officially announced recently, it was actually formed in 2021 in secrecy. The funding pool of Vessel Capital is entirely sourced from the personal funds of the three partners. Mirza Uddin mentioned that this investment business was initially their side job until the subsequent investment returns made it unnecessary for them to raise funds from LP (Limited Partners). Thus, Vessel Capital was born.

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

Currently, Vessel Capital focuses more on infrastructure investments and has participated in projects such as Coin98, Astar Network, Galxe, and Omni.

As one of the co-founders of Vessel Capital, Mirza Uddin graduated from Harvard University. Before officially joining Injective Labs as Business Director in 2020, he worked in venture capital at East Ventures, Index Ventures, and Two Sigma. During his time at Two Sigma, he was responsible for the fund’s cryptocurrency venture capital business.

Why did Mirza Uddin and the other two partners start Vessel Capital, a Web3 fund that does not plan to raise funds from LP? What is the connection between Vessel Capital and Injective’s investment business? What are their investment philosophies? How does Mirza Uddin view the current trend of the cryptocurrency market and the development of infrastructure? In an in-depth interview with ChainCatcher, Mirza Uddin shares his insights on these questions.

1. ChainCatcher: Can you introduce yourself first? How did you first come into contact with crypto and develop an interest in it? What was your work experience before founding Vessel Capital?

Mirza Uddin: I truly started to get involved with cryptocurrencies around 2012. Initially, I and my friends were playing with Bitcoin, but unfortunately, Bitcoin rose very quickly at that time, and we didn’t hold on completely. We sold a lot in 2014. In 2015, I joined a venture capital firm called East Ventures. East Ventures was an early investor in Ethereum, other Altcoin projects, and Bitcoin. This work experience in the investment firm allowed me to return to the cryptocurrency field.

After that, I worked for large venture capital firm Index Ventures and large hedge fund Two Sigma as an investor. During my time at Two Sigma, I was responsible for leading the fund’s venture capital investments in the cryptocurrency field. At that time, we participated in many interesting companies and became one of the LPs of the well-known venture capital firm Placeholder.

Around 2018, I met Injective Labs CEO & Co-founder Eric Chen. At that time, he was preparing the whitepaper for Injective. In 2020, after Injective completed its seed round financing, I officially joined Injective Labs as the first employee responsible for business activities such as sales, marketing, and business development.

Currently, Injective is one of the largest blockchain networks in the cryptocurrency field, with a team of over 40 people. We have raised over $56 million from well-known investors such as LianGuaintera Capital and Mark Cuban. In my current role at Injective, I am responsible for managing the entire business team, including marketing, business development, and partnership relationships.

Why are we starting a cryptocurrency fund called Vessel Capital in 2021? Because we realize that many venture capital firms in the cryptocurrency field do not truly understand this industry. Most venture capital firms simply provide you with some money and a logo that can be placed on a website, without actually doing any operational work.

But Eric and I have both gone through the entrepreneurial process, so we have a practical understanding of operating in the cryptocurrency startup space, such as how to list on exchanges, how to handle market-making operations, and how to build and develop communities effectively. I believe that our investments can not only provide funding but also offer assistance in enterprise operations.

Therefore, starting from 2021, our investment business is being secretly launched as a side project. In addition to focusing on our work at Injective, we have also incubated and helped other projects grow, such as the blockchain projects Burnt and Omni. They have raised over $30 million from well-known investment institutions such as LianGuairtan Group and Multicoin Capital.

We are also early investors in projects such as Coin 98, Astar Network, and Galxe. We hope to continue leveraging our strengths in this way to help more project founding teams grow.

2. ChainCatcher: Can you share more details about the process of Vessel Capital’s formation from “secret” to formal operation? Are there any memorable moments?

Mirza Uddin: As mentioned earlier, we initially treated investment as a side project due to our interest. However, we later found that our investment returns were sufficient for us to not need to raise funds from LPs. We could fully invest in projects using our own capital pool, which was an important opportunity for the birth of Vessel.

So over the next few years, we were very successful in investing this money, and the capital pool grew larger and larger. As a result, we increased our investment and incubation efforts, forming a virtuous cycle.

One memorable story is the experience of participating in the Burnt project. One of the co-founders of Burnt is currently also a partner at Vessel. At that time, we burned a Banksy artwork and turned it into an NFT. Through this process, we also helped Burnt raise funds. It was a fascinating experience that received coverage from CNN and BBC news. It allowed us to proclaim to the world that real-world artwork can indeed enter the virtual world.

This is why I like Vessel so much because it is our own investment company and we can do interesting work that traditional venture capital cannot do. I believe we will be more innovative and adventurous than traditional investment firms.

3. ChainCatcher: Why did you name the fund “Vessel” and what does the name mean?

Mirza Uddin: Our inspiration came from a place in New York called “Hudson Yards,” where there is a very famous sculpture called “Vessel” that attracts many tourists. The word “vessel” means “ship.” We hope to sail together with the founders and work hard with them to achieve success, rather than just being on standby.

4. ChainCatcher: Do you have any goals for Vessel Capital at the moment? What is the investment pace like? How big is the Vessel Capital team?

Mirza Uddin: The team size is the easiest question to answer. We don’t plan to significantly expand the team. In the end, it will still be just me, Eric Chen, and Anzalone because we want to streamline the process to ensure that our venture capital is different from the traditional model in terms of investment terms.

We want to be very selective and usually make no more than one or two investments per month. But once we make a move, we will be very involved in the project. Our goal is to see the companies we invest in launch their tokens, survive, and become stronger. The companies we mentioned earlier, Burnt and Omni, which we invested in and incubated, have been running for over 2 years and are constantly growing stronger.

While most venture capital firms have almost stopped investing in bear markets, we actively invest in operations and hope to invest in as many companies as possible before the bear market ends. This is because we bet on founders and participate in the early stages of projects.

5. ChainCatcher: As the Head of Business Development at Injective Labs, and both you and Injective Labs CEO Eric Chen are leading Vessel Capital, will there be any business connections between Vessel Capital and Injective Labs?

Mirza Uddin: That’s a good question. We are working hard to keep the two as separate as possible, so they are completely independent entities with no relationship. But Eric Chen and I do work full-time at Injective, and we have access to many projects here, which is helpful for Vessel Capital’s investments. There may also be some intersections, such as early-stage projects invested by Vessel Capital, which may collaborate with Injective, or projects that Injective collaborates with may become potential investment targets for us.

6. ChainCatcher: Did the three of you mainly contribute the initial capital for Vessel Capital? Why did you decide to establish a risk investment fund without external funding? What are the drawbacks of a risk investment fund through a financing model?

Mirza Uddin: A simple difference, having a different mentality when investing with your own money compared to investing with other people’s money. I believe that when you have to pay a price for something, you will do better. Investing with your own hard-earned money will be more cherished in comparison.

Traditional venture capital firms usually obtain funds from high-net-worth individuals or large companies, which is known as investing with LP’s money. VCs typically automatically charge around 2% in management fees. If you raise $100 million in funds, you will automatically earn $2 million in salary each year. In other words, even if the venture capital loses money, it doesn’t matter, their annual salary is still $2 million. But if they make money on some investments, they will receive a 20% profit. However, this incentive mechanism is flawed because you are using other people’s money and not taking any risks with your own money, without any consequences.

This also leads to the majority of investment concepts expecting 95% of companies to fail, but they are betting on finding the next Facebook or Google. So they invest aggressively, feeling like they are playing the lottery, and their mentality leads them to make a lot of bad bets. There is also very little deeper communication with the invested companies.

But we are using our own funds, hoping to minimize losses and achieve returns on our investments, so we will also have more on-site cooperation with the founders to ensure that the company is doing well and growing.

7, ChainCatcher: From recent interviews, you mentioned that Vessel has invested in “dozens” of companies including Burnt and Omni. What is Vessel currently focusing on in terms of investment?

Mirza Uddin: Injective is focused on infrastructure, so infrastructure is the area we know best. So Vessel also mainly invests in infrastructure, with a target of investing in one to two projects per month. In addition to infrastructure, we also focus on some applications, such as gaming.

Currently, in the field of infrastructure, the trend we are most interested in is related to Rollups. However, there are already too many Rollup and zk solutions. Most of them are just based on the current hype narrative, so I am not actively investing in zk. I believe that in the end, this market will be dominated by the winners, which is why so many people like Polygon and zk Sync, while the other twenty or thirty zk products may not perform well.

In general, we hope to focus on the core development of certain areas, rather than just following the hot trends.

After many years in the crypto field, I have learned one thing, which is not to easily follow the hype narrative. Usually, when something is being excessively hyped, it means that it will quickly disappear. For example, in 2021, almost all crypto users were chasing the hype of Play to Earn gaming. But this economic model doesn’t make much sense to me, so I haven’t really invested in it. Today, after two years, most of these projects have already died, even the top one, Axie, is barely hanging on.

Our strategy is to make smarter and more cautious choices, and to pay attention to valuable areas that others have not yet noticed, so as to ultimately achieve higher valuation and returns.

8. ChainCatcher: So you think that many Rollup and zk solutions are somewhat homogeneous now. How do you view their performance in the next cycle?

Mirza Uddin: I don’t have a conclusion at the moment because the only zk Rollup or zk Layer2 that I have used is zk Sync. We haven’t seen any token airdrops yet, and currently solutions like zkSync are hyped mainly because of the expectation of airdrops.

But I doubt the authenticity of these speculations. Many of us like to exaggerate them as the decisive “next big event”. But what happens after the airdrop? We know that many users will leave after receiving the airdrop, so the question is how many real users and trading volume the project can retain.

Currently, many zk solutions are facing this reality. Take Polygon, for example. It’s such a large project, and its zk solution has been running for nearly a year, but the TVL is less than $50 million. This means that it hasn’t gained much market demand, and if Polygon is like this, how can other zk Rollups gain traction?

9. ChainCatcher: The concept of infrastructure is very broad. Can you share which areas or characteristics of infrastructure you will focus on investing in? Besides Rollups, what recent infrastructure developments have you been paying more attention to?

Mirza Uddin: First of all, I am more interested in industry-specific blockchains rather than just general-purpose public chains. For example, blockchains focused on applications specific to industries like gaming. Having a focus means that you have the possibility to do something more extreme and ultimately have the ability to dominate that vertical industry. This is how traditional Web2 works. Facebook, for example, started with a simple idea and didn’t try to do dozens of different things at the beginning. But currently, most infrastructure projects seem to try to do many things.

Secondly, liquidity staking. If you can release significant liquidity, you can naturally become a protocol worth billions of dollars.

In the Ethereum community, currently only Lido can be considered a large-scale LSD protocol. But in the large blockchain ecosystems of Avalanche, Near, and Polygon, there are no large-scale LSD protocols.

When it comes to liquidity staking, we hope to see more experiments and innovations, such as cross-chain LSD protocols, which I find interesting. This means releasing liquidity not only from Ethereum but also from other chains.

Lastly, account abstraction. Wallets are also an area we are interested in. How can we abstract important things? I think applications and chains themselves need to be abstracted. The experience of using encrypted applications is currently very complex. For example, the older generation has no idea what MetaMask is or how to use a wallet address.

Forcing users to use something without a good user experience is detrimental to consumers. Improving the user experience of entry points such as wallets is important. For example, can we use email or Face ID on iPhones to automatically link to the backend wallet without users needing to know the private keys that have been created? I believe true account abstraction will happen before 2030, even if it doesn’t happen in this cycle.

10. ChainCatcher: Apart from layer1 and wallets, what other specific areas are you interested in?

Mirza Uddin: Firstly, I believe that Layer1 will continue to dominate. Looking at previous cycles, the best-performing tokens or those with sustained performance tend to be on Layer1.

You may have heard of the “fat protocol” thesis, where for every dollar of value captured by DApps, the protocol layer will be able to capture at least the same amount. So Layer1 is very appealing.

However, the interesting thing about cryptocurrencies is that there is a new generation of Layer1 in each cycle. I don’t think Solana or Polygon, which dominated the previous cycle, will still offer the best choice and return for users in the next cycle. Although they are still in the top 50 tokens, only new protocols may offer more impressive innovation and returns.

Layer2 is still in the early stages, and in my opinion, Arbitrum and Optimism are still the most worth paying attention to. In addition, some Layer2 networks launched by leading crypto companies are interesting, such as Linea developed by the ConsenSys team and Base incubated by Coinbase. I don’t think Base will have its own token because Coinbase is a publicly traded company, but Linea might.

They will all see a lot of usage and ecosystem applications, and even some top projects will participate. However, I have some skepticism about OP stack Rollups. Many projects have followed suit recently because Coinbase uses OP stack, but I think this is mostly a speculative narrative that will soon disappear. Most of these applications do not have enough user demand to require such a large-scale capacity expansion.

In the upcoming cycle, I believe that RWA is a massive narrative that cannot be ignored. RWAs will tokenize real-world assets such as government bonds and even stocks. And I believe any infrastructure built for high-quality RWAs will do well.

I also have reservations about some tracks, such as NFTFi. It is highly dependent on the price of NFTs themselves, and NFTs are niche market products, so I don’t think it can break into the top 100 in terms of market value.

11. ChainCatcher: Do you have any specific plans regarding investment stages, regions, etc.?

Mirza Uddin: I don’t limit myself to specific investment stages, but I prefer to enter in the early stages whenever possible. In terms of regions, we don’t have a clear preference and have invested in projects from various regions such as Japan and Vietnam.

Indeed, many large infrastructure projects currently come from the United States and Europe, but I believe that in terms of talent distribution, Southeast Asia, East Asia, and the United States have a dominant position to some extent. Europe is somewhat behind in terms of innovation.

12. ChainCatcher: It seems that the scene and application of Web3 have not made significant breakthroughs. What types or characteristics of applications do you think will be the first to break through the user growth bottleneck in the future? What application directions have you been paying more attention to recently?

Mirza Uddin: One of them is to transform DeFi into an application that is as easy to use as traditional financial technology applications. For example, if I can use a regular application on my phone and invest funds to earn profits without the need to understand cryptocurrencies, I think this would be a huge use case.

I also believe that games may have great potential in attracting a large number of users (for example, millions of users). Because it is certain that games can indeed attract unique tracks of cryptocurrency applications.

So, cryptocurrencies are very interesting. Infrastructure projects are not of great concern because they can bring huge returns to users through airdrops. At the same time, users who use applications will not care too much about whether the application is built on Arbitrum or Optimism. They only care about whether it is easy to use. So, it is not the infrastructure that is adopted on a large scale. It is the applications built on the infrastructure that can be adopted on a large scale.

13. ChainCatcher: From which aspects do you evaluate the investment potential of project teams? What characteristics of founders and founding teams are you more interested in?

Mirza Uddin: Usually, I will prioritize one thing-Do they really understand cryptocurrencies? Because cryptocurrencies are very different from the traditional world. Even if you have members from Stanford University and Goldman Sachs, it does not necessarily mean that they understand cryptocurrencies, because the cryptocurrency industry is very different from traditional startups.

Therefore, first, I try to evaluate how long the founder has been involved in the cryptocurrency industry and whether they know how to develop communities and other core topics. Some entrepreneurs may have great ideas and seem smart, but whether they really know how to acquire users, build communities, and obtain financing needs to be examined.

Secondly, can they cope with volatility? Because cryptocurrencies are always unstable. The reason why we like to invest in bear markets is also because building in bear markets means that he may be a quite persistent entrepreneur, and the possibility of surviving in bull markets is also greater.

In addition, I also pay attention to whether there is at least one technical founder in the founding team, because without one, it will be difficult for future development. For example, if you need to hire developers, but you have no idea how to evaluate them, you cannot discuss key technical routes together.

14. ChainCatcher: You mentioned that the entrepreneurial backgrounds of the three partners at Vessel Capital can provide more practical guidance and advice for your invested companies. Can you share some examples of the assistance you provide after investment?

Mirza Uddin: Firstly, we may help them familiarize themselves with different exchanges, for example, by assisting with the listing process.

Secondly, we help them build communities and social media presence. Many founding teams come from technical backgrounds and may be very intelligent, but they may not know how to increase awareness of their projects among users.

In addition, there are some general but important issues that we also try to assist with. For example, in token economics, many projects simply provide incentives such as large rewards and liquidity mining, but once these incentives end, the tokens may face a value of zero. As an investor, you must try to prevent this situation from happening as much as possible and help them redesign incentive mechanisms and token utility.

We also assist with fundraising, introducing them to investors we are familiar with. We may even share our experiences in team building, recruiting employees, and designing compensation plans.

15. ChainCatcher: GrayScale’s victory over the SEC has raised expectations for the arrival of Bitcoin ETF and a bull market in the cryptocurrency market. What are your judgments on the timing of the next bull market?

Mirza Uddin: The main concern for many people is regulation, but I don’t think it’s something to be afraid of. With Ripple and GrayScale winning their lawsuits, the SEC may not be as aggressive towards cryptocurrencies and may instead attempt more cooperation. This also allows more traditional financial capital to enter the crypto space without as much fear.

In general, the entry of traditional financial institutions is the way each new cycle begins. Firstly, we have indeed seen traditional financial institutions such as BlackRock apply for Bitcoin spot ETF, which means they believe Bitcoin is a true asset. If it is really approved, more users can purchase more Bitcoins through ETF, and this money will slowly flow into retail investors and other channels, gradually overcoming market fears and uncertainties, and the crypto market will gradually recover. Although it won’t happen immediately, I believe we will see more institutions getting involved and deploying capital in the next few months.

Most importantly, the emergence of Bitcoin ETF will happen in early next year or a few months later. It will once again suppress supply and ideally increase demand for Bitcoin. Now that the market has received significant capital from traditional financial institutions, the supply is even more constrained. Bitcoin may rise to $35,000 or even $40,000.

Then the retail market will ignite speculation again, and the market will gradually explode. After Bitcoin, institutions will find it easy to research Ethereum. When the theories about cryptocurrencies permeate all currencies, that’s when you will see the entire bull market.

Obviously, I cannot predict when it will happen, but my expectation is that by the end of next year, we will see some very good market trends. We still have several months of sideways movement, the market is just moving sideways instead of going up, and it is not experiencing a major decline, because there are no major catalysts or drivers to make the market go up or down.

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