Discussing Fundamental Problems with Blockchains w

What is up everyone? Welcome back to another episode of the Divi Crypto Podcast. And today, I am joined by Ganesh Swamy, the co-founder and CEO of Covalent. How's it going Ganesh? Hey Steve, great to be here. Yeah, excited to dig into this. Before we get in to Covalent, let's talk a little bit about your background. What's your crypto origin story and how did you get into

this space? So I'm a physicist by training and worked on cancer drugs for about half my career. And I got a little disillusioned with that entire industry with the products taking about a decade to come out on the market while my peers were going out there and raising funding and going through acquisitions in 18 months or less. So I started to miss that action. So I

pivoted my career into the big data space and over the past decade, I've been doing all kinds of big data solutions and working with enterprises. About four years ago, one rainy weekend in Vancouver, a friend of mine pinged me and said, hey, there's this database hackathon. Why don't we check it out? And with nothing better to do, ended up with a hackathon which happened to be

sponsored by a blockchain company and built this middleware solution just for fun. Just as a hack in two days ended up winning that hackathon and then starting Covalent to take this piece of technology to the broader market. So my introduction to the crypto industry was quite accidental. I entered because I was never in the world. I went into Bitcoin or any of the crypto investing sides.

I was here. I entered because of the tech and I continued to stay through multiple cycles because of the tech and the promise. So quite accidental to be honest. Yeah, I find that a lot of stories happen that way. For example, I saw the kind of meme that was Bitcoin back in 2013 when there was a wizard that was like magic internet. Money and it was

for the for a meetup in Cambridge in Massachusetts. And I just sort of stumbled into it. And I think it happens to a lot of people where it's like almost by accident. I like that. It was sponsored by a blockchain company. The hackathon that was a good, a good onboard into this space or into the rabbit hole, I should say, or you you research what it

was after that. So let's talk about how the beginning of Covalent, happened. Does you get a co-founder and when did it start? Yeah, so this the hackathon happened November of 2017. So almost coming up on year five. And once we decided to commercialize the technology, then it was time to put a team together, get go find some investors, build that initial business plan, the minimum level

product, all the things that go into building a startup. And timing has never been my strong suit. So right after we decided to start Covalent and go full force into the market, the multi year bear market just hit smack in our face. So going out there trying to raise capital or customers or any kind of momentum building any kind of progress on the on the company

site was just next to impossible. So what we did is just sat down as builders continued building through that bear market. So for about a year and a half, my co-founder Levi and myself just came into the office every day. We worked very hard and just kept refining this piece of technology over like months and months and months. There was a little short break that I

took where I got a little disillusioned with the space. And I had to take some time off to just regain that conviction and then came back and then DeFi summer hit and things just exploded. So it's a matter of an overnight success that was two years in the making and right time, right team, right technology, right kind of attitude. And today Covalent is a 60 person

team. And we have thousands of customers and we're one of the leaders in this space and this particular indexing solution that is the category that be classified solutions like Covalent in. So yeah, so that's that's the story. I've compressed, you know, years and years of hardship into a single sentence. Happy to, happy to share stories from that that time. There's not much to talk about it.

I don't quite remember because there's nothing going on. I do one of these conferences consensus and there's literally dead. Unlike what's happening with crypto conferences today. So yeah, yeah, it is it is quite fascinating how the bear markets now you having been through one and kind of entering into one now. It feels like, you know, you're you're more prepared for it now. Like you kind of

know what to expect. You know that the conferences are going to kind of dry up a little bit. You know that a lot of the true builders are already heads down. And it it's comforting to have gone through one previously. I think for a lot of people listening. It's probably their first experience with it. And I think that's the story. And it is a very humbling

experience. So if everybody's listening to this, a percentage of people listening to this for their first bear market. There will be another bear market. There will be more in the future. So just learn from this and then, you know, apply it for the future for sure. And what you said was a good segue into Covalent itself. Let's kind of unpack that from a high level as

to what it is that you guys are, you know, trying to accomplish. Great question. So what Covalent is today is an indexing solution for blockchains. The fundamental problem with blockchains is that the entire industry has focused on the rights, the space. But what is overlooked is the read scalability, which is how fast and how seamlessly can you read data from blockchains. So the opposite of the

right aspect. So this is an overlooked problem. So that is a problem that we are trying to solve. And the thesis behind that is that for blockchains to get mainstream adoption, enterprise adoption. These enterprises are not going to retool or retrain their people. They're not going to reprocess engine. They're not going to be able to engineer their internal systems. So they need something that connects to

their existing systems. Your analysts are still going to use Excel. They're still going to use Tableau. These tools are very mature. They're best in class. So why there's no reason to rebuild all of that. So what Covalent has built is a middleware that exposes blockchain data just like a regular database. So someone who's familiar with using a database. There are multiple ways to pull this data

out. The most popular product we have today is the unified API. So if you're a developer and you want to integrate with the blockchain, just the read aspect, we never write to the blockchain. Then the Covalent unified API is one approach. And I would argue one of the best approaches to read data from the blockchain. So this API has about 30,000 devs currently using the product.

It has about 3000 applications. The unified API. What that means is that once you integrate with one blockchain, let's say Ethereum, then accessing any of the other 40 blockchains. So we support 40 different blockchains is just a matter of changing a single character. So your time to market to launch on another blockchain, like a polygon on optimism on arbitrage. The list goes on our Phantom or

an avalanche is just one character. So developers really love this because they are a lot of people. They're building a wallet application or an NFT application. They just integrate with Ethereum. And then now they have access to the 40 other blockchains. And therefore the users on these 40 other blockchains. So it's a massive scaling edge that these applications have because they get access to new pockets

of users. So that's really what Covalent is in a nutshell. Got it. So it's focused specifically on developers who are making applications. And the goal is to give them access to all these new networks that they previously didn't have. So what would a good example of someone that's building using Covalent B? So one of the best examples I can give here is the wallet use case.

So one of the most popular wallets in this space is a mobile wallet called Rainbow. So it's it's pretty popular. So all of the data on Rainbow. It's part by Covalent. So what does a wallet do? You load up the screen. It shows you a list of assets. This problem with chart that shows you your net portfolio value over the last 30 days. And then you

look at your assets. Maybe you have an interior. Maybe you have a wrapped Bitcoin. Maybe you have another token. You tap into one of those tokens and it tells you what you put your sprites was when was the last time you open up a position, closer position, things of that nature. And maybe your T&L, whether your position is in profit or is in a loss. And

then you want to transact. You want to buy more. You want to sell that position. And this works with NFTs and Gamefly and all other kinds of tokens too. So that the data layer there is entirely covalent. Of course, the minute you want to make a change. You want to make a transaction. You want to buy or sell. That's when Covalent's responsibility ends. And then you

then the wallet itself takes over and then talks to the blockchain directly. So we're not involved in the right process. But everything until then, which is showing all the assets, showing the portfolio value, showing your your inflows and your outflows and other kinds of market data. For example, if you have an NFT, it shows you the floor price of these NFTs. How many buyers there? How

many collections there? How many tokens there in this NFT? Things of that nature. All of the data can come from Covalent. And the same data works. So that's really what makes it powerful. Got it. Got it. And the way that you guys generate revenue is it by the amount of calls that the app is making to the to covalent. Or how do you guys make money?

I guess it's the question. So behind covalent is a decentralized protocol. And this decentralized protocol means that the queries are served by a network of independent companies. So almost like the miners in Bitcoin, the not-store metric for this network is the number of API calls. So you exactly right. So if one API call is one cent, then with the growth of API calls, that's basically how

the network makes money. So all of the validators make money. So it's it's it's for in exchange for the work that they perform. So they serve queries, they index the data. And then you can see that the network is in the same way. And they host the covalent database. And so they get they get compensated for that look. Cool. Very cool. I like it. Having that

in the background is pretty. Pretty interesting. I can see a lot of sort of decentralized infrastructure coming into the picture with companies in the future. That's pretty exciting. Even with decision making with thousands of like that. I think storage is going to be really exciting to watch that happen over the next decade or so. So it's it's really cool to see that you guys have. So

we've taken that approach. How many different validators are are involved with it? Currently about 15 validators are involved. So 15 independent people across the globe are extracting the blockchain data, cleansing it and indexing it and serving it up for query. Nice. So what stage are you guys at? You mean you mentioned you had 60 people. That's a big team. You know, where where are you guys

at in the progress of things? I think a lot of people are. Always curious about projects that I talked to and other people have on on podcasts about, you know, the status. Is it that you just closed around a funding? Is it live? You mentioned the recustomer. So I assume that already is live. But what can you share about the status and what's coming? Great. So

the west coast. And on that side, we are pretty mature. So we have clear product market fit. We are making a revenue generating. We raised four rounds of funding and things are things are pretty good. Now, for the first time, we have a lot of work to do. From a macro perspective, I think it's so early, just in terms of numbers, let's put this in context.

If you look at the developer ecosystem, there's about 30 million developers across the globe in the broader ecosystem. So this is what GitHub has or people on Microsoft example, 30 million. And in the blockchain space, there's 300,000 developers. This is taking a very optimistic calculation. 300,000. So that's 1% market penetration. Covalent has 30,000, which means that's one dent of 300,000, which is 0.1%. So in our

mission to make blockchain data accessible, we are 1% towards that, sorry, 0.1% towards that mission. So in terms of, you know, where we are in our journey, I would say, you know, we've just put our shoes on and heading towards the front door, right? That's where we are. So it appears like Covalent, you know, has been around and, you know, has traction. All of those things

are true. But in a broader macro, I don't think any company here in the builder space should be doing victory laps. Just not yet. It's still so early. There's still so much to unpack so much to build in this space. So just to give you a context on where we are. As in industry, got it, got it. Yeah. I like that macro macro view of a

10th of a percent. It gives you, because everybody listening to this context for exactly how early everyone is, even if you're listening to this podcast at the time it's going live, you two are very, very, very early. And I know we all say that on a regular basis, but that's because it's actually grounded in facts. Like, you know, there's just just sheer numbers, even with the

internet adoption and blockchain adoption, putting them next to each other. It's just so clear how, how early we all are. One, one thing I did want to go back to was on the token itself. You guys did, you do have a token. You offer staking. Can we talk a little bit about that for a second? Because I, I think we skimmed over sort of the validators

and things like that. But I wanted to touch on the token. Great question. So, first before token, let's ask why token and a lot of projects out there in the space, introduce a token with no real utility. So here, the CQT token, Kovale and Kory token is a governance and taking token. It's how you participate in the network. So taking a step back on what the

actual purpose of this network is, is this is a proof based data network. So historically, what has happened is that when you have data, being extracted from a data system, a lot of the cost of the data integration comes from the data corruption and the mismatches, either upstream changes or downstream changes. So this is really, this is a multi billion dollar industry in the broader data

integration space. And a lot of that goes towards managing these schemas and the mismatches between the data. So with Kovale and we've introduced the first proof based data. So what that means is that every step along the way, every time the data is transformed, every time it's cleansed, it's indexed, there's a cryptographic proof that is submitted to the Kovale network. So what that means is that

if there's any data corruption in the data pipeline, either maliciously or accidentally, you have the full provenance of the data. So you can scale back and figure out where that problem occurred. And of course there's a lot of data that's going to happen. So there's other mechanisms like slashing and penalties and also positive in reinforcement things like rewards for being accurate and being consistent and having

uptime. So that's the purpose of the Kovale network. So this is first of its kind. And this is going to transform the entire industry, I feel in the next decade. So this is still a multi-year kind of play because currently the big force, the way you trust data from governments and other kinds of agencies, which technically belongs to the citizens. Right, they have the full right

there is that they only export a component of the data that's going on. And then they go to one of the big force for auditing and compliance services. But the data itself, nobody knows how trustworthy it is, how good is the export. So here, if we succeed in our mission, then these big force not only have things like ISOs and and talk to you. To do

the controls and the compliance, they also have the cryptographic proof on the data itself. So nothing can be fake. So this is really where it gets exciting. So the covalent network is the facilitator of all of this stuff. So the token is how the settlement is done with the proofs that are submitted. So every time a validator performs some work on the system, either cleansing or

indexing or answering a query. They get compensated in CQT for performing that work. So that's really the purpose of the token on the on the backend. Got it, got it. So shifting gears a bit. I wanted to talk to you about like what you're excited about. I think I get a unique opportunity to talk to so many amazing builders. And I always like to go through

just general highlights of this space. Like what is it that gets you up in the morning? You check your phone and you can't wait to read about it outside of covalent. This is great question. Something that I've been thinking for years now, because you know, we've all been waiting for for the big shift. And this is what I'm excited about. I think the next five years

is going to be more exciting than the prior five. And the latest technology cycles transform industries is through an escrow. So it's slowly, slowly, slowly, and then suddenly, right? As you go through that steep part of that curve. So if you look what's coming on the horizon over the next couple of years, there's a there's no reason not to be excited about what's happening. So a

couple of bullet points here. The first is game five. Game five is the marriage between DeFi and gaming. Now, a lot of the lot of people don't know that the gaming industry is actually bigger than the movie industry. From an entity. It's a game and value. So it's a massive industry. And so if you look at the like the AAA studios that are entering the space,

they are introducing NFD. They're introducing all kinds of very interesting aspects to the back end of their engines that enables crypto and blockchain adoption. So that's one aspect that's super exciting. The second thing is table coins, right? Never before have we seen a global like on chain kind of like payment mechanism. That's what I'm saying. That has taken off, right? So if you look over the

past three years with stable coins, the previous cycle, there were no stable coins. Now you have dozens of stable coins. So that's really exciting. So this is a payment, payment rails. It's super, super, super interesting. The third thing is the marriage between Fintech and DeFi or Web 2 and Web 3 broadly. And what you're starting to see is a lot of the web to players adding

a Web 3 experience. I think crypto is so interesting today. That it would be a mistake not to at least explore what's happening here. So you see these big stories with Disney having these NFTs. They did the Batman NFTs. They Shopify adding NFTs. You're seeing traditional lenders adding crypto assets. So that whole marriage between Fintech and DeFi is super interesting. You're seeing Reddit add like a

Web 3 component. So there's a lot going on here. And all of this is going to dramatically change. The adoption cycle. Just going back to context and numbers. One of the top game, five applications on the blockchain, which is DeFi kingdoms only has about 10,000 players. 10,000. That's how it is. So if you have one of these triple A studios with millions of users, add a

crypto wallet, suddenly, you know, the space to explode. So that's that's super interesting. And then the creative economy, there's a lot going on there. You know, the de-platformization. There's lots of stuff where the ownership should be with the people who create the content that people have a voice. So I think there's a lot going on there. So yeah, there's multiple independent trends that are going on.

So it's not just one thing, right? So it's hard to say how this is going to position itself with the macro with the regulations coming. But one of these things are different. Two of these things will stick and they're all independent, central bank digital currencies. That's another huge area for growth. It'll be so cool to have a crypto wallet that is private. That's private. So it

secures your privacy. So you don't want to know how much you're paying in taxes, of course. And there's an air drop and you pay your new settlements and everything is, you know, above the table. Everything is is by the book. And that's again, crypto blockchain use case. Which is all real use cases without the speculative element. So all this is really exciting. Yeah. Well said. Well

said. All those. I like that. You kind of took the approach of. There's so many different things going on with the technology that there can't just be one. I like the multiple fasted way of approaching it. Well, those are all the questions I have for you. Can I where can people go and learn more about Covalent? So you can follow me on Twitter. I am. A

and E five H. So Ganesh, but the five replaces the S, which I've held on for my teens. So that's where it comes in. I was being elite. And you can follow Covalent. The website is covalent HK.com. So that's where you can become a validator. You can join and participate in the network. You can use the API. If you're a developer. And we have other products

coming out in the future for analysts. So stay tuned. There's a lot going on. You know, we are builders at heart. And a bear market is the best time to be headstown building. Because the next cycle will come. Agreed. Agreed. Well, thank you so much for coming on the show. Wherever you guys are listening, all the links that Ganesh mentioned will be in the show notes.

Thanks for sharing your story Ganesh. Thank you, Steve. Thank you.