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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have Alex Gedevani from Sfermion Capital.

Sfermion Capital is a multi-strategy investment firm focused on the immersive internet that aims to accelerate the emergence of the metaverse by investing in the companies and founders that are creating our digital future.

Prior to Sfermion, Alex did research and venture at Delphi Digital.

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Alex Gedevani of Sfermion

Alex Gedevani is an Investment Associate at Sfermion, a multi-strategy investment firm focused on the immersive internet that aims to accelerate the emergence of the metaverse by investing in the companies and founders that are creating our digital future.

Alex earned his BS in Finance from Rutgers University and then started his career at Barclays as a Financial Analyst from 2016 to 2020. From mid-2020 to late 2022, he worked at Delphi Digital, initially as a Research Analyst and Associate, before moving across divisions to be a Ventures Associate. In April 2023, he joined Sfermion’s investment team.

He was also a community analyst for Messari in 2019. In a volunteer capacity, Alex was also a Mentor at iMentor from 2018 to 2022, a youth mentoring non-profit organization funded by the Bill & Melinda Gates Foundation.

Here’s my conversation with Alex Gedevani.

Quick takeaways:

• Sfermion views the metaverse not as a single technology but as a synergy of various technological advancements aimed at enhancing online interaction.

• Sfermion's investment strategy primarily covers NFTs and NFT infra broadly speaking, gaming, and the metaverse, what they like to call the immersive internet, positioning itself as a crypto consumer fund.

• Alex proposes starting with in-app points for gamification and engagement, which is a strong playbook prior to incorporating a token.

• Alex is excited about the prospect of using NFTs as community formation tools, enhancing user retention and engagement.

• ERC-6551 standard could redefine interactions with NFTs, enabling NFTs to accrue reputation and potentially offering new ways to use NFTs across the crypto ecosystem.

What was the defining moment that drew you into the world of crypto?

Alex grew up with a strong business and finance background, having studied finance in school before kicking off his career at Barclays. There, he participated in a finance graduate development program, gaining exposure across various trading desks, including equities. During the onboarding process, one of the instructors briefly mentioned alternative assets, introducing Alex to Bitcoin and sparking his initial interest.

At Barclays, strict trading restrictions on stocks limited Alex's investment opportunities, leading him to explore cryptocurrencies as a more flexible investment avenue. This speculative exposure marked the beginning of his deeper dive into the crypto world. Although initially inclined towards equity research, fueled by his research-driven approach and while studying for the CFA Level II, Alex found himself consistently drawn back to cryptocurrency. He realized the need to focus on a single path that he could see himself pursuing long-term.

The defining moment: Deciding to prioritize crypto over pursuing the CFA further, Alex immersed himself in learning everything he could about the field. He leveraged his experiences at Barclays, but significantly, it was the crypto community on Twitter that accelerated his journey into the space. 

Alex's initial serious engagement with crypto began in 2017, but it was in 2019 that he committed to making a career in it. 

• He volunteered with Messari, contributing to the development of their asset pages.

• He reached out to Delphi Digital through Twitter. Alex did a multi-month internship with them while still working full-time at Barclays, assisting with reports on various topics like oracles and insurance. 

• By mid to late 2020, Alex officially joined Delphi Digital as their second full-time research hire, marking a significant pivot in his career towards crypto.

What is Sfermion?

Sfermion began as the pioneering NFT institutional fund in 2019, focusing on direct investments in NFTs and related assets before the NFT boom, allowing the team to gain a solid foundation from the outset. This early involvement paved the way for Sfermion's evolution into a more significant fund as the sector expanded. 

By mid-2021, Sfermion successfully raised its flagship fund, which continues to actively deploy capital. This $100M fund targets investments ranging from pre-seed to series A stages, with a typical investment size of $500K to $1M, the latter being the sweet spot.

Sfermion is particularly enthusiastic about several key areas within the digital asset space. The first is NFTs and their infrastructure broadly speaking; encompassing everything from marketplaces to consumer applications that integrate NFTs to enhance user engagement and monetization. This includes web2 products looking to adopt NFTs for better interaction with their audience.

Another focal point for Sfermion is the gaming sector, including game titles and studios, which constitutes a significant portion of its investment focus. Another category Sfermion is excited about and invested in is what's broadly referred to as the metaverse or immersive internet. This encompasses a diverse range of technologies that work together to create a more interactive, immersive, and multiplayer internet experience.

Sfermion views the metaverse not as a single technology but as a synergy of various technological advancements aimed at enhancing online interaction. While much of this space remains web2-centric, incorporating entities and token mechanics, Sfermion is keen to explore investments in emerging tech trends that align with crypto, including advancements in AI and upcoming AR/VR technologies.

Sfermion's investment strategy primarily covers NFTs and NFT infra broadly speaking, gaming, and the metaverse, what they like to call the immersive internet, positioning itself as a crypto consumer fund

Given your interest in NFTs and consumer markets, as indicated by your tweets, can you share your take on that?

Alex's interests have evolved over time, influenced by his roles and the sectors he was supporting. Initially, his focus was on producing research for a more institutional audience at Delphi, with a concentration on infrastructure and DeFi, including Layer 2 reports.

However, a pivotal moment occurred when Alex encountered NFTs, particularly through Nifty Gateway, which sparked a deep interest in exploring the various applications of NFTs. This experience led him to view NFTs as a significant opportunity for broadening user engagement within the digital space and ultimately a leading tool for mass adoption. 

Since then, Alex has shifted his strategy to prioritize the crypto consumer sector, with NFTs playing a central role. His approach, however, still involves staying informed about different categories within the crypto ecosystem due to their interconnected nature. By maintaining a focus on consumer-friendly projects and ecosystems, Alex aims to engage a wider audience. 

He was one of the earliest participants in projects like NBA Top Shot, which, despite not being strictly crypto-centric, aligned with his enthusiasm for introducing blockchain and NFTs to a broader, non-specialized audience. Initially drawn to infrastructure, Alex's current interest lies predominantly in the crypto consumer space, illustrating his adaptive journey in the rapidly evolving crypto landscape.

What are your current thoughts on the NFT market and metaverse sector, especially considering their challenges in the past year and a half? Are there any specific projects or trends in these areas that you find exciting?

Alex views each cycle in the crypto space as defined by unique elements, such as the democratization of investing through ICOs in 2017 and the role of exclusivity in the last cycle. 

Looking ahead, he believes the upcoming cycle will be driven by accessibility across collecting, playing, and creating. Alex notes that the notion of onboarding the majority of people through high-priced NFTs is unrealistic, emphasizing the importance of creating more accessible entry points.

During the bear market, despite a decline in NFT prices, there has been significant improvement in infrastructure, enabling easier onboarding of users through methods like open editions. This shift towards a variety of NFT content beyond profile pictures (PFPs) facilitates the creation of a social graph, laying the groundwork for new, engaging experiences.

Alex highlights the potential of earning crypto as an entry point, contrasting it with purchasing. He points to projects like Lolli, which rewards users with Bitcoin for online purchases, and Drip, which leverages NFTs as a content delivery medium and helps creators better connect with their audience. These models offer a more accessible way for users to engage with the NFT space without substantial initial investment and help artists gain wider distribution.

Another innovative approach mentioned by Alex involves projects like Future Primitive's work with token-bound and the ERC-6551 standard, which could redefine interactions with NFTs. This model allows for NFTs to accrue reputation, enhancing their role in users' digital identities and offering new ways to play and use NFTs across the crypto ecosystem.

Despite acknowledging the role of speculation in attracting new users to crypto, Alex emphasizes the importance of focusing on sustainable trends that retain user engagement, even in bear markets. 

He advocates for the development of products that remain compelling regardless of market conditions, aiming to break the cycle of users exiting the space during downturns. Through this approach, Alex remains optimistic about the potential for innovative projects and trends within the NFT market and metaverse sector to foster a more inclusive and engaging digital ecosystem.

What are your thoughts on the NFT standards across different blockchains, especially alternative Layer 1 chains compared to established ones like Ethereum or Solana?

Alex acknowledges the increasing fragmentation in the blockchain space due to the emergence of new Layer 1 and Layer 2 solutions, leading to diverse NFT standards. He notes that initially, the unified standards like ERC-721 provided a common foundation for NFTs. However, as the ecosystem has evolved, builders now face a plethora of standards across various chains.

Alex suggests considering the ecosystem's characteristics when deciding where to build NFT projects. For projects aiming for wide distribution and community building at low costs, chains like Solana, with compressed NFTs, offer an attractive proposition. This approach has enabled platforms like Drip to mint NFTs cost-effectively, a feat challenging to achieve on Ethereum.

On the other hand, for projects valuing permanence and minimal external dependencies, Alex points to the Bitcoin ordinal space as appealing to crypto purists. Ethereum remains a mature option for those seeking a balance of liquidity, community, and established infrastructure.

Highlighting newer chains like Sui, Alex views them as opportunities for innovation in NFT use cases, especially in gaming. He advises builders to consider their target audience and risk appetite, whether pioneering new standards or integrating into established ecosystems. For those uncertain about committing to a single chain, exploring omnichain or multi-chain strategies can provide flexibility and reach across diverse user bases.

Do you agree that NFTs are more suitable for consumer use due to their flexibility and lower regulatory risks compared to fungible tokens?

Alex acknowledges the complexity of integrating tokens into consumer apps, highlighting the challenges and the evolving landscape of crypto consumer applications. He suggests that starting with a pure app approach and leveraging platforms like OpenSea for distribution can be effective before moving towards more specialized app chain infrastructure for better value capture and customizability. 

Regarding the integration of tokens in consumer apps, Alex is cautious, recognizing the regulatory hurdles and the difficulty in creating value for tokens in small-scale economies. He proposes starting with in-app points for gamification and engagement, which is a strong playbook prior to incorporating a token with the possibility of evolving into a more valuable asset as the user base grows. Alex stresses the importance of designing token economies that capture value with the app's growth, rather than relying solely on speculative narratives.

He also points out the challenges founders face when transitioning from Web2 to Web3, particularly in using tokens for payments, which may not always enhance value accrual due to high velocity and user friction relative to fiat transactions. Alex is contemplating the future of token models in consumer apps, emphasizing the need for innovation in how tokens capture value while fostering user engagement and growth.

Do you have any current interest in particular products, games, or new NFT projects?

Alex finds the evolving landscape of digital products and NFT projects particularly intriguing, with a keen interest in the innovative ways they engage creators and consumers. He remains excited about Drip Haus as a noteworthy project, emphasizing not just its current state but its potential to reshape creator and consumer engagement. 

Drip has successfully onboarded creators and artists, broadening the scope of NFTs beyond art to include comics, music, and games. This diversity paves the way for a future where users are rewarded for engagement and projects can bootstrap their growth through engaged communities.

Alex is excited about the prospect of using NFTs as community formation tools, enhancing user retention and engagement. He is particularly interested in how Drip is building a social graph, enabling a deeper understanding of user interests and facilitating targeted discovery and curation for brands and users alike.

Beyond specific products, Alex is captivated by the broader potential of Web3 in contextualizing onchain activity while also building unique and composable products. He envisions a future where blockchain transactions enrich social experiences, transcending traditional Web2 platforms. Projects like Once Upon, Yup, and Interface are also exploring solutions to the fragmentation and information overload in the crypto space, aiming to streamline discovery and engagement.

Alex contemplates the balance between infrastructure and consumer applications in the crypto ecosystem. While infrastructure projects continue to attract significant investment, he speculates on the eventual shift towards consumer-focused applications as there is plenty of blockspace already, recognizing the attractive risk-reward ratio but acknowledging that the narrative has yet to fully develop.

His reflections extend to the integration of consumer tokens within apps, pondering the evolution of token use cases beyond speculative purposes to drive genuine value and engagement. Alex's thoughts encapsulate a forward-looking perspective on the intersection of NFTs, social networking, and consumer applications in the blockchain space, highlighting the dynamic and untapped potential awaiting exploration and development.

Rapid Fire Questions

1. What's one piece of content every aspiring investment professional should read/watch?

   • Exploring a Simplified Pricing Framework to Make Sense of This Clown World That We All Live In - DegenSpartan

2. What’s your biggest investment mistake?

   • Did not plan out strong risk management.

3. What’s the most underrated use case of crypto?

   • Democratized access, ultimately allowing for permissionless investing & digital property rights.

4. What’s your most contrarian view in crypto right now?

   • NFTs will save crypto (again).

5. What’s the biggest risk that the crypto space is facing?

   • Regulatory uncertainty and timeline to positive change on this front.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.