2018 annual report – first year in at Covalent

The year 2018 marks our first year of operations at Covalent. Here’s a letter I shared with our stakeholders – staff, investors, partners and customers on our progress in 2018 and where we see the growth opportunities for 2019.

Hey guys,

Ganesh from Covalent here. As 2019 approaches, the Covalent team wishes everyone a wonderful new year! Thank you all for your continued support.

The year 2018 marks our first year of operations at Covalent and we’ve seen significant growth in Covalent’s vision, technology, team and the community around us. We would like to share an update on what we’ve been up to in 2018 and where we see the opportunities for growth in 2019.

We started Covalent about a year ago to bring transparency to the crypto market and to connect utility with market prices. Getting data off the blockchain is hard – our team has been heads down since day one building an indexing engine to search and categorize “deep engagement” metrics. Our long term bet was and continues to be that “prices need to be supported by utility.”

What user behavior patterns do we see? How many users are retained over time? What share of the activity in a dApp comes from the top 10 largest addresses? How are new features being adopted by the userbase?
– Covalent has the answers to a million questions about dApps' utility.

Most dApp1 developers are familiar with transaction events like transfer – a standard part of any ERC20 token. You can look these up on Etherscan and the various blockchain explorers. The Covalent platform is able to go beyond these standard events and understand the numerous smart contract interfaces. Our indexing solution enables new analytical use-cases for “deep engagement” behavior patterns like retention, acquisition and revenue metrics. Traditional web 2.0 startups have had access to these crucial metrics for eons – we enable this for the dApp ecosystem.

That’s our vision for connecting the dots between utility data and token valuation/prices.

2018 was a reality check

For the first three quarters of 2018, the sobering reality was that dApps have had little to no real utility. It was either all speculative action or funding activity through the ICO2 mechanism. ICOs might have been the first “killer app” for blockchains. In appreciation of this use-case, our team had built a series of analytical dashboards to internally track ICO treasury wallets.

Although Covalent’s technology has nothing to do with crypto prices or ICOs, the tumultuous year for crypto prices was tough. Bitcoin and Ethereum had lost 80% of its value since their all-time highs at the beginning of 2018.

It was hard for us to not get disillusioned.

It seemed like the bad news kept flowing. The ICO market had dried up. The SEC3 was coming hard after projects that were in violation of securities laws. Bitcoin ETFs4 were getting delayed yet again. Institutional players delaying their entry and taking a wait-and-watch stance. The bad news continued to apply downward pressure on crypto prices.

Was it a negative downward spiral? Maybe.

The reality was that the scaling and on-boarding infrastructure, handling of security vulnerabilities, layman’s education materials, and polish of dApps were hardly ready to handle the big influx of new users.

Q4 2018 – a glimmer of hope

The last quarter of 2018 started to get really interesting. All of 2018, the media seemed to be bent on reporting scams, frauds, and pump-and-dump schemes – no question – deserved. But behind the scenes, developers have been focussed on building and shipping their respective blockchain projects. Good projects hardly care about crypto prices. To our knowledge, these visionary projects haven’t slowed down their pace of development or course-corrected in any fashion.

2018 had become the year of #BUIDL5.

Our own internal tools show that day-by-day more projects are starting to be deployed to the mainnet. Plus, there’s actual utility from users to match these deployments. Not a lot yet, but every project has to start somewhere.

That’s encouraging.

We definitely feel for investors and token holders who’ve lost money on their investments. Nobody likes to lose money. In a twisted way, tumbling crypto prices have cleaned up the ecosystem of people and projects who are just out to make a quick buck.

The next wave of users will stick around for the real use-cases that these projects solve for.

Why we are bullish for 2019

Where’s the action?

The core value proposition of blockchain technology is enabling trust without unnecessary intermediaries. That enables a whole new set of use-cases that were previously untenable because of transaction costs.

Finance continues to be a dominant use-case of blockchains. In 2018, the Decentralized Finance (#defi) movement has started to take shape. The idea is to change the world of finance in a similar fashion to how open source has changed the world of software.

We’ve outlined some projects, protocols and use-cases that we are excited for 2019. These projects are either already on the mainnet or within weeks of deployment to the mainnet. These seven categories of projects are poised for growth in 2019 – and we’ll be extensively researching them in the coming weeks.

Jump to list

Disclaimer: This list is by no means comprehensive and is not an endorsement of any kind.

Covalent’s plan for 2019

The opportunity in front of us for 2019 is absolutely stacked. We invested 2018 in putting together the foundational pieces for our company and product. In 2019, we’ll be executing on these investments and will have more to show. Expect weekly updates!

We are going to continue our work with our data partners to further understand this new decentralized world. If you want to join us on this path of discovery, we welcome you to join our mailing list or directly reach out to me.

Much love,
Ganesh Swami
Co-Founder and CEO, Covalent


Appendix: Projects we’re excited for 2019

1. Stable coins

A stable coin is a cryptocurrency that is pegged to another stable asset like gold or the US dollar. The stability allows for practical usage of cryptocurrency like paying for everyday things. Currencies like Bitcoin and Ethereum can be highly volatile, sometimes even by 10%-20% in a single day.

Stable coins can be categorized into:

Stable coins are the on-ramp for regular people to use cryptocurrencies.

2. Security Token Offerings

Security tokens represent real-world assets like stocks, bonds, real estate, exotic cars and even fine art. These assets typically have financial value and are subject to existing laws and regulations. Therefore, these tokens are required to maintain regulatory compliance in the same fashion as securities have had to for years.

The market of securities is large – trillions of dollars. Realistically, it’s going to take a couple of iterations for these securities to move to the blockchain.

Security tokens bring 24/7 markets, fractional ownership, rapid settlement, reduction in direct costs, increased liquidity and market depth, automated compliance, asset interoperability, and expansion of the design space for security contracts.
– Stephen McKeon, in The Security Token Thesis

Our team at Covalent has been digging deep into the world of security tokens, trying to make sense of it all. It’s a complex landscape that mirrors the complexity of the public capital markets. We have an upcoming post on the various security token standards (there are dozens!) which include: Harbor, Polymath, Securitize, OpenFinance, etc.

A lot of these projects are going live in Q1 2019, though the promised liquidity through exchanges and custodial solution require more time to mature.

3. Crypto as property. Non-fungible Tokens.

The success of CryptoKitties has showcased a big use-case of blockchain technology – games! Each kitty is represented by a token that is completely unique, non-interchangeable and tracked individually on the blockchain.

There’s a whole nascent industry of games that are starting to gather steam – Gods Unchained, Blockchain Cuties, Etheremon, Decentraland, etc.

More generally, the ERC721 token standard for non-fungible tokens is attempting to solve some of the authenticity verification and the ownership tracking challenges of digital assets. These assets could include artwork, certificates, or even real estate.

The Loom Network’s DPoS6 sidechain technology is taking this thesis of NFT+Games+Blockchain and running with it. Games seem to be the gateway use-case for new technology (definitely was the case for smartphones.)

4. Decentralized Exchange (DEX) Protocols

As the world’s assets are becoming tokenized on public blockchains, there’s a need for a free, open-source infrastructure to purchase and trade these crypto assets. These protocols allow anybody to create their own decentralized, peer-to-peer exchange: 0x and Hydro (a fork of 0x), Bancor, Kyber, Loopring, Republic, AirSwap, etc.

Stay tuned for upcoming research on decentralized exchanges.

5. Derivative Protocols / Prediction Markets

The size of the derivatives market on existing financial infrastructure far outstrips the market size of any other type of financial asset. It is roughly estimated to be over $1.2 quadrillion7, or more than 10 times the total world GDP.

These protocols allow you to predict the next election, short a cryptocurrency, hedge against a disaster, margin trade, write-buy-trade options in an open and transparent way with minimal risk and low fees: Augur, Gnosis, dYdX, bZx, Daxia, CDx, Market, etc.

6. Debt / Lending Protocols

The average person is much more familiar with the equity/stock markets, but the debt markets are much larger. For example globally, in 2017, about $2.2 trillion of new corporate bonds were issued as compared to slightly under $780.2 billion in corporate equity issuance.

Despite its massive size, the debt markets are plagued with inefficiencies. The problems with the debt market today can be distilled to one or more core points: liquidity risks, barriers to interoperability between markets and regions, and a single point of failure due to the heavy concentration of players that are crucial to market operations.

The decentralized debt use-case is starting to mature and these protocols are worth keeping an eye on: Compound, Dharma, Lendroid, Marble, etc.

7. Decentralized Autonomous Organizations (DAOs)

It would be a mistake not to include DAOs in this list – though still too early for adoption.

A decentralized autonomous organization is an organization where the bylaws of the organization are encoded as a computer program (smart contract) that lives on the blockchain. Contrast this with a traditional organization is hierarchical and top-down and rules are enforced via employment contracts.

Projects launched with Aragon and Colony are worth a look.

Extra: Utility coins

Numerous projects raised funds through the ICO process with ambitious goals – to build a censorship-free, trustless decentralized network. There’s definitely a need for the services being offered – what’s not clear is if there’s an intrinsic need for a new token. Some examples – Filecoin (raised $257 million), exchange-issued tokens like Binance and Huobi, Telegram’s GRAM, Brave’s BAT, Civic’s CVC, etc.


  1. dApp: Decentralized Application – an application that runs on a blockchain like Ethereum
  2. ICO: Initial Coin Offering
  3. SEC: Securities and Exchange Commission
  4. ETF: Exchange Traded Fund
  5. BUIDL: The term buidl, a misspelling of build, encourages cryptocurrency enthusiasts to focus on building new cryptocurrency projects, instead of blindly holding cryptocoins and waiting for the price to go up.
  6. Delegated Proof of Stake
  7. How big is the derivatives market?
Posted in Behind the Scenes Company

Be the first to know about new research