Section 6. NFTs & Web3 Plumbing - Transcripts
section six, N. F. T. S. And Web three plumbing
get used to
hearing the term Web three because it could eventually replace crypto as the go to moniker for the decentralized tech movement. It plays better to new audiences. It's less scary sounding to regulators and it's a faster and more accurate Meme
Mason defined Web three as the paradigm
Shift towards a more democratized Internet governed by the collective Chris. Dixon says Web three gives us the chance to upgrade networks into crypto assets centered economies and build systems with the incentives of network owners, network participants and third party developers are fully aligned. I like those definitions. Re architect ng internet services and products so they benefit users rather than gatekeepers is a clear and urgent mission. And Web three accurately captures the breath of what we're attempting to rebuild. For that reason I'm starting the second half of this report with a section on the Web three apps that exploded onto the scene in 2021 Non fungible tokens. The networks with likely 2022 breakout, potential play turn games and decentralized social networks and an overview of the physical plumbing of our future metaverse in investing. There's a saying that early equals wrong, Which is why it's important to drill down on the sequential build out of Web three and see whether now is actually the time some of these networks might finally come to fruition and win big linda and Reese seemed to have similar mental models that match mine the 2020 defi boom supplied the throughput infrastructure of self custody permission list trading like routing and banned within web one which allowed FTS to take off the explosion of demand for N. F. T. S. Plus defy pulled forward demand for more scalable layer one and layer two Blockchain earlier this year.
All of that will spur growth in tao infrastructure in the new year. FTS provide on chain identity and reputation for dow contributors defy gives down members massive liquid pools of capital to govern and scaling solutions will make on chain governance economically feasible in Web three cryptocurrencies Chapter three and then FTS chapter six are the digital goods of the new economy defy. Chapter seven is the native financial system layer one Networks. Chapter eight are the rails that power everything and douse Chapter nine are how the frontier gets governed. It's all coming together and it's going to be absolutely beautiful. Section 6.1 N. F T. S. Digital goods on a global ledger, let's start with the breakout asset class of the year. N. F. T.
S. Yes, there likely like I C. E. O. S of this cycle. Sky high hype, crazy volatility, lots of early lottery winners and complete garbage but as a new asset type and class they will transform the world. N. F. T. S are cool because they represent verifiably scarce portable and programmable pieces of digital property. An N. F.
T. Could be a share of a stock, A virtual sword in an mmorpG, a profile picture on social media, a new digital art piece, a plot of land in the metaverse or your data record on facebook. The potential for N. F. T. S. Is essentially unlimited as block chains become global transaction ledgers for both. Natively virtual property and physical property or at least their digital receipts. The real world version of an N. F. T. Might be something like the deed to my house verifiably scarce.
If I could prove ownership to my insurance company by signing a transaction in a wallet that holds the receipt of my deed, digital representation of property. I could grant access to the house for Airbnb guests with the N. F. T. Programmable. Or I could take out a home equity line of credit and pledge the N. F. T. As collateral on a peer to peer lending platform portable. That comes later. The toy version will come first. I sign into a VR casino with my virtual I.
D. Verifiably scarce and pull up a chair where the dealer recognizes my avatar as TB. I. Digital representation of property. Since this is my 10th time at the casino and I've been on a heater. My player's card is shining hot programmable, signaling that other players should come join my table which the casino likes and decides to send me a virtual drink ticket that can be redeemed at Uber eats drizzly or any app that recognizes those N. F. T. S. R. Credits, portable. If you have a little imagination you'll see that the opportunity is ginormous.
I'd encourage you to watch these 2 10 minute explainer videos. If you want a good visual primer on how N. F. T. S work and why we've recently hit euphoria. It will set up the rest of this section. So it's okay to take a break from reading. We're on page 100 now, so I'll allow it. Welcome back. I hope you've been red pilled, especially since N. F. T.
S are so intuitive. Even the Ny Times gets them. Here's Ezra Klein in an op ed this summer saying, think about it. This way the internet we have allows for the easy transfer of information. We costless lee swap copies of new articles, music files, video games, pornography, gIFs, tweets and much more. The internet is famously good at making information nearly free, but for precisely that reason, it is terrible at making information expensive, which it sometimes needs to be, what the internet is missing in particular are ways to verify identity ownership and authenticity. The exact things that make it possible for creators to get paid for their work. If a big part of our future lives are spent living in global virtual interconnected worlds. The metaverse, then N. F. T. S are some of the primary building blocks for everything in that world.
You don't want to live in a virtual world where your entire identity is at the mercy of a big tech cancelation tribunal. This is intuitive. If you've ever switched social media platforms and had to build back an audience and reputation from zero. Or if you've ever purchased virtual goods in a game but then realized that the game maker controls all of the trading rules and you can't sell the goods you've earned or take them elsewhere. Or if you're a believer in VR but shudder at the prospect of getting a new person in Mark Zuckerberg's meta dystopia more later. N. F. T. S. Can should and will transcend their underlying block chains. And metaverse is you also don't want to live in a virtual world where everyone looks the same and there is no recourse for identity theft. So you need some third parties to avoid sameness.
You need scarce digital objects which have real value and you'll likely be willing to pay talented creators for provably unique goods. For illustration, take the case of 1000 unique South Park avatars available to mint for one each, you'd be able to send to the S. P. A. N. F. T. Contract and mint a new cousin for cartman and T. B. I. But only if the contract state reflects that fewer than 1000 avatars have been minted so far. Thanks to the E.
R. C. 7 21 standard. These little South park misfits could function the same way as any other N. F. T. S. Trading on that standard on the ethereum Blockchain, that's a 100 X. Improvement over how most virtual goods are bought today through centralized siloed platforms like gaming giants where scarcity is in the eye of the gamemakers alone contrast that with N. F. T. S.
Which one connect users to a universe of creators two for lower fees, while three giving both parties provable ownership of their virtual assets across four, any platform that trust the Blockchain, in many cases the assets themselves can even evolve over time. This is true whether we're talking about digital art, digital identity, community memberships, gaming goods or financial assets, it's not about the individual assets bro. Almost all of the smart folks in crypto agree that most N. F. T. S will go the way of most 2017 I. C. O. S to zero. But some early projects will succeed at tremendous scale and the asset class as a whole will explode over the next decade. N. F.
T. S will impact every sector of the economy and kids will own more stuff that look like N. F. T. S than physical items. You must understand the impact N. F. T. S will have by 2040. Even if you don't care about them today, let's start looking into the future of N. F. T.
S. Brick by virtual brick section 6.2 A $69 million mona lisa J Peg regardless of whether you are bullish on N. F. T. S. As transformative. New technology might be a gas that people have been spending millions of dollars on je pegs to understand why. That's not completely crazy. We should start with the most famous piece of art in history. Da Vinci's mona lisa and consider its fundamentals its history rarity, mimetic value, the artist's reputation and the underlying market dynamics of the physical asset. Sure, the mona lisa is the most iconic piece from the most famous artists of all time and was acclaimed for its uniqueness even among Da Vinci's contemporaries. Most importantly though, it has a number of off chain attributes that make it pop its home is the world's most famous museum, the louver.
It was the target of the most famous art theft of all time. It's become a meme and fixture of pop culture in and of itself due to its simplicity and that mysterious smile. Other people want to take their picture with the mona lisa to collect a social media travel merit badge and is the most famous attraction in the loop. It's arguably a capital asset to the Mona lisa sparks tens of millions of dollars per year in tourist revenue. In short it's a cool painting with a cooler backstory. Know anything like that in digital art, people's everyday is the 1st 5000 days has all of the critical elements to make it digital arts. Mona Lisa. Famous artist check. Peoples had 2.5 million followers at the time of sale proof of Rarity. Check. It will be incredibly difficult to replicate. As the mural represents the culmination of 14 years worth of daily dedication, novel backstory check it wasn't stolen but it made history as the first major N.
F. T. Art piece auction through Christie's. And the sticker price itself $69 million contributes to the arts rarity. Even if people's artistic reputation took a hit in the future, it wouldn't change the novelty and fame of his every day's initial sale. So is this a one off or is people's success actually replicable? Let's look at the underlying market dynamics and digital art. Physical Art is a $1.7 trillion $60 billion three N. F. T. Market cap was just $14 billion according to Dap radar excluding profile picture collectibles will get into those in the next section. Digital art.
N. F. T. S have represented less than $2 billion in total sales to date. So N. F. T. S. Are still less than 1% of the physical art market and digital art is just 1/10 of the total N. F. T. Market.
Do those numbers remind you of any other four year old asset? Despite the froth of today's N. F. T. Market this early flight from physical art to digital art could end up looking like 2013 Bitcoin bubble which crashed 80% plus in 2014 but also marked the beginning of Bitcoins decade long ass whipping of physical gold Bitcoin's market cap cross 0.1% of golds in november 2013. Wouldn't you know it? The non collectible digital art market is now 20130.1% of the physical art market. I predict that the digital art slash N. F. T. Market crash will eventually be even more nauseating than the 2015 Bitcoin bear market because these are highly illiquid assets by definition. But the 10 year trajectory of the overall market will be the same 100 acts plus that said before you ape into digital art there are a couple things to keep in mind.
Bitcoin's market cap may have managed a 100 X in eight years but if you held through the thick and thin, you made just 60 X in price terms due to dilution from newly minted Bitcoin during that time in total crypto market ownership terms you only made 30 X. Because other new crypto assets like ethereum hit the market and eight into Bitcoin's dominance over the past few years. I bring that up because the design space is significantly bigger in N. F. T. S than in fungible cryptocurrencies. Even if you invest in a people original or another top tier project, it's probably going to be impossible to keep pace with the growth of the total N. F. T. Market cap as such. The winning long term plays I like in the N. F.
T space, our infrastructure related, which will outperform by a wide margin. The expected value of even the bluest chip N. F. T. Projects investing in infrastructure in a niche like art E. G. Super rare might not outperform the eventual top 1% of N. F. T. S. But your expected value will be higher. It will save you lots of time and you won't need to be a taste maker to have success as N.
F. T. Infrastructure expands in every feasible asset category. The infrastructure space becomes especially appealing. I'm happy to invest in more N. F. T. Infrastructure. If you're raising money, please keep me in mind. As an aside if you go to the loo, you'll see that the wedding at Canna is about 10,000 X. More impressive than the mona lisa. I spent 30 seconds looking at the Mona Lisa and 90 minutes staring at the wedding at Cannes and when I visited the nose is my guy.
That thing took serious nights and weekends work. He was around the same age when he painted it and by the time he finished I'll bet he hated those 130 people he painted as much as I hate this report. Section 6.3 P. FPs. Punks versus apes. If you're looking purely at aesthetics people and other digital artists are probably up your alley but you'd be missing out on the bigger movement in N. F. T. Surrounding community owned collections of profile pictures or P FPs which have exploded to $5 billion in sales through Q. Three this year. P FPs derive their value entirely from their early communities and their memes. The visuals themselves are underwhelming the 100 ether rock selling for seven figures each are literally based on free clip art.
But hundreds of thousands of people are spending real money buying into PFP communities to signal that they a have gotten in on the joke early B grok the full history and context for N. F. T. S and why these particular P FPs are worthy of investment. See desperately need friends and have plenty of money to burn or D all of the above. It makes sense that we'd see interest and enthusiasm for PFP s take off. They are perfect for crypto twitter and the emerging metaverse. PFP projects with engaged, talented core community members that contribute to the projects, culture and economy like punks, early N. F. T. Adopters will attract other members. Their owners might even receive preferential access to new projects and events, share community earnings through airdrops, take on governance tasks and leverage their P FPs as capital assets if they become sufficiently liquid.
If N. F. T. S continue to rally more influencers and celebrities will want the oldest P. FPs with the rarest attributes, earliest on chain records and strongest memes, crypto punks, board apes and pudgy penguins could represent a major component of one's digital identity and sued, ominous reputation in the future. I can't believe I just wrote that just like brands rely on memes like slogans, images, brand ambassadors, etcetera as intangible assets. Crypto collectives could leverage in FTS in similar ways as they have a way of wrapping entire subcultures in a single public PFP and gated discord. It's hard to grok pee FPs unless you embrace that. These mathematic virtual goods are everywhere already and they are part of our identity as Freddie, fearsome told vanity fair. Imagine you live on the internet, the way the world primarily knows you is not through your face or your clothes, it's through your digital avatar. Of course you're willing to spend a lot of money on something like a crypto punk, it's your face to the digital world. Plus it's the key to enter a small, unique internet club.
Being a crypto punk owner as a crypto native is the equivalent of being an Augusta national member is an old school business person. Crypto punks are valuable simply because they represent the first P. FPs to be minted on the ethereum Blockchain, A historical reality that will be impossible to displace The 10,000 pixelated punk Jpeg each with different combinations of attributes are a part of crypto history. They have a miraculous origin story as they were fairly launched then largely forgotten about then. Resurgent due to their Unforced double first Nous, N. F. T. Boom. The viral distribution of punk's twitter profile pics and they're rising prices made them attractive objects for status. signal, ear's
everywhere. I encourage you to read the full interview about Punk 78 oh force history which was sold by the founder of Fig MMA for $7.8 million earlier this year. Again from the epic N. F. T. 101 explainer which I'm afraid I'm almost accidentally plagiarizing at this point on buying. Said there was one that I got obsessed with that I really coveted, I was really attracted to. I felt like it had just total gravitas among the 10,000 crypto punks. There were only nine aliens and of nine aliens. The one that I really resonated with was 7804 which was a picture of an alien smoking a pipe. It was totally magnetic to me. I couldn't stop thinking about it.
And so I saw that the person who had it had sold a few others and I was like, I think that if I make a big enough bid they'll sell. And so I bid 12 ec which at the time was $15,000 on selling said I believe even more than before that crypto punk's art after selling 7804, which is super fascinating. And I think the reason why is after parting with it, I did feel emotional, I felt sad. It wasn't just sad like oh man, this is the digital mona lisa and I can make way more money at some point. It was sort of a part of my identity. It was a mask what our masks there are objects that you can project identity into. And for 7804, the Wise Alien, I felt a bit different wearing it fittingly the new owner, a pseudonymous buyer who goes by the name Perugia after the thief who stole the mona lisa wrote about his purchase in similar glowing unapologetic terms. It makes sense If enough people associate your digital self with a given avatar, it does become a part of your identity. If you don't believe that you'll just have to trust good old Mr T. B. I himself. That's the ultimate PFP paradox.
Many N F T s become an unsellable part of your identity. Every collector that becomes invested in their tribe success. Where's the team Jersey. And becomes less likely to sell as they more closely associate with a given community or tie a given PFP to their genuine identity. This can be a good thing if the talent in the network is dense and the party is cool, jay Z Snoop serena and oh BJ have punks but a tricky thing, if the community's values start to deviate from your own and your avatar starts to feel more like a scarlet letter. There are a few things that have mostly kept me away from P FPs, number one, I don't know what I would do with a PFP and I'm holding out hopes that I'm a meaningful contributor to any plans the South park creators may have going forward. Not gonna lie. It will be pretty disappointing if I'm not involved given my avatar hasn't changed in eight years which is four years more ride or die and rare as your average punk. Number two as someone who's organized conferences and curated communities of talented people. I can tell you a high price point is a good spam prevention feature but not a cure all for community quality. People will start to flock more to invite only meritocratic groups versus pay to play drops as soon as we're in a non hysterical market environment. Number three along those lines and we'll touch on dow's and social tokens.
Later I was more stoked to get accepted into the friends with benefits community than anything else in the PFP realm. Something about earning acceptance versus buying access is hardwired to make us feel good and I also think it will help mitigate the worst effects of the social token paradox which applies to any community N. F. T. Or social token brief explanation of the social token paradox. Phase one, the creation of a small exclusive tokenized community. Phase two. An increase in members. The initial increases in members signaling exclusivity and fomo. Phase three continued growth and members starts to decrease the group's exclusivity but new members still desire token appreciation and so they recruit more members. Phase four, member count rises and further decreases. Exclusivity but the vicious cycle for token appreciation mandates more members joined the social tokenized community.
Phase five members exit and sell their tokens until exclusivity, equilibrium is met and so on and so forth. The cycle continues. If you're still keen on buying a PFP, you should choose your tribe wisely and be prepared to keep it as a consumable luxury good versus an investment that can be written off. If you'd rather find other ways to signal your in group status. Aside from a PFP try digital
art. Go back
One section, bags of Loot three more sections or a nice plot of land in the metaverse. I've seen less convincing criticisms of PFP projects but this one seems to be a little more measured expressing concerns that the community benefits pitch is similar to an MLM scheme. Sure, yacht club and pudgy penguins have no unique historical characteristics that make them special. But you don't own a piece of art in isolation. It's a community man. The problem is that the benefits of community fall off steeply. Once you're in the minor leagues of pay to join P. FPs, the real in communities will either have unassailable history or earned reputation elements because I have no problem starting nuclear wars with my writing, I'll end with this long punks neutral, apes, short penguins and everything else. If you're not first you're last unless you're porting the project to a new Blockchain. Then you can be first again, Section 6.4 Fan Tokens. We've covered a lot of ground in those last few sections and hopefully I haven't lost you yet to recap the meta N. F.
T. Thesis, attention is finite. The internet is vast where tribal creatures driven by Mimetic desire and we're building an insane parallel financial system that may have found a bridge to celebrities and mass retail adoption via crypto enabled art and collectibles. When you add all of that up. N. F. T. S. Allow you to own a piece of the internet. Now let's substitute the internet with your favorite entertainers in music, film, sports, fashion, gaming etcetera. Fan tokens are simply collectibles with member rights. Those rights can be financial tickets, shared royalties or non financial social signal as a super fan experiential access or a combination of the two.
Think of what might happen with NBA. Top shots for illustration. Top shots are collections of virtual playing cards that capture NBA players and iconic moments from the game. The dumb V. One of top shots. They're collectibles like old baseball cards. But how about V.
two v. 3 v eight.
Top shots collectors might get invited to V. I. P. Players events in the off season or to the NBA all star game. Maybe they'll earn entries in the lottery for courtside playoff seats for their favorite home team or have a say in the league's new jersey designs or in music. Let's say you bought one of the 1st 1000 N. F. T. S. for your favorite indie bands, new album, They go mainstream and now you've got backstage passes via your N. F. T.
For their next tour stop in your town. You get a split of the royalties from a netflix documentary on their rise. In fact you're N. F. T. Gives you voting rights in their doubt that voted on the royalties deal in the first place. Maybe that N. F. T gets you an audience Airdrop. What if lil Nas ax had dropped a token? He went from 900 to 50 million Spotify listeners in two years. If you were one of the 900, would you have purchased or been air dropped a nas token back then for helping him promote his early singles.
Nas token could have tracked early quote unquote true believers and allowed fans to personally share in his financial success. Win and help win is a good model for fans and the famous alike and it's something that applies to smaller creators with much smaller audiences or 1000 true fans as well. ADM DJ three lau dropped an N. F. T. And made $12 million. A group of documentary producers raised $2 million to tell the story of ethereum creator tools like substack newsletters and Kalyn podcasting are making it easier than ever to abstract away. The business side of art. And I could see N. F. T. S opening massive avenues for growth in those communities.
Just like Mirror has already done in its battle against medium fan tokens whether they're N. F. T. S. Are fungible social tokens like those available on role could be what helps crypto cross the chasm into mainstream adoption as more tribes become owners. If digital art and P. FPs are good news for visual artists, Van tokens unlock a whole new value stream for the rest of the entertainment industry. Film, music, sports in particular. They also break down the stranglehold that L. A. Has over film and music better connecting up and comers growing the pie for all creators and slashing L. A.
Producer take rates by 50 to 75% or more like the unit swap versus finance comparison here. L. A. Finance is probably fine for catering the users who only want access to the most famous acts but if your interests lie outside of the top 100 you're likely to be better served as a fan by the peer to peer marketplace of N. F. T. S. That's good news for a creator economy that recently passed $10 billion in aggregate earnings and is growing 48% year over year before N. F. T. S. This chart is about to go vertical with N.
F. T. S. It might be a short hop from fan tokens to initial person offerings or income sharing agreements which are controversial but probably inevitable. I expect the boom in fan tokens to lead to a creative resurgence interest and feasibility of I. S. A. S. We'll see fan tokens from promising students with the potential to drop out of college and start working in web three instead section 6.5 axis infinity. And the play to earn revolution. One reason the gaming industry has been so dominant in the entertainment industry bigger than the movie and music industry combined has to do with its early embrace of the internet's new mediums, streaming and business models. Freemium and virtual goods marketplaces.
It would be ironic if those same studios Miss Crypto. Especially since the pace of growth and revenue generation in crypto gaming isn't theoretical anymore, its mind melting. Consider the economics to ethereum is top three revenue producing apps in the past quarter. Acsi Open C. And UNIX swap access and Open C. Generated more than $500 million in revenue in the past three months. Eunice swap was next with about $475 million after that both access and open C. Were each larger than the next five ethereum applications combined. Axis growth is finally showing signs of flagging but the play to earn gaming trend that pioneered is here to stay the amount of money these platforms have raised is nuts and they're set up for a full cycle of iteration and development regardless of whether the sector's frenzy subsides. Next year. A 16 Z. poured $150 million dollars into mythical games engine announced a $100 million gaming fund, F.
T. X. And Lightspeed invested $21 million in fair away games. On the same day as crypto gaming is having its moment. There's an innovator's dilemma playing out at the incumbent gamemakers. Steam has banned crypto Epic games store will tentatively welcome games that make use of Blockchain tech provided they follow the relevant laws, disclose their terms and our age rated by an appropriate group. But even the most enthusiastic incumbents are unlikely to face a seamless web.
We saw how quick and extreme the backlash might be from anti crypto users when discord even teased in N. F. T. Integration. I don't think the early reluctance will persist. My bet is that a top five gaming studio enters crypto in a meaningful way next year, most likely via M. And A. Of other web. Three games. The benefits to being early on a 10 year trend will prove too compelling capitalized on the N. F. T.
Craze. While things are hot and get an edge on the imminent talent war for all of the market leaders to sit on their hands. A slate of small transactions might allow the incumbent to sandbox and ecosystem of bets and work out the kinks before bringing the tech to their full universe. It's not just opportunism that will drive them. The threats posed by inaction are real too. Today's gaming giants generate $120 billion 100% default take rate, Compare that to access may game not even available in app stores. It's played to earn model, reduce customer acquisition cost 20 attracted millions of users and a $10 billion dollar market cap in less than a year. That'll wake him up. No gaming Ceo wants to get blockbuster. This chart should be on the first slide of each game. Maker's Ceo is board deck going into 2022 section 6.6. Looted, compose herbal FTS
on black text. The loot sale this summer was a Rorschach test for N. F. T. S. You either thought it was the brilliant introduction of a new compose herbal N. F. T. Primitive for digital gamers. Or you thought it was Billy Madison tears Stupid was probably a little bit of both honestly. But there were a couple of takeaways I had from loot that were positive VC emergency newsletters for instance, should be minted as N. F.
T. S for the lulls. Something like loot sure seems like it could be the backbone for a new line of web three native games. If you look at the amount of money being raised for digital goods, a critic might point out that this is more likely to amount to a massive wealth transfer from investors and partners to creators and decentralized gaming studios. The virtual goods for most of these new fantasy games will likely look and feel the same. Yet different communities are sure to sell the same abstractions as their web two counterparts is an ember sword going to be compatible in every other game perhaps, but why pay for the sword in the first place? If you can buy the loot sword and every single game maker builds an abstraction that honors and recognizes the
value of that item.
Cynics probably are under appreciating how
big galoot like project can be.
And I say that as someone who hates the V one and the fact that otherwise rational people have been up lists of words at the same rate as a company. Others have built over four years. But I'm not a hater. The big takeaway I have on loot echoes what I said on PfP communities. More generally, people who are three weeks late to loot but relatively early otherwise to the world of crypto gaming seem unlikely to honor or value a single projects wordless dropped to a bunch of hoarder vcs, I'm fairly certain there will be a superior play to earn version of loot that employs a meritocratic cross game fair launch of goods. It could be structured as an airdrop to other serial crypto gaming grinders or incorporate a play to earn points system that tracks new game playing commitment across any projects that opt into the new compose herbal list of goods universe. You'll find loot successor when gamer influencers, right threads on the project, not the breathless crypto twitter speculators. Section 6.7 N F T. Financial Ization, unique assets are less liquid than fungible assets. By definition, that creates some challenges when it comes to price discovery in the N. F. T market, not only for secondary sales but for virtual asset collateral ization.
There's been a few early attempts to tackle this challenge head on and it will be one of the most important areas of N. F. T. Infrastructure development in the years ahead. N F T s are insanely volatile. There may not be bids for many of these assets in a bear market. Is it even possible to borrow against N. F. T. S while also hedging out the idiosyncratic price risks of specific projects and
maybe, but only if you can get lenders comfortable with baskets of these assets. Projects like whale bundle, a collection of N. F T. S from a single collector and tokenize
access to the
portfolio. Pleasure down and party tao are building collective bidding infrastructure that helps groups start public auctions for N. F. T. S, fractionalization by another name, pricing, derivatives and collateral off of floor prices could be disastrous as many floors actually have no bids at all. The punk floor token on the other hand, seems like a better approach. It's a bit of a misnomer. The token aims to track the price of a midrange punk by aggregating and fractionalized ownership of 104 punks of varying rarity. Floor could conceivably be a buyer of last resort and bear markets flight to the most liquid collection and an inventory seller in bull markets when bidding is most competitive. In the meantime, the token trades at a 20% premium to the punk floor price today. Not bad if you want access to punks but don't have 500 K. Lying around reminds me of matt Levine's, how does take on fractional N.
F. T. S owner slash securitize. Er I bought this unique pointer to an image of a dog for 400 million. The public ha ha ha good one congrats money. Well spent owner securitize er Also I will sell fractional ownership interest in it for like $225 million. The public Hahaha! Another good one. That joke is worth $225 million dollars to us. Here you go. It's two jokes so it's worth 55 times as much. I don't know.
I'll admit I had trouble wrapping my head around how N. F. T. S, which are not one of one mints could still fractionalized their ownership effectively. But there are multiple real world analogs timeshares and subletting in real estate rent. The runway and fashion, personal seat licenses in sports etcetera. It will take time to get N. F. T fractionalization right? And I predict we'll see some seismic blowups from projects that overestimate the value of their collateral long term. This will be huge unlocked for the crypto economy. It starts with P.
FPs art collections and metaverse land Section 6.8. Open Sea and Friends. Over the past 18 months. Open C. has enjoyed one of the fastest revenue
ramps of any business in history.
They've gone from a seed stage startup to a potential deca corn and I think they could eventually be a $100 billion company or network if they continue to execute this chart highlights their massive run rate P. And L. Numbers like this are white coin based plans to enter the market. Ft. X. Is already there. Same with Gemini legacy companies like Gamestop are salivating, looking at those numbers. Sotheby's might even go direct. It's validation of the size of the emerging N. F. T.
Asset class rather than a bona fide threat to open seas business. The bigger
question to me is not whether open C. And other pure play N. F. T.
Marketplace is succeed, but rather how they do vertical eyes over time,
the answer might be straightforward. Open sea and virtual good pure plays may dominate in the virtual goods realm. While exchange affiliated N. F. T marketplace is dominate on the Financial ization side. You'll buy and sell punks and to central land plots on open C. But you'll buy and sell floor tokens and mortgage land tokens on coin base or F. T. X. In that way the SCC's hostile crypto regulations could be open seas strongest tailwind as there will be no need for an N. F. T.
Marketplace to cross or even step up to the securities law line given the explosive growth across the rest of their platforms. Leave the land mines to the exchanges and their in house broker deals. Again I'm an early investor, I would like to invest in more N. F. T. Infrastructure like open C. Section 6.9 The Crypto verse Matthew Ball defines the metaverse as a virtual realm with seven qualities persistence, a permanent always open global hangout. Liveness real time just like the physical realm. Uncapped user presence, a stadium vibe, economic robustness. N. F. T.
S are the goods fungible tokens are the currencies and commodities relevance across digital and physical worlds. No walled gardens, interoperability, portable goods, identities I. P. And user driven evolution. Content and experiences are created curated openly versus through a central company. If you believe there will be places like that and appreciate that we'll be spending more of our time there in the future it's probably obvious will ascribe progressively greater value to digital goods versus physical goods. The only question then is which direction will the metaverse evolve? Will it be citadel centric, big tech walled garden dominated or frontier centric open cloud based and crypto secured Allison McCauley's piece comparing the recently central and and roadblocks festivals illustrated the near-term differences. We can expect to see between the two saying over the last week two
simultaneous global metaverse festivals took place giving us a glimpse of the competing sides
of today's battle for control. one was produced by an established gaming player. The other created by decentralized metaverse. Pioneer roadblocks accompanied with 2020 revenue of $924 million, held the first
virtual music festival on
the roadblocks platform in partnership with music event producer insomniac. At the same time, the Central and an open virtual world, totally owned by its users held its first metaverse festival. Both events gave us a glimpse of how digital technology can
enhance the experience
of attending an event, how live performance can be smoothly integrated, how exclusive experiences can be woven in and how we can now congregate no matter where we live at global scale. Yet they also gave us an indication of the trade offs ahead the roadblocks experience
was nothing short
of slick with the high budget design of corporate
experiences, in conjunction with the electric daisy Carnival abc in las Vegas, the virtual experience not only integrated CDCs, live stages, an impressive lineup, but offered games, virtual tents and artist meet and greets. The Central Lands Festival was carefully designed and orchestrated with sets from more than 80 artists including dead mouse, a merch store for NFC wearables and even
toilets. The D Central and festival felt like the community project, It was more creative, less produced yet what's most striking about the Central land was happening behind the scenes in this world, people can directly own and cultivate digital land. They can conduct commerce directly with other participants. And instead of relying on a corporation to run the
world, its users governed
policies of their own through a decentralized autonomous organization. Or doubt
anyone who hasn't
stepped foot in one of these festivals might think there's no scarcity and digital art because you can right click save the Jpeg. But what the right clickers don't get is that this will be both technically and socially impossible. In the metaverse where digital art avatars, land etcetera are all seamlessly tied to the Blockchain receipts. Could you imagine going to the d central and party and a knock off dress? What if the real owner showed up while she walked around with a literal
glow of authenticity? Your fraud would be exposed on the spot
as a blinking red cone of shame hovering over your avatar. How gosh! When it comes to the metaverse, my money is on the crypto verse near term the citadel's medium term. And in the long term it's a coin flip. Let's talk about why Section 6.10 I said metaverse, not meta. The metaverse doesn't have to be a dystopia with a Web three back end. We can live in a world where designers compete in a competitive fee for service marketplace for
rights to host you
and monetize your data, will make it 100 times easier to sell your data but keep 20% of your profits. Seems like a fair medium term bargain that will entice users to the crypto verse and pressure web. Two companies to lower their take rates. Don't see modern tech giants offering compelling alternatives to crypto when it comes to the open metaverse. But meta is an exception. An incumbent like meta with its cash cow blue app and instagram and it's under monetized other products is an interesting player in the metaverse because it can afford to experiment with new monetization models and user incentives under some of its
massive digital first product lines, Oculus,
WhatsApp and messenger without jeopardizing its core adds business in instagram and the blue app which more closely tied back to our real world
I like the rest of the internet have a lot of thoughts on facebook slash meta in general. I agree with chow that the goal with the renaming is to move away from the toxic facebook
brand. I agree with david snacks that the media's witch hunt of
Zuckerberg reflects their own bad behavior which is orders of magnitude worse. I also agree with biology that sucks resilience is impressive and he's worth betting on and believing when it comes to the meta pivot up to a point. Yes. Zuckerberg might be the only robotic on on the planet who could have made an earth shattering announcement. Like metas feel more cringe than exciting but $10 billion per year is a mammoth necessary investment that will lay the foundation for the metaverse much like the roll out of fiber optics in the early aughts Medicaid brute force, the path for hardware, graphics software and mobile bandwidth. To the point the metaverse becomes truly immersive. I've been excited about what facebook might build in the VR since I outlined my first virtual octagon with the Oculus quest last year, it was a moment of tech euphoria that I experienced only twice before taking my first uber ride and reading the Bitcoin white paper. I'll be more excited if meta keeps its promise to keep its metaverse work open. The company's success will hinge on its sincerity and that should be its preferred path owning the dominant platform of the only inhabitable land yet to be fully settled. The cloud is orders of magnitude more valuable than owning a single citadel on that land. I think Zuck knows this and he's saying the right things. Ben Thompson's interview with him is worth reading in its entirety.
Section 6.11. non fungible credentials. Your modular identity since 20
18. I've been intrigued
by the concepts of
curation markets and token curated registries as the digital
replacement for credentials, N. F. T. S
may prove to be the
missing building blocks that finally make them work because they won gran your allies achievements to have technical specifications that will make them easy to integrate across a variety of platforms and three are composed able, which means they can evolve over time. Take a digital diploma for instance, in the one point a world of token curated registries,
would reflect a binary pass fail outcome and it was easy to corrupt the integrity of the diploma by bribing your way onto the registry or inappropriately discriminating against an otherwise qualified candidate via mob rule, N. F. T. S would make things a bit different. Instead of starting with an overarching credential, the diploma N. F. T. S would start with each discrete item on the rubric. Did you complete this degree becomes, did you complete this question? Did you complete the 100 questions to pass this course? Did you complete the 20 courses necessary to attain this degree? That's 2000 discrete N.
F. T. S for one diploma. And the top 500 might determine your major. Moreover, we can use things like rarity attributes to ultimately solve the subjectivity problem. In credentialing your N. F. T. Might have different attributes if your work was deemed best in class or top 5%. At the same time, I think N. F. T.
S will be the technical backbone that ports the real world credentials and identify here's to the new world. You won't
need to enter your driver's license every time you need to prove your identity, your digital signature will unlock access to the N. F. T. Of your license or
your health record or your
insurance etcetera. We're talking about a 1000 X. Improvement in the portability of our
identities and the consistency and comparability of our credentials. The potential to visualize credentials and reputation via
artistic representations of your N. F. T. S. Is eye
opening at a virtual meet up. You might choose to showcase credentials directly on your avatar's lapel. A speaker or V. I. P. Might wear an N. F. T. Registration badge. The social hangout you might choose to wear a different reputation. Isn't that all of fashion to signify status looks rare or humility and E. S.
G. Brands. Virtual
apparel, N. F. T. S are literal pictures worth 1000
words of resume.
Inc one of the biggest trends will see in 2022 is the move towards meritocratic
earned N. F. T. S. If your crypto wallet becomes universal digital identification then N. F T. S will represent all of the sub components of your identity, compose herbal membership earned semi transferable N. F. T. S and yes T. C. R.
S will come back Section 6.12 name spaces and data sharing. two more building blocks of non fungible
identity are worth
noting. The decentralized domain name services and the data marketplaces that will make personal data relicensing trivial crypto domain services are an obvious killer app
For Managing Web three identities.
one of the building blocks of Internet infrastructure
has been domain name registration.
Web domains made I.
P addresses. Human
readable and the same will be true for many. Blockchain
addresses. If p FPs make digital wallets more visual registries like E. N. S. And handshake make them more interoperable and trustworthy. Nearly half a million DNS names were registered before the protocols. Billion dollar Air dropped to its early users last month and it's conceivable that the network could rival or surpass centralized DNS maintainers like verisign and it's $27 billion market cap. One day. Garrison manages nearly 85%
Of the world's 200 million websites today. But the domain space for identities and Web three could be 2-3
orders of magnitude
larger as there
are 40 times as
many people as websites,
five times as many internet connected devices as people. And a lot of global citizens who won't necessarily trust verisign given decentralized alternatives. Clear identify IRS will also make it possible for people and their devices to extract value from their data. According to the international data corporation. Less than 1% of the world's data is actually used and analyzed even though the amount of potentially useful data doubled from 20 to 40% from 2012 to 2020. With the market for data analytics swelling to nearly $100 billion by the end of next year. And case studies like netflix. $1 billion big data slash consumer retention investment becoming more widespread companies and users alike will want to better
monetize their data in
Web three protocols like ocean provide the wrapper for these data packets by encouraging public sharing and secure monetization of data and better price discovery via liquid data markets. The addressable market
is fam Jas ad revenue and then some so there's a lot at stake. Section 6.13 Diesel lotteries.
What happens when you combine p FPs permanent dot Ethan identifiers, data compose ability and data marketplaces that price
data packets with AI
You get a decentralized social network and potential lottery like rewards for early and viral user generated content. Web three social media seems like an inevitability these days and
may already be here with the advent of projects like
the literal decentralized social formerly bit cloud twitter's blue Sky and G M dot X Y
Z. It isn't obvious which early networks will take an
early lead or demonstrate true staying power though, decentralized. Social raised $200 million from a 16 Z after raking in a small fortune in sales from its clout token rebranded to D so token and is paying that forward with a $50 million fund of its own to spark community development but the uX is clunky and I doubt paid a tweet as a sensible model. The core concept is sound though, reward any user that goes viral financially. Tiktok got this right boost users early posts to get them hooked without the token rewards. A 13 startup will get it even more right with financial rewards. It's not just users that will benefit either. Diesel protocols will incentivize dozens of competing developers to build services that compete for the right to host
users and their data either via token incentives, attention farming or killer. Products that optimize for things the user actually wants and is willing to pay for such as personal
growth, safety, peace of mind, etcetera. A front end could recommend follows based on owners of other similar assets and allow you to sell or auction N. F. T. S directly
from your user profile or create a better social graph. I could see adobes new prepare as N. F. T feature in
Photoshop minting a
ton of early
winners and deciders viral olympics content credentials are certificates
compatible with N. F. T. Marketplace is like open C
which proved an art
sources authenticity and 100 X. Is the ease of creation and distribution of new N. F. T. S.
Novel put it
best when he said disa was waiting for its Satoshi
Moment. Right now. The field is wide open and I'll be spending a lot of time on the up and coming platforms in 2020
Section 6.14, the physically decentralized
permanent web. We can make all the pie in the sky predictions we want about crypto taking over
insert industry and being an unstoppable force.
The truth is that our physical survival depends on the decentralization
of hardware. The war against censorship, resistance will be fought in the cloud and
how effectively we wrest control
of that infrastructure from today's dominant monopolies will be the difference between an open internet and a police state
Of the various components in the Web. three
hardware stack, decentralized
storage is arguably
the most robust. Unlike its predecessor bit torrent, which relied on a required content to be hosted on
local servers. I PFS offers a novel decentralized system which allows any node
to store data, but these nodes must empty the content a pin or cash eventually, which led to the introduction of file coin and incentivize storage. Network built on I. PFS that verifies the network is storing the data. It says it will the first Blockchain
project dedicated to
file storage. File coin creator protocol labs garnered a massive treasury which is used to fund a laundry list of other projects, accelerators and developers file coin leads its pack of competitors in terms of the data stored on its network. For now though they are hardly alone are we even see a emerged this year as formidable competitors. Each network uses its own Blockchain or
our weaves case a black We've as the foundational
layer for their
decentralized data and app storage
solutions. These networks make different design tradeoffs but can generally be buck. It'd into two categories on demand storage CIA and file coin versus
long term storage are we've
even though data stored on our we've comes with a premium since the user has to pay for lifetime storage. The protocol has gained traction in
the N. F. T. Landscape
is a permanent solution for storing N. F. T. S. And their metadata are we've has become the preferred storage layer for Salon A. N. F. T. Projects in particular,
which led to a spike in our weaves network growth over the past two quarters are
we've applications like
coy and KIW are enhancing the potential services
that are we've can provide to other
block chains and users.
Storage is a key layer of Web three infrastructure
that will steadily gnaw at the margins of existing internet infrastructure providers, particularly
with the rise of decentralized
storage aggregators like file base and pinata, which provide the interfaces optimizations and service layer
needed to offer custom storage solutions to new customers. C. D. Web
three just as coin base offers defi services from protocols like maker and compound
Make Web three Storage
protocols more accessible
to new audiences. Section six point
15. Physical network scaling a truly decentralized internet also requires permission liss and censorship resistant hardware networks that support computation and networking in last year's thesis, I said right now Helium and it's long range internet of things. Networking marketplace seemed like the early favorite to break out. Your welcome helium is one of the strongest performers plus 3000%
within the web three sector year to date as its global wireless hotspot network continues to attract huge partners like dish who announced that they would begin to deploy Helium is new line of five G hotspots.
Helium has a variety of partners producing a dozen types of its miners proving that hardware can be scaled effectively using token incentives. Hardware is a tough business model. And Helium showed how effectively hardware businesses could bootstrap expensive two sided marketplaces with the right user economics. Similarly decentralized video trans coding protocol. Live
peer continues to gain traction and a crew
fees as a result from its rapidly growing video network within the cosmos ecosystem. Application specific block chains like akash continue to expand and produce early signs of sustainable network revenue as they match developers who deployed their docker containers at a significantly reduced cost of cloud providers like AWS or google and data centers who can rent excess capacity similar to Airbnb for data. Their hardware networks like an Drina and Alfie a pre tokens are tackling the internet service provider layer by enabling communities to set up hotspots and antennas that bring Internet access to nearby towns while live peer operates on ethereum akash helium are we've, and other hardware intensive networks have chosen to build out their own block chains as the world moves towards. It's all but certain multi chain future, expect these hardware networks or they're more effectively decentralized competitors to serve as a foundational layer for the insensible internet