How NFTs Are Revolutionizing How Creators Make Money

Jamie Burke, CEO of Outlier Ventures, and Mason Nystrom, a research analyst at Messari, discuss the NFT craze that has enveloped the crypto world over the past few weeks. In this episode, they talk about:

• their backgrounds, and how they became involved in crypto (1:19)
• the major catalysts — specifically Beeple and NBA Top Shot — that have brought NFTs into the mainstream (5:29)
• why NFTs are a “megatrend” and not just another ICO-like bubble (13:35)
• how to explain non-fungible tokens to normies (18:06)
• what someone is actually purchasing when they buy an NFT (24:46)
• the reasons behind NBA Top Shot’s success and why it is so difficult to withdraw money from its platform (36:27)
• the best way to scale NFTs and why Ethereum, despite severe storage limitations, will most likely remain the most popular blockchain on which to mint NFTs (41:44)
• why the gaming, fashion, and music industries will be disrupted by NFTs (49:37)
• when the current subscription-based business model for content creators will transition to the ownership economy (55:10)
• the differences between the marketplaces and platforms that make up the NFT economy (57:06)
• whether NFT valuations will go to zero and the challenges of appraising digital art (1:03:39)
• their predictions for the market capitalization of NFTs by the end of 2021 (1:15:23)

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NFT Sales Mentioned

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Transcript:

Laura Shin:

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and, as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. Subscribe to Unchained on YouTube, where you can watch the videos of me and my guests. Go to youtube.com/c/unchained podcast and subscribe today. 

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Laura Shin:

Today’s topic is NFTs. Here to discuss are Jamie Burke, founder and CEO at Outlier Ventures, and Mason Nystrom, research analyst at Messari. Welcome, Jamie and Mason.

Jamie Burke:

Hey, thanks for having me — I finally got on here. 

Laura Shin:

So Jamie, let’s start with you. Tell us how you got into crypto and how you came to have NFTs as one of your focus areas in what Outlier does.

Jamie Burke:

Yeah. Well, I’ll give you the abbreviated version because I’ve been in the space for about seven and a half years. Well, I founded Outlier seven and a half years ago, though I’ve been in crypto personally for a little bit longer than that. The short story is that seven and a half years ago, when we founded Outlier Ventures, we were the first institutional investor in blockchain in Europe. There wasn’t much to invest in from a startup perspective. We were a bit more of a studio because we were getting applied learning. We thought, well, maybe this will help us be a better investor someday by understanding the technology’s limitations. As the space matured, we began to believe that a lot more infrastructure had to be built before these wonderful applications would be possible, like theoretical applications would be possible.

So we incubated protocols and like primitives lower down in the stack. And as the space has matured, our model has moved up the stack in the middleware and application layers as an accelerator. So this year, we will accelerate a hundred Web3 startups: 50% DeFi, 50% NFT, and many of them blurring that in the middle. And that is three times what we accelerated last year. So God knows how we’re gonna do that. And specific to NFTs, obviously, I have been aware of NFTs, like everybody in the space, for a long time. I, for a while, kind of lost interest in them when CryptoKitties kitties broke Ethereum, like many of the people got distracted by things like DeFi. And then it was really summer of last year where I came back to the space and was just blown away by what had been happening in what was supposedly an NFT kind of winter.

Platforms had been built. Whole new artists had been onboarded into the space that knew nothing about crypto. Many of them were discovering crypto as a consequence of being onboarded into, say, SuperRare. I became very quickly convinced that NFTs would represent a super-cycle as we were just kind of saying off-air. NFTs, for the first time, make crypto accessible to the masses. The concepts, the type of assets, and the behaviors of collecting are going to onboard billions of people that would have never otherwise gone to Binance and bought ETH right. They end up with ETH as a consequence of buying this collectible. So it’s a crossover moment for us: it’s the gateway drug, it’s the red pill. And I believe this will be a megacycle that will at least 3x 2017—long-Term 20x.

Laura Shin:

Wow, that’s really interesting. And I do remember last fast, I interviewed Jake Brukhman of CoinFund, who was saying that NFTs were going to bring in what we would call normies here in the crypto world. And I understood it in an abstract way, but really now I feel like I’m truly getting what he’s saying. So yeah, we will see just how big this can go because I agree with you. I think it can get quite big. So Mason, what about you? How did you get into crypto and come to specialize in NFTs?

Mason Nystrom:: 

Yeah, definitely. I would say I’m a former normie. I first got into crypto in 2017 as I was doing my MBA in Hong Kong and started working for a local cryptocurrency exchange out there. I fell in love with crypto, as I’m sure you both have, and subsequently decided that this was an area I wanted to commit a large portion of my career to. So I came back to the States, joined ConsySys, rose on their marketing team, and then joined Messari last year, where I specifically work as a research analyst focused on Web3, NFTs, and a couple of those other emerging trends.

Laura Shin:

All right. So let’s just dive right now into this NFT news. So I’m sure most of my audience is aware that in the last few months, NFTs have really taken off with the mainstream. We’re seeing these non-crypto artists and bands and companies such as the NBA, Taco Bell, Kings of Leon, Grimes, Banksy, et cetera, getting in on the action. So Mason and Jamie, how would you guys describe what’s been happening in the recent months? What would you say have been the major catalysts, the major jaw-dropping moments for you, and then just kind of zoom out and also give us the big picture of what’s happening in terms of what people are now calling this ownership economy?

Jamie Burke:

Well, I can maybe take a more high level. I’m sure my fellow panelist will be able to go into much more detail at kind of the market level, right, like the nuance, if that works for you guys. 

At a macro level, I think clearly last year, a lot of the attention around and NFTs was primarily around art as a use case, be it like one-to-ones or editions primarily through platforms like SuperRare. Again, offline, it was kind of semi-joking, not joking about this distinction of pre-Beeple, before Beeple, and after Beeple. And of course, like when is the after Beeple? Maybe it was yesterday in the context of his Christies sale. Was it yesterday, today? I can’t remember. 

Laura Shin:

It was yesterday. Well, and for listeners the day before we recorded. And for listeners, SuperRare, I believe, focuses just on visual art in terms of NFTs.

Jamie Burke:

That’s right, yeah, and one-to-ones and stuff like that. So you had a sale on Nifty Gateway that, I think over a weekend, the sale equaled what SuperRare had done the whole year prior to that. Right. That was a watershed moment. And the reason was effectively Beeple is a market in and of himself, right? He has this back catalog of Everydays. So he has to supply. He has millions of followers, so he has the demand. And to be honest with you, he didn’t need a Nifty Gateway. If anything, Nifty Gateway needed him. But, they were able to serve that demand without it falling over, and so, you know, big respect to them for managing to make that happen. But that was a watershed moment because, effectively, he was one of the first mainstream artists on it. You could even argue, you know, to an extent, he wasn’t necessarily as mainstream, certainly as he’s going to be.

Now, prior to that, a lot of crypto art had been very introspective, very self-referential — arguably kind of crypto meme art speaking from a personal perspective when I began collecting. So I started collecting proper summer of last year. I ended up accidentally creating a discord with 200 world’s top NFT collectors, and we ended up accidentally creating an art district in Decentraland with 20 galleries and very little coordination. But a lot of them were collecting artwork, which was voxelated, pixelated meme art. And to be honest with you, I didn’t fully appreciate it at the time, like that it would have value. I kind of thought, well, this is just like the first-gen, and the place is going to mature. More sophisticated artists are coming into the space with a higher aesthetic. And as a consequence, all this stuff would be left behind. What I didn’t fully appreciate at the time, which I think now is really evident, is the way to look at NFTs. I kind of use or evoke the Marshall McLuhan quote it’s you know, “the medium is the message,” right?

So you don’t need to put too much attention on the actual content of the artwork itself. CryptoPunks are highly voxelated, pixelated, two dimensional. But what that represents is status in the story of NFTs. And that’s why Mark Cuban will come in and pay a premium to be part of that club and to pay homage to the industry and its journey. So it’s almost irrelevant what the art is at the moment. What NFTs represent is a stake in a native social layer to the internet born out of crypto, which is kind of highly oriented towards memetics. Really these things form a kind of social currency. I’ve actually stopped paying attention to the aesthetic as much, to be honest with you. If you look at my personal collection, it has literally degenerated. I am a degen. It’s gone from like very, you know, high-end 3D multimedia to pictures of twerking Rare Pepes, you know?

Laura Shin:

Okay. And just for listeners, in case you missed the interview, I did with Beeple when he did that fall sale, where he made three and a half million dollars in one weekend, you know, that was the first money he’d ever made from any of his Everydays. It was, you know, quite amazing at the time, and now, you know, here the piece, The First 5,000 Everydays, has generated $69 million for him at Christie’s. It is quite remarkable.

Jamie Burke:

Which, by the way, makes it the third-largest sale of a living artist ever. I mean, that’s just mind-blowing, sorry. I had just had to throw that in. Yeah,

Laura Shin:

I know it is. It is mindblowing for sure. So Mason, what is your take on, you know, what’s been happening in the recent months and also what this means in the bigger picture?

Mason Nystrom:

Yeah. So I think Jamie kind of hit the nail on the head. NFTs are really in the cultural zeitgeist right now. That just draws in a lot more people than, say, your average DeFi project or application. I think that there are multiple narratives playing out. Because if you look at NFTs, it’s just a token standard, it’s a way to transmit a file on a blockchain. And so it has dozens of applications, from gaming to art to financial products like carbon credits. And so art has definitely been one of these watershed moments. I would argue that it’s not as retail-driven because if you look at SuperRare and look at their users, they have probably like a hundred different artists, like 2200 to like 3000 collectors. And, you know, so like art, just as in the traditional world, is a very wealth begets wealth type of sport… not to say there’s anything wrong with that, but it’s just, it’s not as you know, like consumer retail-driven versus something like NBA Top Shot, which has brought over a well-known intellectual property from the NBA to NFTs.

And so that is very retail-driven because everyone can connect with that. That’s something that, you know, you probably watch a game on a Wednesday versus talking about art on your average Wednesday, unless you’re a non-normie like us.

Laura Shin:

Yeah. And one other industry I think that is probably going to have a broader appeal is music, which is why we’re seeing, you know, like Kings of Leon and, and stuff like that already getting into this space. So just out of curiosity, you know, I think for so many of us, like looking at this, it’s very new, the prices are really eye-popping, well for certain things, but also even for things like, you know, like Hashmasks or whatever. So what do you think? Would you say we’re in an NFT bubble right now, or do these prices, and does this activity make sense to you? Or do you think it’s like just the beginning, and it’s going to get way, way, way bigger?

Mason Nystrom:

I would say that it is the beginning. I would say that we’re also in a slight bubble where things are maybe not being priced or valued, you know, in the correct way. And part of that is just like the fever around it. Collectibles in nature and art are very subjective in value. And so, like, there is no, you know, utility or theoretical value to it. Over time, whatever remains a collectible will still accrue significant value. And so I think it’s really just a matter of timeframe.

Jamie Burke:

We’re at the beginning of a megacycle. What’s interesting about it is it’s interplay. So the interplay of NFT and DeFi hasn’t properly begun yet. You’ve got things like NFTfi, where some of these things are being used as collateral for borrowing and lending. That will increase as there becomes a blue-chip class of NFT, but also, you’re now seeing people earn NFTs in gaming. And so, for example, Axie, you know, I need that NFT to play the game to churn. I need to hold good cards. I can’t sell them. So, increasingly, people are going to borrow against them to pay rent or whatever they want to do in the real world. And so these things begin to collateralize DeFi.

And as a consequence, I think NFTs will then fuel DeFi. You’ll see this financialization of almost every form of creative media. And if you think about that in a gaming context, think about all the digital wealth that’s currently locked in gaming platforms; skins, wearables, you know, they are constrained/limited to these platforms, with billions of dollars of value. With and without the permission of these platforms, they will increasingly become financialized off that platform. And Tim Sweeney, CEO of Epic, is already talking about the open metaverse. He’s well aware of NFTs. Actually, there are many innovations that I’m seeing being proposed whereby you can create synthetics off platforms. So you can actually trade these things as if they’re not constrained to particular platforms. There’ll be workarounds. And you imagine when that hits the NFT space, that hits DeFi.

I mean, that is a huge megatrend. And so one of the interesting things, I was speaking to nonfungible.com a few weeks back, and I was really surprised this has already happened. So, I propose NFTs as an asset class as an alt asset would decouple from wider crypto at some point. And I thought, maybe that’d be in a year’s time. Maybe that’d be an 18 months time. They argue that it’s already happened. Already happened, you know, in this quarter. So what I mean by that is the price of NFTs are not correlated to the price movements of Bitcoin or ETH. You could argue even that NFTs are driving the price of ETH. And so not only are they decoupling, but they’re becoming the main driver within the wider crypto asset class. 

I don’t know what that means, right, but it feels substantive. It feels different from ICO mania. And you mentioned audio. For example, I know several artists, some going through our portfolio, like major artists that will be doing audio drops. I know there’s aspirations to have the first platinum NFT or million sales of an NFTs. That might happen in the next quarter. So you think of music, you think of gaming, you know, the demand for these NFTs is totally uncorrelated to demand for Bitcoin. And so that’s why I think there’s a real potential that this cycle is going to dwarf anything that we’ve seen with crypto. And also, because of the nature of this asset, because it’s thinner liquidity, there’s kind of less sensitivity to price discovery; they might hold value a bit longer. So they might be a little bit more resistant to the kind of volatility that we see with fungible assets in wider crypto. That’s above my pay-grade to speculate on that, but it feels like it could be this time. It could be different. There’ll still be a correction, but…

Laura Shin:

Okay. You just said so many things that I want to unpack, but I kind of already have a lot of those in my questions. So before we get into all that, there was actually one really basic question that I want to ask you guys, just because I want to hear your answer. Let’s say there are some of my listeners who may be less familiar with NFTs, or they’re people who kind of, you know, like did a search, and they found this show… I want to hear you describe what an NFT is to somebody who, you know, doesn’t really know crypto, who’s like a normie.

Mason Nystrom:

Sure. I think the simplest explanation is that it’s a file format for transferring data and information on blockchains. So just in the way that we have file formats, like JPEGs, PNGs, and MP3s that just transfer data and information on the internet, like that’s all an NFT does. And so, like at the fundamental level, it’s just a way to transfer data.

Laura Shin:

Okay. So then, what makes it different from a JPEG?

Mason Nystrom:

The fact that you have it issued on a blockchain. So it comes with all the great things that come with it: whether it’s transparency, permission-less nature. I think that the concept of ownership is evolving. And so, like owning an NFT and having this probable proof that you own whatever this NFT is, say, it’s a piece of art, is a really powerful concept. And then there’s also kind of getting to what Jamie alluded to earlier is you have this trend where you can financialize every piece of media or content. And if it’s an NFT, you can now incorporate that into other existing protocols, other software applications. And that’s really powerful when you talk about how innovation progresses,

Laura Shin:

Jamie.

Jamie Burke:

To understand what a non-fungible token is, you need to understand what is fungible in your life. There are very few things that are fungible in your life. Like maybe the petrol or the gas you put in your car, the electricity you use in your house. You don’t really care like at the atomic unit of what it is. You just need to know it’s available and it’s cheap or affordable. Pretty much everything else in your life is non-fungible. And so what that means is that it’s unique. And by being unique, there’s a degree of scarcity. But also providence is important. And so I always look at this in the context of digital-ness, right? So digital-ness, especially in the context of media files, digital-ness has brought huge benefits.

So, you know, near to zero distribution ubiquity across devices. It basically fundamentally undermined the value of anything that became digital. If it was like an audio file or a movie file, it could be copied innumerable times. It could be shared innumerable times. Basically, if it touched the internet, it immediately lost value to the point of almost becoming free. And again, if you look at the behavior around digital things, we now largely just consume them. We don’t own them. And therefore, we don’t really value them. Like owning an audio file doesn’t mean like an MP3 or MP4… it doesn’t mean what it used to. It doesn’t mean the same as owning an LP. Now, the really interesting thing about an NFT is that for the first time, you can have something that is digital, so it benefits from digital-ness, but it also has the qualities the internet broke. 

So if you’re talking about an audio file, you could almost think of it as a digital LP. So LPs have held value for a reason, some of them are grown in value, not just because of the superior audio quality, but because I can own it, it’s tangible. It has provenance and has status. I’m discovering it. I’m sharing it — it’s a social thing. And so I think it restores all of those qualities back into music, for example. So does that mean that you will have to have the NFT to stream at the moment? No. Maybe in the future. So you might still stream the audio file on whatever you listen to music on, but you still own the 3LAU LP drop, right, because it gives status.

Then I’ll kind of extend it one step further, which is also beyond the specific programmability or characteristics of the individual NFT. So, on the one hand, the creator can program rules to that particular asset that extend beyond any one platform, right? So the price, the number of them, the scarcity, the royalties, perpetual royalty rights, how that is distributed, and executed by a smart contract. Not just for me as a single artist, but potentially a collaboration of artists on an album, for example. But then, once that’s in the hands of the owner, the collector, it becomes a way for me to directly interface with them. So you end up with direct to creator communication. So I’ll give you one example, and then I’ll shut up. Cause there’s quite a long-winded way of answering your question. 

But like, if I’m 3LAU and I know you own this LP, I know you’re a super fan. Now, all of a sudden, the fact that you have that NFT, I can then give certain permissions for people that own the NFT. It is like a key, it’s like a VIP card. 

So for example, I can let you into a concert in Decentraland only if you’ve got that thing in your wallet. I could let you into a physical event scanning you at the gates because you’ve got that thing in your wallet. So it can be a pass into the metaverse. It can be a pass into the physical world. I can then drop you other things into that wallet because I know you’ve got this VIP NFT. I think there’s whole layers of engagement that are going to be built into and around, just the initial drop or construct to an NFT. And so like, when you think about it, in that context, these things are social assets. They’re like loyalty and rewards. The actual individual functionality of the NFT itself is almost irrelevant.

Laura Shin:

Hmm. This is really interesting because, to my mind, especially your definition, Jamie, kind of highlights what the benefits are to creators. But, as I’m sure you’ve come across, and I share a fair amount of this skepticism as well, a lot of people don’t really understand what it is that somebody is buying when they’re buying an NFT. If NFTs are digital objects and there are already many copies that exist of that on the internet, for instance, you know, Jack Dorsey here is selling the first tweet ever, which was his tweet. It’s something any of us can go online and see for free. And yet, right now, or at least as of yesterday, the current bids on it were two and a half million dollars. So what exactly will that person be getting when they buy that tweet? Right? Are they really getting something, I mean, other than the fact that they’ll have parted with millions of their own dollars and, you know, are they getting anything different from what we are — minus the fact that we don’t have to give up millions of dollars for it.

Jamie Burke:

Status, right. So again, ignore the content of an individual NFT. It’s like what it represents in the context of a community, in the context of a meme. And so, you know, owning the Jack Dorsey tweet, just like someone trying to buy the Beeple one. Right. You know, that was trying to buy status in the community that derides him largely. And, you know, to bad effect. But still, what it represents, is it represents that kind of status. But I would also say, like coming back to it, it redefines creativity in a digital context, but it also redefines ownership in a digital context and belonging. And I think like coming back to the thing that the internet broke, there is this definite nostalgia. You speak to anybody that’s really deep into NFTs, and they turn into a child. They start talking about, I used to have these baseball cards and like, you know, they regress. And I think there’s this kind of sentimentality for the world that the internet broke. Right. And I think this restores that in some way, and not only does it restore it, but it kind of puts it on steroids because now you’ve got a load of grownups with disposable income who are basically being kids again.

Mason Nystrom:

I was just gonna say, in some contexts, it’s just owning a piece of culture, and that’s pretty common throughout, I mean, history. Like people buy art because it is representative of some cultural movement or some phase in time. And like, even if you look at sneakers, like Michael Jordan’s, his sneakers are valuable because he is a cultural icon, not because they are the best shoe. And so you know, how value evolves is very subjective. Jamie mentioned earlier, digital skins like digital fashion and Fortnite is a multi-billion dollar industry for essentially something that gives you absolutely no utility in the actual game. And what’s interesting is there are examples where you have like Sorare, which is a fantasy soccer league, where they have the actual trading cards, but it’s actually useful in the game. And so, like, there’s ways that you can now add value to these historical collectibles that people have always wanted.

Jamie Burke:

Laura, I’d build on that. Right. So at the moment, these things are very nascent. So you’ve largely got a 2D file or a link in association to a token, to a 2D file in a wallet. And like, that’s not very social. It’s not very interesting. But increasingly, these things are becoming multimedia. They’re becoming 3D objects that can be experienced in virtual worlds like Decentraland and, as I mentioned, becoming like a pass into experiences and social-ness and viewed as more social qualities. I think what will also start to happen is as royalties get baked into these things, they become income-bearing instruments. So by owning them, you’ll actually derive an income from them potentially. And also, you know, I think with time, certain rights to the underlying IP will be built in.

So again, at the moment, like Blau’s drop, for example, I forget how much it sold for, but this was to an album he released two years ago. It’s not even new music, right. He just mentored some old music, but to his fans, that was like, you know, that was a great album. They loved it. They wanted a piece of it. They wanted the first NFT. There is no right to the underlying IP. Just like with Beeple, there’s no right to the underlying IP. He could reuse that in commercials and adverts, and you get nothing from it. With time that will change. People will start to bake in rights to the underlying IP — however, it’s monetized, especially in a digital context. And we’re also seeing, there’s a lot of criticism at the moment, largely by Bitcoin-maxis, to be honest with you, that hate Ethereum having success, which is right-click save.

Well, you think you own it. I can right-click, save that, and now I’ve got it. But what that misses is that yes, you can right click, save, you know, the image. But ultimately, you know, you don’t own the kind of real value of that thing, which is the kind of associated status that comes with it. And so I think it’s easy to kind of poopoo these things. I think the layers of functionality and value that will be built into these things over time is going to increase. And as I said, you can do that retrospectively. You don’t even need to kind of have that all figured out in the initial mint.

Laura Shin:

Yeah. Something that’s interesting to me is that I am kind of personally skeptical of this. Maybe it’s because I also kind of, I like to think of myself as a minimalist, whether I actually am, is up for debate, but despite my skepticism about this, like I’m a fan of Kings of Leon, so I haven’t done it yet, but it’s on my to-do list to get the Kings of Leon NFT, even at the same time that I’m like, why are people buying these when you… Do you know what I mean? So it is kind of funny that my brain is like, well, you know, you don’t get all this stuff. So like, why would you do that? And yet, the emotional side of me is like, I want to get the King’s Kings of Leon NFT. 

Mason Nystrom:

The Kings of Leon and NFT is interesting because it comes with not like … They issued a few NFTs, one of them which comes with perpetual front row seats. And so, like, there’s actually a nominal value on that, that someone could theoretically like, just do a discounted cash flow on it if they wanted to. 

Laura Shin:

Yeah. Yeah. But I think that was very limited. And it was like only for a few days where you could enter– I clearly missed that window. But so I, you know, just to stay on this topic and it’s funny, Jamie, you mentioned that Bitcoin maximalist because I did see @WhalePanda tweet, and I actually retweeted, and I thought it was a great tweet. He was like, okay, what happens if someone sells it? Sorry, what if someone sells an NFT of a tweet, and then the person who originally tweeted it deletes that tweet, the original tweet? Then what? Can you answer that question?

Jamie Burke:

Yeah. I mean, so obviously, this is specific to the tweet, right? So again, the tweet happened, even if you delete it. It’s capturing a moment in time. Right. And that is the provenance of a meme, a memetic, and part of that story. But what I’d also say, is again, at the moment, the idea you know, people can reuse an image they can repurpose it and, and owning the NFT doesn’t give you actual control or permissioning of how that thing can be used in, you know, the general digital world or the metaverse. But again, that’s going to change. There are a number of different approaches that are being explored. I was speaking to some people at NVIDIA who were, of course, big into gaming. And they were saying, well, actually look, you know, as increasingly gaining experience as a stream through the browser, nothing actually will happen locally, and, therefore, actually, you can control permissioning on the service side. 

So if it’s being streamed through a server, by having access to, let’s say, the 3D file, it can be streamed into this 2D experience through the browser. But it can only be captured in a 2D sense, right? So you could just record that streaming happening into the browser, but you would never actually have your hands on the 3D object. And so again, I think as more things migrate into the browser and the cloud and cloud and away from local files, you’ll be able to actually control. You’ll only be able to experience a particular NFT if you own it or the person that owns it gives you permission. 

And so I expect it to be in like a metaverse context. So, for example, I have a gallery at the moment in Decentraland. I just pull the NFTs that I own into frames on the wall in a virtual gallery through OpenSea. Now anybody can do that. So anybody could clone my gallery, pretend they own my artwork unless somebody was really bothered to kind of click the link and actually see, well, does this person really own it. They would never know. That’s okay for now. But the reality is that it fundamentally undermines the value of the thing if that’s possible. And so I think increasingly there are going to be innovations coming through because there’s enough economic incentive to solve it. Whereby you will only be able to experience this thing in the metaverse if you own it, or somebody has given you permission, that’s like coming, it’s inevitable. It’s not there now, but it will be solved.

Laura Shin:

That’s super, super, super interesting. All right. So in a moment, we’re going to talk a little bit more about some of the kind of technical and sticky issues around NFTs, but first, a quick word from the sponsors who make this show possible.

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Laura Shin:

Back to my conversation with Jamie and Mason. All right. So actually, before we kind of get into some more details around this stuff, let’s just talk about NBA Top Shot because I think this obviously has been a really big story in NFTs. Why don’t you guys describe what it was that happened there, what NBA Top Shot is, and why you think it’s been successful. And then I have a question for you about something regarding that.

Mason Nystrom:

Yeah. So NBA Top Shot is the flagship product of Dapper Labs and their Flow blockchain. And so, if you look at it if they’re issuing what they call Moments, which are essentially NFTs that have a really cool user experience. And so, like you open up a pack, and each of those digital trading cards are like pieces of like actual games. So like it could be LeBron James doing a dunk, Stephan Curry shooting a three-pointer. Right now, they just exist as collectibles. But the idea is that they’re eventually going to make it into a game. And so NBA Top Shots Hardcourt is hopefully going to provide some sort of utility, some sort of use for those actual moments. They still can have value as collectibles, but it’ll be really cool once the users can have a better experience.

Laura Shin:

So this goes back to the, you know, question of what are you buying exactly when you buy an NFT? Because I don’t know if you saw this, there was a user going by the name Defi Ted who wrote a long medium post about how he was attempting to withdraw the $45,000 he had made from his NBA Top Shot account. And even though he had completed the know your customer process, you know, in which he provides identifying documents that are meant to satisfy money laundering regulations, he wasn’t able to. And he had screenshots of his conversation with the CEO of Dapper Labs—Roham Gharegozlou, who not only actually created NBA Top Shot, but also CryptoKitties. Roham responded, saying stuff like, oh, you know, the reason that the removal of your funds is being slowed is because this is how we protect against credit card fraud. And I wondered what you thought of that response. Do you think that that was the answer? Because if so, then, I mean, if he completed the full KYC process all the way back in the fall, then why is this a problem now? And so I just wondered, you know, and also, you know, like what are the rights that people have when they purchase something from NBA Top ShoT?

Jamie Burke:

I don’t know the ins and outs of that. I know Roham, who is, generally speaking, a good actor. I think at the end of the day, you know, they are a startup scaling, and I mean, this was just unprecedented demand. And so there are some people on that platform with millions of dollars of value. And of course, they want to cash out, but to move millions of dollars off a platform, sometimes in a matter of days, you know, or like weeks or months. And for that to happen with, I don’t know, tens, hundreds of people, thousands of people that’s going to put a strain on any startup. Like even if it was just a classic web2 startup. I expect that most of the constraints are not necessarily technical. They’re more points of the process. Right. So I don’t know how you ensure for that kind of money being withdrawn off a platform and especially credit cards, you know, because of course, if something is fraudulent, they’re going to have to underwrite that.

So they are going to be like a pain in the ass to this platform now. It’s like, well, what do you mean? You want to move a million dollars off a platform for a trading card… even if they’ve already signed up to it. I think it’s to be expected. Of course, it must be incredibly frustrating to have all that cash that you can’t move out. I think they’ll solve it. But yeah, I don’t think there’s anything worrying about it and maybe to use something that’s analogous, if you look at Robinhood and what happened with Robinhood, right. You know, everybody thought it was this mass conspiracy, maybe it was, but the reality was they just didn’t have enough money to kind of handle that level of trading volume. I don’t know the nuances of it and all the various things the reserves required. And so I wouldn’t be surprised if it’s just the same situation with what’s happening over there. It’s nothing nefarious. One thing’s for sure. I’m sure Roham would love people to be able to be moving millions and dollars on and off the platform. Cause they’re probably making fees on it, right?

Laura Shin:

Yeah. Yeah. Roham actually did talk about the scaling issue. And I do think there’s some echoes of even things from Coinbase’s early history. I think pretty much any crypto platform basically needs to ramp up their fraud protection when they end up scaling, and they become popular because it is true that fraudsters, I think, descend on new crypto platforms. And so if your algorithms aren’t very good at detecting that, then you know, you can get eaten alive. And so, speaking of scaling issues, NFTs also have kind of like a scaling problem because each item is unique. So, for instance, you know, if you sell or send either one or a hundred ERC, 20 tokens, it’s pretty much the same in gas costs, but with an NFT, the data’s more linear. So if you want to send 100 ERC-721s, that’s like a hundred transactions. So when it comes to things like games and these other entities that aim to be cheaper, what do you see as the best way for them to scale?

Mason Nystrom: 

Yeah, I mean, I’ll kind of give a broad outlook.

Gaming on Ethereum has been relatively challenging, to say the least. And you’ve seen that to an extent with pretty much any game studio or game. They’ve either built their purpose blockchain. So for example, like Dapper and Flow, or they’re building out their own layer 2, which is a case of like Axie Infinity and Ronan, God’s Unchained, and Immutable X. And so it’s definitely a hard problem to solve because if you have gaming-specific assets, these should be worth like in the dollars in most cases. And so, in order to do that, cheap scalability has become a concern. There are like better solutions in terms of not everything has to be an ERC-721 ERC-1155, which was pioneered by Enjin, is a much better token standard for like gaming assets because you can send a hundred of like a sword or a card that all has like the same kind of like value in the game at once.

Laura Shin:

And right now, would you say that there are going to be some blockchains that kind of look poised to take advantage of the NFT boom and maybe even take some market share from Ethereum? Because, you know, for instance, we mentioned, Flow is the blockchain for NBA Top Shot. What do you think is going to happen to Ethereum based on the scaling issue? 

Jamie Burke:

Sure. Okay. So I mean, clearly, there are already contenders coming through, as you say, Flow. There’s also things happening at layer 2 with Matic and of course with Polkadot and parachains… there’s going to be, I know for sure because we’re looking at investing in one, you know. They will be set up specifically for NFTs or specifically for gaming and these kinds of things. So I think that’s definitely gonna happen. But the one kind of ‘watch out’ is that like circling back to this idea of NFTs and DeFi. Like the home of DeFi currently is still Ethereum. And there’s a very good argument it’s going to be the global settlement layer for maybe ever or certainly for the next decade. And so it’s all well and good having a solution that allows for better minting/transferability of NFTs, low-value NFTs, high volume.

But when these things are collateral, people want the mass collateral, and they want to borrow and lend against them. That’s currently Ethereum. And so you’re going to have to create very powerful bridges. And I know most are kind of looking at interoperability. They’re not looking at outright trying to replace Ethereum. So I think we’re going to see a world of greater interoperability. And I think that’s the DeFi component. The settlement layer is probably the moat for Ethereum to preserve a place in what I would broadly call the metaverse. This kind of open metaverse that’s virtual environments, gaming, and digital fashion. I think it is going to continue to have a place. Yeah.

Mason Nystrom:

Yeah. I think this is a really interesting question because it kind of poses a bunch of other questions. Like what makes an NFT valuable? Is it the fact that it’s issued on like the most permissionless network? And so you might want that with something like a $69 million piece of art — you want a pretty censorship-resistant blockchain for that. But when it comes to gaming and the demand for a higher throughput application, like if you wanted to build anything like a Fortnite and use a blockchain network Ethereum right now is not gonna enable that.

Jamie Burke:

One of the challenges that’s happening in the NFT space now is platforms. All platforms are kind of basically experiencing exponential growth, and they’re having scaling issues. They want to remove friction because most of the users are not crypto people. They don’t want to have to understand or tolerate all the stuff that we’ve kind of got used to as natives. So one of the challenges with layer 2 solutions like workarounds, largely to Ethereum scaling problems, is that you lose a lot of the associated metadata to these things. And at the moment, that hasn’t been a problem, or at least it hasn’t been perceived as a problem, but now these things are going for millions of dollars. Metadata is increasingly important—for example, things like royalties. So if something’s kind of minted effectively off-chain by a platform and you don’t have the associated metadata, which would allow for royalties to happen in perpetuity on, on any environment. Then effectively, you’re relying upon an individual to honor that.

And we’ve had several instances where people haven’t. The collector sold it in OpenSea, and they’re like, well, you know, so what — and they keep all the proceeds. So again, I think these things will be solved. We’ve got like a project in our portfolio, NFT42, they’re working on something called the Infinity Token. And these guys are pretty diehard, like die on a hill, you know, on-chain gang. And it’s all about royalties and as much metadata as possible. And they’re committed to solving that problem during that rather than workarounds. And so again, I think these things will be solved. The reality is that these are things probably only relatively sophisticated degens care about. Large mainstream retail, they don’t care about it right now. And most platforms quite rightly are just saying, well, you know, why add friction when people don’t care for now. Right? And so this is the position that we’re in.

Mason Nystrom:

Yeah. I was just saying the one point I would push back a little is that I think that there’s going to be severe limitations to on-chain data storage, particularly on Ethereum. And so I think there will probably be some sort of like necessity for a robust, like off-chain storage, whether that’s from like a file storage protocol. So I think that’s like a really unique problem to NFTs. I do agree that it gets solved over time, but it’s definitely not trivial.

Jamie Burke:

I think ArWeave is doing quite a lot of integrations now. Obviously IPFS. But Arweave is doing some really cool things. We’ve got a product called Koi, which is specifically looking at how you can kind of have this link between Arweave and its permaweb and NFTs on Ethereum or any other chain.

Laura Shin:

Yeah. And Jamie, in terms of what you were saying about that project, I think you were saying it was NFT42 is kind of really focused on the royalties for artists. I would imagine that would cause a lot of the creators to flock to a platform like that because as a creator myself, you know, with my content that’s been stolen in the past, I would prefer to work with a platform like that. Do you know what I mean? So I could see how, even if right now, a lot of the platforms don’t care that eventually, if they want to get creators that work with them, then they will have to care about them. And so speaking of — I was curious to know because if I think about all this, I just imagine so many industries are going to be disrupted. So which industry or industries do you think stand to be most disrupted by NFTs? And like, how do you expect this disruption to play out?

Jamie Burke:

Yeah, it’s a really interesting question. And I don’t know if it’s disruption or transformation. It’s like maybe a bit of both. I think music is ripe for disruption. So I think that’s most likely. I mean, Kanye West, before he kind of disappeared off the map a little bit, was talking about creating templated contracts for musicians to emancipate themselves from record labels. I mean, he didn’t connect the dots, at least not publicly, that you could do that with smart contracts. There’s already a groundswell of artists, whether it’s Taylor Swift or whoever, that are basically trying to go direct to consumers. Of course, Jay Z with this streaming platform Tidal. So I think music. That’s already happening. There’s so much momentum there already. And then I think everything else is probably going to be transformational.

I think like gaming, as I said. I know Epic CEO Tim Sweeney is looking at it. He retweeted something that I did on the Open Metaverse OS, which is a thesis that we published only because I hijacked a tweet that he was in. I kind of made sure he saw it. He read it, or at least he pretended to read it, and he got his principles. He knows the direction of travel. He knows that they need to open up more, and that would be net beneficial. But obviously, they’re a tanker, and they’ve got to turn. With a Triple-A game, like the quality of content, like the hi-fi, you know, it’s a Hi-Fi experience. It takes millions of pounds and several years. Like that’s very difficult to disrupt when you look at the empty worlds of the open metaverse right. Decentraland is great and fun, but like, it’s not a Triple-A game. And so they’ve got some time to kind of figure it out, and it’s in their interest to gradually experiment and innovate. So I think you’ve got this spectrum of industries that kind of fall… where half the time that there’s a very high barrier to entry from the content side versus industries that are already probably outdated that have somehow managed to kind of cling on to power. I think you’re going to see that spectrum.

Mason Nystrom:

Yeah. I’d echo that I would say gaming is going to be pretty deeply impacted by NFTs. There will be a kind of dichotomy, I think, between these permissioned ecosystems, the walled gardens, and the permissionless ones. So I’m particularly interested in how that evolves. And then I would also agree that content is going to be a really interesting one because Jamie’s right. It’s pretty outdated, and there’s this key problem within almost any type of content creation where your most valuable piece of content is very much like venture capital, it’ll outperform, you know, your other 99 pieces of content, but people aren’t, and creators specifically, aren’t rewarded for that in an accurate way. And so I think kind of shifting that, especially whether it’s the use of like selling NFTs or on-chain royalties, like Jamie mentioned is pretty powerful because like, if you look at what’s happening with Beeple like he has had this massive success, but he’s been able to capitalize on it in real-time, rather than like, okay, now he’s famous, let’s go issue some more NFTs and capitalize on the fame.

Jamie Burke:

And I do think about fashion, for example, right. I’m sorry to cut you off on that bit. Like it’s, there’s no downside for the fashion industry to do this, right. They’re not cannibalizing the wearing of physical clothes. They’re able to produce digital clothes without all the associated costs. Like one file, one 3D file. We’re talking to a project called RTFKT [Artifact], spelled in a funny, cool way. And you know, they’ve done a deal with Snapchat where you can buy an NFT as a wearable, and you can wear it in your Zoom call. And why wouldn’t the fashion industry be all over that? They can take existing clothing and virtualize it from the same 3D model — especially in the context of everything that’s been going on with COVID, where they’re looking for new revenue streams. They’ve got back catalogs of clothing — they don’t even need to create new ones. They’ve got like 3D models for clothes they’ve already created for decades. They just need to make it available as NFTs for weird people like me, or maybe I don’t want to call you guys weird, to wear in the metaverse, and I’d pay a fortune for it. Right. So it’s a no-brainer.

Laura Shin:

Yeah. I did see, and I can’t remember the name of the platform. Maybe it was one of your investments, Jamie, but it was something like a famous person can select what their outfits would be, and then people can buy their outfits from the celebrity and wear them. And yeah, and I was like, clearly, I’m not the audience for this because I’m all about like Marie Kondo and being a minimalist. But anyway, so one other thing. Oh yeah, actually Mason to go back. One other thing that was so fascinating to me was like, you wrote this piece about the different business models for content creators. And what was interesting is your end, of course, with the ownership economy, but then right before that is this subscription model, which I feel like weirdly is only starting to gain traction for content creators. So it was just kind of fascinating that this is coming along so quickly, and I do feel like it is poised to disrupt it. I don’t really have a question, but I just, I remember being struck by that thinking like, oh, it wasn’t that long ago that I was reading that Substack is the new thing. But I was curious to know, like, what do you think that will look like for somebody who is kind of doing more of the subscription type thing. Yeah.

Mason Nystrom:

Yeah. I mean, I think to reiterate, like we are on the precipice of this. This is like the very, very beginning this technology is in its earliest stages. And so the subscription era could continue for like another decade quite strongly. I think that the cycles in which technology goes through are happening faster. So I’m optimistic that the subscription phase might not last that long, and we can get to better ways for content creators to make more money. But, by the time it becomes ubiquitous like this is like what everyone is doing, I think it’ll take at least five years.

Laura Shin:

Yeah. And one other thing that I wanted to add was I loved in Chris Dixon’s piece, how he talked about how content creators now will be able to capture more of the value of what it is that their fans are willing to pay. And he had this great line where, you know, the superfan is willing to pay a much, much higher price. And now, these NFTs enable content creators to set to capture the value that those superfans are willing to pay. Whereas, you know, before, if you were going to sell a concert ticket, or whatever, it might be, or a t-shirt or, you know, whatever, that it would be the same price for everybody pretty much. And yeah, I personally actually do get donations from some fans, but it’s like really, really, you know, not a ton. But I was like, oh, like maybe in the future, I might see more of that, and I might get more at different levels. So actually, one other thing I want to be sure to touch on is so we have a ton of different NFT platforms and marketplaces are out there. Why don’t we just talk through some of the biggest ones and then talk about how they’re differentiated in terms of both for the creator side, as well as for the buyer side?

Mason Nystrom:

Sure. I mean, happy to give a general landscape. The way I kind of view it as you have a few different layers. You have all these different issuance protocols. And so OpenSea is kind of at the top, they’re the aggregator where you can purchase NFTs from pretty much any platform. And they do a pretty good job at passing royalties down to artists, but it’s not perfect. And so like that’s definitely one major issue and kind of a key reason to use some of these platforms right now. From the art side, you have half a dozen. You have MakersPlace, SuperRare, and Nifty Gateway — which is connected to Gemini. You have kind of these newer protocols that have recently launched in the past couple of months with is Foundation, Zora, Rarible launched last year and released their token this past summer. And I think that there’s kind of this dichotomy between like curation and more like open, permissionless protocols is how I see it. And what I’m most interested in is how these permissionless protocols allow other companies and people to kind of like build brands on top of them and integrate them into different use cases. Because I think that’s where we really compound and leverage the power of blockchain protocols.

Laura Shin:

Jamie, did you want to add anything?

Jamie Burke:

Yeah, I was trying not to jump in straight away. I get too carried away. Sometimes you have to give a pause sheet when you invite me. Yeah. So, you know, at the moment, there are still only really a handful of platforms that are taking up most of the volume. Already with Nifty Gateway, I know some ridiculously large artists who can’t get on, right. That’s just like a waiting list. And so naturally, some of that is going to spill over into new platforms, Origin Protocol, for example, you know, some people are using that. I think also some creators want more control over the experience. And so, towards the end of last year, I was talking about somebody is going to do a Shopify of NFTs. Now, there’s 20 people claiming they’re going to pay the Shopify NFTs. Our bet is NFT42 to create that.

They just got the factory smart contracts that allow for this kind of configuration, but who knows. That will then allow for artists to self-serve, and you’ll have this kind of long tail. And I think this is going to be increasingly important when there’s an oversupply in the market. So there’s definitely going to be an oversupply. That long tail is going to have to self-serve. As other artists come through, or brands will want to have control of their IP. If you’re a luxury brand like Louis Vuitton, you’re not going to want to sell that through the retail experience of Nifty Gateway. Like you want to control the retail experience, just like you control your store. So you’re going to want it all branded. You’re going to want it to look the same, feel the same.

So they are going to want a branded storefront. They’re not going to want to just go into a marketplace that has a drop from Lindsay Lohan as well. So I think you’re going to end up with people that want control of the retail experience, not just a distribution channel. You’ve got this long tail serving. And I think because of the oversupply, there’s going to be greater importance on curation. Curation is going to increasingly have to be done by the community. And things like DAOs. And, you know, you’ve got innovations happening like Flamingo DAO. At the moment, they’re not minting NFTs, but they are buying them. You’ve got things like B20, which effectively fractionalized the ownership of a Beeple, a blue-chip Beeple. And so you can imagine that these communities begin to curate and launch artists or creators to act as a filter on this oversupply that’s going to be coming into the market.

And then they’ll capture some residual value by membership. And this is why I think it’s interesting. You’re talking about subscriptions. I like to kind of think about it. It’s like subscription plus cause you kind of got that status component to it built in. So I think all these things are going to enter interplay. I mean, there’s just so much supply that’s going to be hitting the market. It’s going to overwhelm, it’s like a hose pipe. It’s going to overwhelm the platforms. It’s going to overwhelm the collectors and buyers. And so you’re going to end up with these curation layers. You’re going to end up with UX layers. And it is going to be so much opportunity for everybody. But what I will say is, for sure, maybe it’s Nifty Gateway, maybe it’s somebody else, maybe it’s SuperRare, as I said in the middle of last year, that will be in a way that there was like a Binance or a Coinbase for the kind of ICO wave….

There will be an equivalent unicorn that comes about from NFTs. And I think, you know, I was very envious of how quickly the Winklevoss twins managed to move on Nifty Gateway. They always seem to have a nose for it. And you know, they’ve certainly got a really good chance. But at the same time, you know, if they’re not more controlled and considered, like who is that community? Is it the McDonald’s of NFTs? Or is it going to be something more high-end? I think the danger is if they just serve all the demand that comes at them, they will dilute a brand. And I think increasingly it’s going to be like, what do you stand for? Artists are going to select platforms based upon a number of variables that kind of match their ethos or perspective on life or NFTs as a whole.

Laura Shin:

Hmm. All right. Now let’s finally turn to the topic that you mentioned earlier. This is, I think, a very juicy one about how NFTs can be combined with DeFi in a way where NFT owners can put their NFTs up as collateral and take out loans on that. Honestly, for me, I’m a little bit like, okay, so NFTs will probably fluctuate in value. And even, you know, like yesterday, CZ did an interview with CoinDesk where he basically said, oh, I think eventually all NFTs will go to zero. Andrew Steinwold, who’s another big NFT person — he runs the NFT investment firm, Sfermion, and publishes an NFT newsletter — he even said the same thing. And so a part of me is like, okay, so you have this NFT, maybe once it was worth something like the CryptoKitty that you bought for, you know, like $10,000 back in the day, but now how do you know what the value is? I’m so curious, how does this work?

Mason Nystrom:

I think the appraisal valuation of NFTs is really challenging, and it’s really just about creating a robust way to value them. And so there’s lots of different approaches, whether it’s creating indices of NFTs that are of like a similar stature or, you know, having like actual appraisers and having like a human element to it. That could be one way. I think it really just depends on the NFT. Like if we’re talking about art and collectibles, that’s totally different than if we’re looking at something that can actually have a discernible value, like a carbon credit that’s very easy to price.

Jamie Burke:

Yeah. Yeah. I think there’s different vehicles of approaching it. So if you look at Whale and WhaleShark, that’s primarily, or initially, a collection built up by an individual and increasingly is being devolved to a community, and that becomes increasingly important. So you look at generative art as an example in the subsets of collectibles. I mean that is highly specialized, and believe it or not, there are now people who are specialists in like rare Pepe’s or like CryptoPunk stuff, that job, which is brilliant. I love how they explain that. 

Laura Shin: Do you mean in collecting or in appraising it? 

Jamie Burke::

Both. Yeah. I mean, you know, and I just love how somebody’s going to have to explain that at Christmas, this year to that wider family. This is complex.

There’s like data points, of course. So we’re going to seem like big data analytics companies coming through. I think that’s why nonfungible.com is so interesting, they’ve got really two years plus worth of data in this kind of thing. That’s going to have an increasing premium. You’re going to have to crowdsource a lot of this stuff as well. And again, that’s the benefit of something like Whale communities. You can end up with specialists within a certain category. I personally can’t really participate in most generative collectibles cause I just don’t have time to figure out rarity traits and the price differential between these rare traits. If you can do that, you can make a lot of money. Nate who’s part of NFT 42, Nate has made, I don’t want to say how much, but like a lot of money flipping CryptoPunks based upon understanding the nuance of like particular traits. Pranksy is similarly notorious for kind of having an edge in that space.

As you said, there were kind of now indices where you kind of track the broad [market], like, Hashmasks as a whole thing. Or, you know, generative collectibles as a whole thing, or a fractionalized stake in a blue-chip piece. I actually disagree that they’re all going to go to zero. As I said, I think this is different from ICO’s. I think there are already established blue chips. I’d argue CryptoPunks is one of them because of what they represent in the story of NFTs. And the story of NFTs is not going to go away. More people are going to come in, and they’re going to want to buy status. I actually think so. I’m in the middle of doing an audio documentary interviewing the OGs of NFTs, going all the way back to Counterparty and Colored Coins with Bitcoin.

And there are so many trends like trash art, spam art that is like references to themes that are going to become really important in NFTs like de-platforming and copyrights. The fact that if I know you own a Beeple, cause I can see it’s in your wallet, I can now spam you with stuff like NFT flyers. There’s going to be loads of things that people have been considering for a long time making art about that are going to inform the future of NFTs that is, I would say, undervalued at the moment. So I think once all the kind of noise dies down around just this hose pipe of new, like, you know, Lindsey Lohan or like Kings of Leon, I think the blue-chip will emerge. Beeple is a key point in the innovations that have moved NFTs as a medium forward.

And there’s going to be a mash retrospective. I think towards the end of this year, there’s going to be a mass retrospective of people going back and rediscovering the past of NFTs, and they will be blue-chip art. And if you look at Rob Ness, who’s like the pioneer of trash art cause he got kicked off SuperRare for copyright infringement. It created a whole movement of trash art well beyond him, it’s like a meme in and of itself. I think he currently lists the original trash art piece at $300 million. Now whether he’ll get that now, I don’t know. That used to seem ridiculous, and now I don’t know. Right. So I think it’s not true that they’re all going to go to zero. I do think many won’t have a buyer, but again, you don’t have this price discovery that you get in crypto. They’re generally illiquid. So what will happen is nobody will buy it at the price you’ve listed at that, but you’re not going to have this, like this buy and sell wall for an NFTs where you’re going to be exposed to mass volatility. You’re just going to end up with a load of NFTs that stay at a fixed price with no buyer during the next winter. And we will get a winter. I don’t think it will be two years. I don’t think we’ll lose 90% of value. And it might be like six, seven months.

Laura Shin:

Yeah, well, I mean, neither of them said all of them will go to zero, but that many of them would. But yeah, that’s why earlier in the show, when you said that you thought that you know, just everything was going to have all this massive value, I thought, hm, I don’t know about that. I definitely think certain things will for sure. And many, many more things. But yeah, certainly, I think there’s a lot of stuff being created that won’t retain value.

Jamie Burke:

How I re-ask the question is, it’s like, value to who?. So will a particular NFT have value to a mainstream speculator? No. Right. So there will be a group of people that are coming in and trading on things they don’t care about just cause I think prices go up. Right. But many of these things, because of the social component, will have value to somebody because of what they represent in the context of community and status. And again, that’s why I think if you’re going to price these things, you need to look beyond necessarily the immediate volatility. You need to look beyond even the content of the NFTs. Like what does this represent and to who and how big is that community and is that community growing, or is it just going to plateau?

And what you end up doing is you’re valuing memes, if you think about it. And really, what we’re talking about are meme markets. We’ve actually got a startup called MarbleCards in our current cohort, and they are actually working on meme markets. And that sounds ridiculous. But I actually started looking into it… It’s like, well, like Elon Musk tapped into it. Like Tesla tapped into the power of meme as the most valuable company on the planet, or at least it was. The power of memes hold. And I think that’s beyond any kind of market cycle.

Mason Nystrom:

Yeah. I think the one thing I would just briefly add is that the value of a meme changes over time. And so like CryptoPunks are incredibly valuable right now because they’re largely considered like the first NFT on Ethereum. But like you still probably have under 2000 wallets that hold CryptoPunks. And so if those holders believe that they will retain value and they’re strong enough, they have diamond hands, if it were to keep that, then yeah, they could hold value. But you know, if the prices do tank 70%, I imagine you will see some sort of sell-off.

Laura Shin:

So I’m curious, what do you think will determine whether or not an NFT either not only retains value or just becomes more valuable versus which ones will not retain value?

Jamie Burke:

Yeah. So just to reiterate for me, it’s is the value of that thing to a particular community. And so it is like the level and the breadth or depth within that community. And what that NFT represents as a form of status in that community. So as you say, some memes are evergreen. Like Pepe, it kind of just doesn’t go away. On the one hand, it’s an alt-right thing. And then the other hand, it’s like another thing. It’s just like the thing that never goes away. Right. And then there are some that will kind of come in and out of favor. And I think that’s actually why, what you’re doing with NFTs, you are valuing the power in the meme markets. And once you understand it in that construct, like how you price these things is how you value memes. And so I don’t know how you do that yet, but once you crack it, you’re going to make a lot of money.

Mason Nystrom:

Yeah. I think if you refer to NFTs and art collectibles, then it’s it’s value and culture, and that is subjective. It’s kind of like Bitcoin in a sense. It’s valuable because people think it’s valuable, and the more people that think it’s valuable well, the more valuable it becomes. It’s like this self-fulfilling prophecy. And so, I think that applies to a subset of NFTs. Then the NFTs that become like gaming assets or music content — like that I think is going to have a much more transparent valuation based on any sort of royalties, cash flows, and traditional models. So I think it’ll be interesting to see how we value them over time.

Jamie Burke:

I think the gaming one is important, actually. Something like Axie or what have you, you know, these things are housed in a play-to-earn environment. You need the NFT to play at a certain level in the game. So as long as the game’s popular and growing, these things will hold value. If the game plateaus and most games have a shelf life, then you can assume that they’ll depreciate in value. So they’re probably a bit more tangible to a bit more objective ways of measuring.

Mason Nystrom:

Definitely.

Laura Shin:

Yeah. And I think when Marguerite deCourcelle was on my show, I think she also talked about how certain items could gain value by certain players playing them or getting up to certain levels with those objects or whatever. So yeah, even just through the course of play, you can add more value to it. But then, yeah, that’s almost like proof of work in the sense that, you know, there, there’s kind of like a history there with that object. Okay. All right. So last question. And well, actually, I just realized that I was going to say this is going to be a last quick question. However, because of what we were saying earlier about how hard it is to know what the value of any given NFT is at the moment, it is also hard to know what the market capitalization of the whole NFT market is at any given moment. However, despite that, how big do you think the NFT market will be by the end of the year?

Mason Nystrom:

So I think for context, Nonfungible.com, their 2020 report said that the NFT markets, specifically like actual NFTs, like whether they be art or axes, was like $330 million give or take or take.

Laura Shin:

$338 million. Now everything is way bigger than that already. But anyway,

Mason Nystrom:

I think we’ve easily doubled if not tripled that already. I would say it’s tough. I’d say it’s better to take like top 50 projects because then it’s not just like, okay, everyone just issuing stuff. So if we said like the top 50 projects, I think it could easily be a billion-dollar valuation and then larger if we include all the NFT-related adjacent tokens,

Jamie Burke:

I’m going to give a much less sophisticated answer to that. So I don’t have the numbers at hand, but like last quarter of last year, I said that however you, or however you would measure NFTs as a whole thing with this run, whether this is a 12-month run or an 18-month run or whatever it is, will be three times crypto during the ICO mania. I don’t know what that number is. I kind of still hold to that.

Laura Shin:

I think it was like maybe 800 billion or something. I think if I remember correctly, I think it was about 800 billion, but I’ll have to look it up.

Jamie Burke:

I think you could do that, but I know that sounds insane. Totally insane. How do you value these things that are going to be very illiquid? If it’s listed price, I dunno, like whatever it is, maybe a last sold price, why not? It depends on how long the run lasts. I wouldn’t say like necessarily next 12 months, but like whatever this cycle is will be 3x of ICOs.

Mason Nystrom:

I think long-term you’re right. I think it just depends on how long the market cycle lasts and what comes out next.

Laura Shin:

Yeah. And actually, Mason, earlier, when you said $1 billion, I realized, you know, when we were saying that $338 is where the market was at at the end of 2020, and you said, oh, we’re already 3x that.

Mason Nystrom:

Yeah. So let’s go 10x more than that. $10 billion.

Laura Shin:

Oh, but okay. But then Jamie, Jamie’s estimate was $2.5, roughly if my memory is correct that it was $800 billion. Nevermind. Right.

Mason Nystrom:

Yeah. I’m an order of magnitude lower than I wanted to be.

Jamie Burke:

We’re just doing the math now. Right. So you would, so when I’m saying, ICO’s, I mean, like the kind of money raised through ICO’s right. So exclude Bitcoin and maybe Ethereum, I don’t know, but like, you know, whatever, the amount of money in the capitalization of ICO tokens, — maybe excluding Ethereum and Bitcoin — three times that I’m making it up, it’s not based on any science. 

Laura Shin:

01:19:26

That’s a much lower number, obviously. Maybe like, I don’t, $10 to $20 billion somewhere in there. So I think that’s fair. Okay. Okay. So then 3x, that would be somewhere between $30b and $60b. All right. Okay. Well, we will see by the end of the year, this has been so fun discussing this with you guys. I have so enjoyed talking with you. So, where can people learn more about each of you and your work?

Mason Nystrom:

Yeah. I spend way too much time on Twitter. So feel free to tell me why I’m wrong or why I’m right about NFTs there. And then you can check out my handle @masonnystrom. Then you can check out a lot of our research at messari.io.

Jamie Burke:

@jamie247 on Twitter. A bit of a plug: if you are a Web3 startup working in NFTs or DeFi, apply to our accelerator outlierventures.io/basecamp. And I have a podcast which isn’t as good as Laura’s as called the Founders of Web3 on iTunes. You should check that out. I’m doing a weird thing in VR chat called the MetaVerse show, and I think that’s just through YouTube (youtube.com/outlierventures). 

Laura Shin:

Perfect. All right, well, thank you both so much for coming on Unchained.

Laura Shin:

Thanks so much for joining us today. To learn more about Jamie, Mason, Messari, and Outlier Ventures, check out the show notes for this episode. Don’t forget. You can now watch video recordings of the shows on the unchanged YouTube channel. Go to youtube.com/c/unshaped podcasts and subscribe today. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Nuss, Mark Murdock, and Dan Edlebeck. Thanks for listening.