CRYPTOGRAPH ‘KOBE’ AUCTION ENDS Tomorrow Friday Aug 27th 1pm ET. Eight, never-before-seen photos by photographer Davis Factor are being auctioned using the GBM auction system, with all proceeds going to the Mamba & Mambacita Sports Foundation. As these photos are being sold as NFTs, every time they change hands, a percentage of each future sale price will also go to the foundation.
August 18, 2021 30 day total NFT sales: $896m
August 18, 2020 30 day total NFT sales: $4.4m
Source: https://nonfungible.com/market/history
In the NFT mania of the last couple of weeks, we have missed out on a lot of Mythical Blankos drops that sell out just way too fast, but we have also been thinking, “it’s finally happening.” The term NFT is confusing because it can mean many things. The meaning of one NFT could be as different from the meaning of another NFT as the unique underlying assets that they represent. This has led to many conversations that feel like a Greek speaking to an Italian and expecting the latter to understand the fine details and nuance of what is being said. Stay tuned for a paper detailing as many use cases as we can think of, and then assume that we have only scratched the surface. To understand any given NFT, one must understand the community in which it is bought, sold and traded, and the intentions of its participants.
The most discussed use case of NFT technology is collecting digital art (e.g. Beeple). This is similar to buying expensive fine art, and in fact, the real action has migrated to the big auction houses like Christie’s and Sotheby’s who recognize this as the new thing. The above August 18, 2021 total 30 day sales of NFTs at $896 million compares to a statistic we found on ArtTactic from 2019 - between 2013 and 2018, there were less than $2 million in notable auction house sales of digital art. Again, $2 million in five years relative to ~$1 billion in the last 30 days.
The founding of SGC in 2018 was driven by the birth of the ERC-721 standard, along with our video game and esports lens, and a belief at the time that the status and identity offered by video game skins were a perfect mix that could ignite a whole new world in the digital realm (see New Blockchains and NFTs in Gaming — No Copy Cats!). We were wrong about timing and didn’t see a $69 million Beeple sale in our near future. NBA Topshot was also a surprise, and in retrospect, has helped shape our current thinking about the future of NFTs and entertainment content.
Back to what we are really excited about - MASS MARKET NFTs - which should be lower priced and all about fair market, democratized access to a community, status, or identity. Even if these communities are not games themselves, they may feel like games when they include Easter eggs like tickets to events. Creators and artists can issue tickets as NFTs, plus additional perks and incentives to ticket holders even after the event has passed. NFTs provide transparent marketplaces for artists to showcase their talent and creativity, but what makes NFTs unique is the infrastructure they provide for artists to continually connect with (and collect from) their top fans through additional incentives to those willing to go a step further than simply buying a t-shirt or a ticket to a show.
This isn’t just LimeWire or Napster, but rather a new format of digital disruption, as a new digital format that provides unprecedented proximity to artists. It brings experiential sales to the mass market, and helps build smaller communities from a large group of fans. Artists can track their fans on leaderboards (number of NFTs, $ spent, hours listened to), or offer a one-time membership fee to self-selected superfans who will receive exclusive access to content and performances.
At the recent Christie's Art + Tech Summit, artist Micah Johnson said, “Buying is the new liking”, a very powerful concept. NFT purchases are a significant improvement over ‘likes and followers’ behavior which is dominated by advertising dollars and centralized intermediaries, including bots. Creators are happy because they can know who their real fans are. Users (aka fans) are happy because they can develop closer relationships with the artists, influencers, celebrities, and athletes they love. Instead of a $69 million entry price, the right price might be $6.99 or lower.
Another reason we believe that true mass market adoption won't occur until prices come down: most people won’t buy a digital piece of art that costs more than the US average annual income. Also, Gen Alpha, the generation born after Gen Z who will comprise the bulk of spending on NFTs, doesn't have any money yet. There was a period last year in which my nine year old Seraphina figured out a way to simultaneously distract me during a Zoom call and place my thumb on the iPad just long enough to buy another $5 of Robux. I admit it was weak parenting but my subconscious would kick in with ‘well I really just need to get through this day and it's only $5.’ She was buying outfits and decorations for her houses - again, status and identity, which is similar, albeit more accessible, to the current purchases by her older brethren of Crypto Punks and Bored Apes (see Twitter profile pic changes as evidence of the status / identity use case.)
New Terms: UGP - “User Generated Pricing” and DTC - “Direct to Creator”
As a visual, think of a Patreon subscription, which allows subscribers to pay a monthly subscription fee to gain access to exclusive content from their favorite artists, performers, influencers, and streamers. As the Patreon site says, “Let your most passionate fans support your creative work via monthly membership.” Now take that $XX.99 monthly membership and atomize it by allowing users to buy your work as NFTs and put their money where their mouth is in terms of media that they value the most. Another analogy is OnlyFans, which allows fans to pay creators for individual pieces of content. Adding NFTs to the mix allows fans to not only consume and enjoy content, but also to be a part of it, as if they are in the club. Displaying an NFT in one’s wallet tells the world ‘this is part of who I am’ and demonstrates status. NFT Genius, a production company that creates gamified and narrative heavy digital collectibles, was announced with $4m of seed funding from Mark Cuban, Ashton Kutcher and music exec Guy Oseary. And on August 9th, they hosted a conference with the following topics -
NFTs and Hollywood
NFTs and Mainstream Culture
Play-To-Earn Gaming and Beyond
Can NFTs Power the Future of Commerce and Business?
NFTs: The New Sports Trading Card
NFTs are also challenging the meaning of a game and could create new game genres. Even buying expensive Crypto Punks, Beeples, Bored Ape Yacht Club Apes, and Chromie Squiggles can feel like a game. While on one hand, most are clearly collectibles in the same vein as high end art and trading cards, there is some grey area here when one examines behavior. One of the biggest unintended consequences of the 2008 financial crisis might be the ‘in-your-face-Boomers' behavior that showed up among Millennials and Gen-Z engagement in Robinhood and Reddit/Game Stop. One could argue that the behavior of speculating for fun on a Crypto Punk is not too dissimilar from speculating for fun on a stock. Will all of this activity end up in a game genre called “Financial Sovereignty” games?
Back to the present: let’s be honest - we are still only seeing glimpses of the future because the underlying technology, Ethereum, that has massive adoption in crypto is just too constrained for mass, decentralized markets. As Kyle Samani succinctly explained on Laura Shin’s podcast last week, Ethereum can’t even handle 40,000 transactions at the same time, much less a million (or tens of millions as we see in AAA games I might add.) Yes, there are many short-term fixes out there like scaling solutions, but eventually one needs to get back on the Ethereum highway (which could be more aptly be described as a country road that is sorely in need of repair.) And yes, ETH 2.0 is coming but incremental capacity is still unknown. Even if Ethereum is here to stay, we would bet that other blockchain protocols and technologies will provide the true impetus for AAA video games and other mass market adoption.
In 2018, I stumbled on the Polkadot Network and saw it as a ray of crypto-entering-mass-markets light. This is mainly because Polkadot is a Layer-0 protocol that operates underneath all of the siloed blockchains, simply providing TCP/IP-like technology that allows blockchains to send communications and digital assets to each other. The current tribal state of blockchains is akin to being on a website and wondering if you can get to another website—an absurd idea if we are ever going to enter mass markets.
Proof of stake protocols, in general, offer hope. First, they don’t require the underlying token to be used as a (pricey and slow) toll booth to the network itself. Efficient markets tell us that removing this fee will invite lower priced NFTs as the price of entry drops dramatically. Second, PoS protocols don't require as much energy as the more power intensive Proof of Work networks. As Lin Dai, CEO of Quincy Jones’s music NFT platform, OneOf, has pointed out repeatedly—Tezos, another Proof of Stake protocol, uses six to seven orders of magnitude less energy than Bitcoin and Ethereum. Musicians care about the planet so much that many of them have refused to mint NFTs on Ethereum but they have found it acceptable to use Tezos; this decision is meaningful.
Conclusion: NFTs come in so many use cases that they can be confusing. We believe the next wave of NFTs will be more mass-market oriented, likely lower priced, utility oriented, membership and community driven, and more gamified (think: Easter eggs). NFTs are not only driving new behavior, they are creating new game genres beyond the traditional. The reason Micah Johnson said, “Buying is the New Liking” is because buying a verifiable asset shrinks the distance between him and his fans, removes intermediaries like advertisers, and naturally increases the authenticity of the creator-fan relationship. As anyone who has hit the “Like” button can tell you, all of these new results are better definitions of the word engagement.
Thanks and have a great night and don’t forget to check out the Cryptograph Kobe auction before 1pm ET tomorrow. All of the money, now and in the future, goes to a great cause!
Related News
NFTs / Digital Assets / Crypto
Yield Guild Games: Yield Guild Games (YGG) announced a $4.6M financing round led by a16z to help scale its investment in gaming and virtual world digital assets. This deal was finalized prior to a large token sale, in which YGG sold 25M YGG tokens for $12.5M USDC in just 31 seconds. Our take: this is an important one to watch because YGG democratizes play-to-earn games. Axie Infinity is the most important game to watch because it consistently ranks near the top in value terms, and perhaps more importantly, it consistently ranks #1 on discrete buyers, representative of the number of people actually playing the game. From yesterday -
FTX: FTX purchased naming rights to the UC-Berkeley football stadium for 10 years for $17.5M. FTX also has naming rights to the Miami Heat’s basketball stadium and is the official crypto exchange of Major League Baseball. Our take: Sports is a mass market audience and FTX is the only exchange that we have seen really connect and identify with the sports fan base. Sports may seem like an unlikely match for the crypto community but it is an important (and massive) audience as we have seen with NFT projects like TopShot, CandyDigital, and Sorare. High profile athletes like Tom Brady (who is an equity partner in FTX) are also engaging with the ecosystem.
OpenSea: OpenSea is the first marketplace to surpass $1B in monthly traded volume. Our take: OpenSea has emerged as the leading NFT marketplace even though there are still several hurdles, tied to gas fees and lack of scalability of the Ethereum-based platform.
Art Blocks: Art Blocks is an NFT platform, in which users mint programmable, generative content that stores immutably on the Ethereum blockchain, without knowing what they will get ahead of time. Our take: Art Blocks shot to the top-selling NFT project last week, reaching $79.5M across 10,143 weekly sales, followed by Bored Ape Yacht Club with $30.4M. ArtBlocks includes well-known Chromie Squiggles; the jump up also included Fidenza and Ringer. Tyler Hobb’s Fidenza collection has accounted for $341 million of trading volume so far this month, out of a lifetime tally of $436 million since November 2020.
Supdrive: Co-founder of Vine, Dom Hoffman, is launching a blockchain-based gaming console that will use NFTs to operate a variety of video games. Supdrive will be a generative platform that will allow creators to make programs within the game, similar to Minecraft. In the Supdrive Discord channel, Hofmann described the project as “an on-chain fantasy console game where the games themselves are NFTs.”
Alethea AI: Alethia AI, a token protocol that creates intelligent NFTs using AI, raised $16M in a private token sale on Tuesday from investors like Metapurse, Multicoin, Mark Cuban, Galaxy Interactive, Dapper Labs, and more. Alethea uses AI technology to bring crypto avatars to life and recently sold an intelligent NFT (iNFT), Alice, at Sotheby’s for $500K. Our take: Alethea’s protocol adds an entirely new dimension to NFTs and could lead to some amazing digital communities in the future; imagine buying a Cryptopunk and then being able to have a conversation with it! Synthetic media is a huge step for NFTs and will drive further adoption of metaverse technology.
Facebook: Facebook is exploring adding NFT related products and features to its upcoming digital wallet, Novi. Novi will offer free P2P payments domestically and internationally, and cheaper payments to businesses. The company is waiting to release the wallet alongside Diem, once its own stable coin backed by a basket of fiat currencies that is now an independent project due to regulatory scrutiny. Our take: With more than 2.85B users globally, Facebook entering the crypto wallet space could exponentially increase crypto adoption globally and would increase the appeal for corporations to explore adding cryptocurrency and blockchain based initiatives into their product suite. Some of the larger pain points in the crypto world currently are the constant complications that arise while using wallets like Metamask, and if Facebook solves for some of these pain points, it will almost certainly lead to a more efficient crypto economy.
NBA Top Shot: Dapper Lab’s NBA Top Shot has made available for purchase a single common-rarity pack, shortly after it had announced adding crypto collectibles based on the WNBA women’s basketball league. The inaugural pack, which had been previously teased, includes collectible moments of popular women basketball players. Dapper Labs plans to expand the scope of its WNBA offerings over time, eyeing eventual parity with the men’s league. Our Take: The WNBA has seen a significant increase in viewership, up 74% YoY in the early games of 2021. NBA Top Shots wants to capitalize on this budding fan base as well as make the platform an all-inclusive league-centric experience for the fans.
Esports
Esports Awards: The Esports Leadership Series is here! It is a digital platform, hosted by CEO Michael Ashford, that allows you to interact with the advocates and evangelists of esports. These industry leaders discuss the current affairs and the future of the esports industry. Check out the link above for the list of speakers and other details.
100 Thieves: Gucci recently announced a partnership with 100 Thieves, a marquee clothing collaboration, that hit the shelves on 19th July. “Drawing on the shared values of freedom and self-expression, the House unveils its latest foray into the world of esports through a collaboration with 100 Thieves—a Los Angeles-based brand of apparel, lifestyle, and gaming,” it says on the Gucci website. This was an exclusive drop for people with a “MY GUCCI” account. Our Take: This is yet another instance of a major luxury fashion brand collaborating with an esports outfit. The growing popularity of esports and in-game wearables forms a new bridge between the two industries which was never thought of before and has been expanding at a rapid pace.
Video Games
Unreal Engine: Nvidia published a new trailer on YouTube for Black Myth: Wukong, a game that was announced last year that garnered a lot of attention from RPG fans. Unreal Engine 5 is the next iteration of the Unreal Engine, expected to be released in late 2021 or early 2022. UE5 will allow creators to collaborate in real-time to deliver incredible visuals and experiences for end-users. Aside from a wider variety of more detailed graphics and visual options, UE5 also features MetaSounds, giving creators control over every aspect of the in-game audio experience. It also allows for 4K, 8K, and 12K file sizes, meaning it can be used more readily in film and animation production.
Supercell: Supercell, the Finnish game developer best known for Clash of Clans and Brawl Stars, announced its next game, Everdale. Everdale is rooted in complex world building, and provides a calm alternative to Clash of Clans and its pending three new mini games. The world-building game vaguely sounds like an Animal Crossing alternative, and it will be interesting to see how the in-game economy is managed. The company, primarily owned by Tencent, brought in $1.48B in revenue in 2020.
Tencent: Tencent has taken a leadership role in pushing for regulation on gaming in China, supporting measures to restrict content and to limit time and money spent in games. Tencent takes in 43% of all video game revenue in China, ¾ of which is from mobile gaming.
Emerging Tech Fund Raising & Acquisitions
Unity: The string of acquisitions Unity has made continues from the last quarter as the company announced the acquisition of Oto, an AI based audio chat analysis platform. The real-time acoustic intelligence platform can analyze voice or text chat sessions and understands the tone and emotional weight of the words to decide whether it needs to be flagged to a human moderator. It can detect tonal patterns, intonation, amplitude, and the expression of human emotions when people are interacting. This technology will be integrated into Unity’s Vivox voice chat platform and help reduce toxic behavior that leads to poor player experience and thus lost revenue for creators.