NFTs…beyond digital art and collectibles

Posted on March 3, 2021. Filed under: Uncategorized |

In blackjack, a group shares a collective economic goal that governs their decisions: “beat the dealer”

Sometime around 2009 the startup ecosystem in NYC started to explode. By 2017 it became the second most important market in tech and venture capital (sorry Boston). When people ask me what happened? Why the sudden bloom, my answer is really simple. Around 2009 it became easy to build a software application…previously, in order to build a web based experience, startups needed real technical talent. It was important to be colocated with Stanford/MIT/Harvard and you’d construct a team with formal computer science backgrounds to build a thing. Once it become possible for a much wider, and less “skilled” population of developers to create digital experiences, New York popped. NY doesn’t have an elite technical school, but it has always had a vibrant and maybe the largest creative class in the world. Prior to 2009, that creative community was largely distributed across the ad agency ecosystem and the arts more broadly. But all of the sudden, and fortuitously right around the time that the iphone came out, this creative class was able to productize their creativity easily…and a million flowers bloomed.

There is a lot of attention pouring into Non-Fungible Tokens (NFTs) at the moment…and as I see people process this activity, the market seems too heavily rooted in digital art and collectibles as “the thing that is happening.” NFTs are getting lumped into the narrative around a renaissance in sports cards, limited edition toys, etc…which is easy and partially true. But I think the change is more fundamental than that. I process NFTs as a manifestation of a step function reduction in the friction required to issue a token at all. As recent as a few years ago, if you wanted to design anything in crypto, you needed very very specific knowledge and DNA to productize your creativity. You could write about what might be possible on a blog, or get deep into protocol development, and there wasn’t much in between. Fast forward to today, the issuance/minting layer in the NFT ecosystem is robust. There are 50 places you can go to issue a token with almost no technical understanding or domain knowledge in crypto. The building blocks through which you can do that in a no-code way are still pretty naive but they are functional. Certain structures built atop these blocks are becoming common (i.e. tradable digital works of art), but as the blocks become more expressive, so will the structures (which I think of as apps) atop them.

There are glaring structural holes even in what has become common. Most economic logic embedded in NFTs requires a leap of faith and an acceptance of the irrational. That’s totally fine. We found a way to quantify the leap of brand value in traditional companies via a line item called “good will,” but the loops that govern most NFTs need meaningful tightening. Essential, in my view, to tighter economic loops is the presence of data feeds that serve as reporting and measurement of the “success” of the tokenized thing. That’s not an easy problem to solve, but it’s important. In public company stocks, the speculative demand of an asset shapes its price over short periods of time, but then a company reports earnings quarterly and that recalibrates the price of the asset. Nothing like that exists in NFTs…yet. What would happen if you could measure the reach of a piece of digital art or a meme? What if there were a datafeed of the number of impressions that asset achieves on the internet…that would tighten the loop. Protocols that hold the position of serving such assets would be in a position to do that in a trustful way, but there will be more interim hacks at this. I’m fascinated at the idea of bootstrapping atop public networks like twitter and facebook…where public metrics around “likes” are available to be aggregated and fed into the NFT ecosystem. You see glimpses of this as people mint NFTs of their tweets, etc…hybrid architectures where the loop is closed by more centralized arbiters of influence, reach, and performance will also emerge. One way or another…the current market needs data to anchor the balance of supply and demand.

Beyond the holes, the most exciting emergent NFT structure to me is not tokenized art or collectibles. It’s tokenized membership. I spent 3 years beginning in 2016 studying the new primitives that people were exploring in crypto and thinking on the types of systems and applications that were possible to design…and the thing I wanted more than anything else was tokenized membership to groups. I was, and still am, fascinated by the bottoms up organization of behavior that crypto affords, and group construction is the most expressive layer/canvass I can see for how to design/formalize/codify collective action, and importantly collective economic action, within a group of people where no top-down force is incentivized to do it.

Today, people are scratching at this via token-permissioned access to discord channels or telegram groups. Platforms like Roll are providing a piece of the canvas, and bots that live in those channels from efforts like Collab.land enable rule sets around access to be enforced. But this line of thinking is going to go way beyond access to private discourse. The collective goals and benefits of holding a groups token are going to deepen…from good conversation, to coordination around more impactful real world initiatives and experiences. The state of play here, from a building block standpoint, exists in the form of gated access paired with an NFT that exists on a bonding curve to dictate value as it relates to demand, but what happens when you expose the “dues” building block. What happens when groups share a treasury or pooled assets? What happens when they share a strong incentive, like a political agenda. And what happens when growth and success along a given intention begets wealth. It’s gonna be bananatown.

When I was very actively investing in crypto from 2016-2019, the primary purpose was to build knowledge and curate the people with whom I was thinking and learning. I invested in 4-5 low level protocols, a bunch of surrounding infrastructure and developer tooling, all the way down to the chip, and the entire time it was “still early for the application layer.” I believe that the tooling within the NFT landscape is enabling creativity at the application layer, and I can’t wait to see it more deeply applied to group construction, coordination, economic action and governance.

If you are working in these areas, Pace leads $3-15M financings with very little data required to get to conviction. I’d love to be a thought partner and serve you as you build the future. Jordan@pacecapital.com

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    About

    I’m a NYC based investor and entrepreneur. I've started a few companies and a venture capital firm. You can email me at Jordan.Cooper@gmail.com (p.s. i don’t use spell check…deal with it)

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