Beanie Babies: The NFTs of Web1 – Reflections from The Great Beanie Baby Bubble by Zac Bissonnette
November 1st, 2022

 

Now that we are in the hangover phase of market cycles, I thought it would be a good idea to brush up on some of the history of financial bubbles, with the idea that I might be able to gain some insights from similarities and differences between them and crypto.

While I am of the firm conviction that web3 isn’t only speculative fervor, it’s difficult to say that it isn’t a core part of what makes it tick. This phenomenon isn’t going away in this space or in our society, so it could be useful to understand it, in hopes that we don’t get caught in the exuberance.

In this article, I’ll be sorting out my takeaways from the book, and reflect on how it compares to similar patterns found in web3/NFTs.

1. Scarcity / The Urge to “Flip” is a Hell of a Drug

The story really began when the creator of Beanie Babies, Ty Warner started boosting sales with the “retirement” of certain models of Beanie Babies, indicating that they would become scarce and a collectors item. People began picking them up and collecting them and soon enough “flipping them” which kind of got out of hand, when people began making obscene amounts of money with them, which made more people want to buy them, further increasing it’s price, until it’s inevitable drop.

This dynamic should be familiar to anyone who spends any amount of time in crypto. Whether it’s NFTs, meme coins, governance tokens, Bitcoin, people are motivated to buy when they see the price go up, with the hope of it going up further, and this force is one that deserves respect and study, because there is a lot of money to be made and lost here.

2.  Reflexivity: It’s all about Media Narrative

One of the driving forces behind the rise of Beanie Babies was the media covering the craze. People watch the bubble being covered on TV, and some are onboarded into becoming Beanie Baby collectors. TV stations see that this boosts ratings, and covers it more, directly strengthening the narrative and contributing pumping the bubble it’s looking at.

Now, more than 20 years later, this dynamic is now on steroids on Twitter and other social media apps. One influencer sweeps a floor, another follow, more tweet about it, prompting more people to do the same, a self reinforcing narrative. Because of this, it’s important to remember, sometimes what actually separates a wildly successful project that mints out and one that fails dismally is just RNG with media narrative.

3. The Shovels are More Profitable than the Gold

If no one knows anything, anyone can be an expert
If no one knows anything, anyone can be an expert

Some of the most profitable players in this escapade were not actually people who traded Beanie Babies, but those who facilitate them. These included guides, Ty Tag holders, and even eBay. Of course we see this pattern continue to play out in web3: many of the big winners in the NFT space are not NFT projects they are the newsletters, analytics dashboards, marketplaces, YouTube channels either making trading easier or trying to prognosticate the “top”.

5. Partnerships are the Force Multiplier

A Menace for McDonalds Employees, but they pushed Happy Meals...very well
A Menace for McDonalds Employees, but they pushed Happy Meals...very well

In hindsight, one of the greatest mistakes Ty Warner made was to shelter the brand of Beanie Babies, rather than partner with other companies and make Beanie Baby mugs, T-Shirts, hell, even TV shows. The few times he did make partnerships, one with McDonalds, one with a Baseball teams, the customer engagement was intense.

It goes to show why web3 companies don’t have sales teams, they have business development ones. Very few web3 brands are able to exist in a pure vacuum, they typically have to work with other projects in order to produce joint effort results, like for example Polygon’s collaboration with Reddit.

6. Asymmetric Information: The First “Alpha”

One of the most fascinating tactics Ty used to push the speculative market for Beanie Babies was the first use of internet “Alpha”. The company had a website that published cryptic messages about which Beanie Baby models would be retired (and therefore spike in market value). Those who paid close attention to the info drop were often rewarded handsomely – there were stories of people who ran teams: some on a computer with a phone, some in the field with a car, driving to stores to pick up recently retired Beanies.

It's similar to how the game of airdrops, tweets and alpha works in crypto: those who pay close attention to pseudo-insider information are rewarded asymmetrically more than those with their head in the sand. Just by getting the intel to join a Discord, signing up for a free mint or hold a JPEG.

8. Ergodicity: If You Make Your Money Like a Sucker, Be Prepared To Give it Back like One

The ending for the vast majority of Beanie Baby collectors was not a happy one. People who “invested” into Beanie Babies typically saw an appreciation the value of their stuffed animals to hundreds if not thousands of dollars then watched as the vast majority of them dropped to 5$ in the aftermath when people started to lose interest and realize how big the glut was.

To me, it’s a lesson to remember how bad things can really get in the next few months. I’m also reminded of all the horror stories on Coinfessions, of people making millions of dollars from thousands from crypto, then losing 99% of it back to about how much they had before. People who make their money taking blind risks are at risk of giving back their earnings if they don’t recognize they are making blind risks.

9. Not all Consumer Demand is Built the Same

One thing that really stuck with me was how, by the peak of the bubble – hardly any children (the Beanie Baby’s target audience) wanted to buy them anymore : it were only the adult hustlers who were trying to flip an extra buck at these toy stores snatching them up. When the bubble was over, no one, neither the adults nor the children, wanted anything to do with them. I can’t help but feel there is something really sad and tragic about the whole thing for Ty Warner, who set out as an entrepreneur to make the premiere plush toy for children (which Beanie Babies had every potential to become), a pure and noble purpose, but lost his way in his equally, if not more powerful drive to make money: and in the end, he made billions but he lost his way.

This is very much a lesson for web3 founders. If the demand for your product is based on purely speculation and not the actual value of your product, you are going to have a rough time when the music stops playing, because your users are going to leave. Are you in it to build a product that people love using? Or are you in it for your convictions around decentralization, innovation and open networks? Or are you here simply to make a buck like a run-of-the-mill rugger relying on a bubble and people’s greed? If you are not the latter, it’s a good idea to always ask yourself why people are buying your product.

10. The Death of the Bubble is Deterministic, How It Dies Is Not

It’s commonly agreed upon that the end of the Beanie Baby bubble was when Ty decided to try to retire the entire line and delusionally attempted to start a new one around a new product line. The book makes a point that all bubbles end, but people typically point to a few key events that triggered their death as the primary cause in hindsight, but in reality, even if those events didn’t happen (Ty never retires it), the tide was already moving against the plushie bubble. To illustrate this, many people point to market manipulation as the killer of Terra, but in reality, the system was not sustainable from the start, and was bound to spiral eventually. Again, in hindsight, the same can also be said for the entire market: if Azuki’s founder didn’t confess to being a rugger and Terra didn’t collapse, something else would have woken up the bear – bubbles are ephemeral by nature.

11. Steve Job-esque Psychos Are Great for Juicing Business Numbers, If that’s all you care about

The main character of the story, Ty Warner, is portrayed as a talented but troubled entrepreneur who had some toxic traits because of a rough childhood. Despite this, he proved to be an exceptionally talented salesperson and product designer for stuffed animals, but with trust and ego issues when dealing with others exhibiting traits similar to that of accounts of Steve Jobs, abrasiveness, obsession with perfection, a need to become possessive of ideas and take credit but dazzling abilities in sales, persuasion and a knack for understanding what consumers want. Unlike Steve Jobs’s story (to an extent), this came at a cost of his personal relationships, where, by the end of the book he is depicted as a lonely, broken man with a lot to regret. 

There is a narrative here about “power and success, at any cost” and that the psychos are good at business because they lack less profitable traits such as conscientiousness, empathy and humility (Some studies show psychopaths/sociopaths are over represented in C-Suites).

While the argument can be compelling, I personally am in the (arguably naïve) Gary Vee school of “being a nice person”, and karma is quickly becoming the best traits the world is selecting for. In the simultaneously more open (public tech, social media) and more closed (pseudonymity) environment of web3, it’s unclear whether a Steve Jobs styled asshole-genius would succeed, but hey, who knows.

12. There is No Such thing as History, It’s Just Stories based on True Events

Finally, even though this kind of historical, journalistic, chronicler styled narrative is my favorite genre to read, it’s important to keep in mind no story, no matter how rigorously documented with evidence and interviews is without bias or is completely “true”,  whatever that means. One of my favorite quips (by Nassim Taleb? I think?) is “A biography will tell you more about the author than the subject” and so it’s important to keep in mind that author of this book has the full influence of hindsight. Additionally, its important to also be aware that the book relies a lot on interviews and hearsay, which is also tainted by hindsight and our ever pliable memories.

Ironically, this was also a pretty big theme in the book: how Ty Warner, the creator of Beanie Babies was, like most founders, constantly revising his origin story to make it more interesting or put himself in a good light, a master storyteller.

All that said, my hot take is that the veracity of a story is (to an extent) completely irrelevant to how effective it is at accomplishing what it’s designed to achieve. The art of storytelling is the art of chiseling away at the truth until it can inspire, encourage, entertain, persuade, charm or move.

So in the end, it doesn’t matter if the book can’t be 100% accurate. What’s important is that there are useful or entertaining narratives that can be taken away from.

 Final Thoughts:

Crypto is not just another Beanie Baby Bubble. There is a lot of interesting tech and use cases still in their infancy and crypto isn’t just going to go away like Beanie Babies did. That said, it’s also important to remember the individual crypto projects do not have this luxury and when markets are build around speculation, not value, they are brittle. After a few cycles, it’s clear that speculation itself isn’t going away, so we have to be careful how we ape into things when the floor can collapse right under you.

As someone who is relatively new to this game, the game of speculation is still a foreign, exciting aspect of web3, but it should be handled thoughtfully and carefully.

Subscribe to 2cents.olesnakey.eth
Receive the latest updates directly to your inbox.
Mint this entry as an NFT to add it to your collection.
Verification
This entry has been permanently stored onchain and signed by its creator.
More from 2cents.olesnakey.eth

Skeleton

Skeleton

Skeleton