TL;DR

The typical talking points on the “metaverse” may be misguided: crypto culture will permeate IRL similar to social media’s impact on consumer/retail in the 2010’s. History, however, does not repeat itself, but it rhymes.

NFT PFPs are an enthusiast consumer use case that are bootstrapping a decentralized crypto ecosystem. 

Faith in networks, trustless architecture, and mechanism design > faith in centralized intermediaries. This year’s set of spectacular crypto failures may have been avoided through diligencing network fundamentals versus compounding the egos of a select group of insiders. 

Background: An Epiphany at a Crypto Conference

After attending NFT NYC and Consensus conferences, I had a realization that we might be getting it all wrong.

In the midst of a bear market where token prices are down 75%+ (and 90% of alt-coins have declined by 90%+), there were 15K+ attendees at both conferences.

It reminded me of the power of social media, when Justin Bieber was the first artist to tweet an upcoming concert performance and his fans would overload a suburban mall, or of the BTS army storming a public appearance.

Or the business fandom version, like Warren Buffett and Charlie Munger’s disciples (Berkshire Hathaway shareholders) congregating in Omaha annually for the past 50 years. 

And then it hit me: digital behaviors like holding an NFT, owning (and potentially staking) tokens, or contributing to a DAO, drives IRL behavior. 

True web3 metaverse (i.e., ownership) experiences contrast with big-tech versions like Niantic’s upcoming All-World game. Currently, athletes and celebrities monetize their talent and likeness in time-boxed increments: content for which they receive royalties, licensing fees, performances, and branding deals. 

What happens in a digital world where inventory is unlimited, yet monetization may be capped and closed? And users are locked into buying/selling digital goods in a single application?

Or the opposite, with hollow web3 use cases?

Enter the next evolution of NFT networks: commerce + ownership + experience.

But how will these scale?

Crypto 2010’s Network Thesis

Crypto represented a natural evolution of USV’s interest in networked businesses. The firm approached the revolution as another phase of technological adoption. “They always saw crypto as a next generation internet operating system play,” Dave Morgan said, “Not an asset appreciation play.”

Mario Gabriele, Union Square Ventures: The Thinkers

Web 2.0 platforms enabled internet-based networks to scale beyond the constraints of dial-up internet capacity and license/maintenance enterprise software. Internet network growth was based on user engagement and an associated ad sales engine. 

When the network persists, businesses succeed despite rent-seeking (denying user ownership) behavior, anemic revenue growth on the path to realize TAM (Twitter’s total revenue is <5% of Meta’s), or even management operating dynamics. 

Excluding the current drama with Elon Musk, Twitter has had half a dozen CEOs in its 15 year tenure, as chronicled in Nick Bilton’s book Hatching Twitter. But the network persisted.

Investors like Placeholder figured out how technology networks drive returns five years ago per their investment thesis:

In today’s bear market, let’s go back to basics. The last paragraph In the original Ethereum whitepaper sums it up:

“The concept of an arbitrary state transition function as implemented by the Ethereum protocol provides for a platform with unique potential; rather than being a closed-ended, single-purpose protocol intended for a specific array of applications in data storage, gambling or finance, Ethereum is open-ended by design, and we believe that it is extremely well-suited to serving as a foundational layer for a very large number of both financial and non-financial protocols in the years to come.”

Evolving beyond PFP collections, NFTs will aggregate and expand trillions of dollars of existing market capitalization in internet advertising, commerce, social media, loyalty/rewards, marketing automation and associated workflow software (i.e., intermediary tooling) by connecting crypto networks and participants (owners and contributors) through next-gen commerce experiences.

Lessons from Scaling Web3 Ecosystems

Attract software developers: Per Electric Capital, there are only 26M developers globally (2.6% of all knowledge workers). The largest employers of software developers are big tech or financial services. For the <1% of all developers who have regularly committed code to web3 chains, Ethereum represents 21% of all devs:

Building DevRel (Developer Relations) creates a team of advocates, marketers, and community builders to attract devs to chains or dApps. 

NFTs as a gateway drug to increase network capacity. Solana’s recent SMS phone stack announcement may have stolen the headlines, but more importantly there was a 45x increase in validators to facilitate progressive decentralization and scalability of the network.   

The growth of NFT projects like STEPN, Primates and Okay Bears on Magic Eden, for instance, attract more users to create products, setup wallets, purchase tokens, stake, validate, transact, and ultimately grow (and in Solana’s case, decentralize) the network: 

Building a KYC’ed community to increase customer lifetime value beyond a single NFT transaction. Moonpay counts 10 million KYC’ed users who sought to purchase crypto or buy an NFT. 

As a web3 infrastructure company, Moonpay seeks to reduce friction and enable creators like Universal, Fox and Selfridges to create next-gen commerce experiences through their new Hypermint workflow SaaS + API and SDK. 

Large brands and personalities can now tap into a crypto-converted, verified customer pool for digital + physical commerce and avoid the bot-heavy (ask Elon) engagement of Web 2.0. 

Grant IP rights to NFT holders to license in third-party content on existing networks. In Hollywood, movie producers, agents, managers, and entertainment attorneys originate, negotiate and close deals for talent to perform and earn fees. 

Today’s modern version would be owning a Bored Ape and licensing to a hamburger restaurant, hoodie merchandiser, or centralized exchange/filmmaker. 

NFT IP leverages existing distribution, capital, buildout, and consumer trust to scale crypto-native IP faster than building crypto-native infrastructure.

Cautionary Tales: the Alternative to *Network Above All Else*

Web 2.0 propagated a “rockstar founder” culture, where “iconic founders built iconic companies” as seen in the storylines of WeCrashed, Super Pumped and The Dropout. Crypto is the opposite, where the industry’s most successful founders chose pseudonymity to deliberately build a resilient network over 100+ years. 

This year saw a series of cascading dominoes, disrupting product delivery cycles and adoption curves, and destroying two trillion dollars of market capitalization.

I noticed fallen projects had a common theme: where the profile of the individual eclipsed that of its network.

Notice how number of stories for “Do Kwon” exceeds that of “Terra”:

Or in Celsius’ case, trusting in one individual’s interpretation of how their network captures and accrues value versus its actual architecture:

Or when a firm like 3AC structures bespoke derivatives with leverage, creating systemic risk:

The benefit of on-chain data is trustless verification, allowing anyone, including firms like Moonshot Research to review token supply unlocks, protocol fees, TVL, ecosystem activity and volume relative to market cap to validate claims or uncover bad actors.

To quote Michael Maubossin, “prices are gifts of information - expectations - waiting for you to unwrap and use. If you’ve got a fix on current expectations, then you can figure out where they are likely to go.”

Reading through Chainalysis’ recent web3 report, today’s depressed token prices may represent depressed expectations, but hundreds of billions of dollars of value across hundreds of millions transactions across NFTs, Token, Smart Contracts, and Infrastructure show the industry is just beginning:

Ping me at @kishandao in case I can help. 

About Author:

@kishandao has 15 years of experience building billion dollar technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

Thank you to Irina, Kevin, and Muk for reviewing drafts of this post.