Almost two years ago, on the 31st of July, 2019, I subscribed to the NBA Top Shot newsletter.
Before you conclude that I made a million dollars on buying random basketball clips, the answer is “No.”
In fact, I’ve never bought any NBA moment.
But it’s been wild to see the early adoption crowd grow to a public frenzy.
Out of all domestic leagues in the United States, the National Basketball Association has been the savviest of connecting with each new generation and exploring every digital medium to reap community engagement.
As with everything I know, I’ve learned from people smarter or more curious than me.
In this case, it was Fred Wilson’s blog. Link
In several of Fred’s posts from years ago, he made me aware of Dapper Labs. Link
During that first crypto craziness, Dapper Labs was responsible for CryptoKitties.
Today, its NBA moments do not seem to be fleeting:
“That is a question that comes up from people who don’t necessarily understand collector economies,” says [Dapper Labs CEO Roham] Gharegozlou, who’s already tasted success in the virtual world with the CryptoKitties virtual game. “What you’re buying in an NBA Top Shot isn’t the video rights, it’s not the intellectual property rights. It’s the asset itself. It’s kind of analogous to a trading card. The difference with a digital item is you don’t have to prove that it’s [real]. The blockchain is what ensures the authenticity.”
Blockchains have made plenty of headlines the past few years. In simple terms, they’re databases where blocks of information are chained together. Bitcoin transactions are done on them. In NBA Top Shot’s case, its moments (which are, in technical terms, minted as non-fungible tokens or NFTs) serve as digital certificates on the blockchain that collectors show for ownership of a video asset. Link
Coincidentally, while I was thinking back, Chain CEO and co-founder Adam Ludwin resurrected his now-defunct Medium post, where he wrote to JPMorgan Chase ($JPM) Jamie Dimon explaining bitcoin ($BTC.X):
Here’s my definition: cryptocurrencies are a new asset class that enable decentralized applications.
If this is true, your point of view on cryptocurrencies has very little to do with what you think about them in comparison to traditional currencies or securities, and everything to do with your opinion of decentralized applications and their value relative to current software models.
Don’t have an opinion on decentralized applications? Then you can’t possibly have one on cryptocurrencies yet, so read on.
And since this isn’t about cryptocurrencies vs. fiat currencies let’s stop using the word currency. It’s a head fake. It has way too much baggage and I notice that when you talk about Bitcoin in public you keep comparing it to the Dollar, Euro, and Yen. That comparison won’t help you understand what’s going on. In fact, it’s getting in the way. So for the rest of this note, I will refer to cryptocurrencies as crypto assets.
So, to repeat: crypto assets are a new asset class that enable decentralized applications.
And like every other asset class, they exist as a mechanism to allocate resources to a specific form of organization. Despite the myopic focus on trading crypto assets recently, they don’t exist solely to be traded. That is, in principle at least, they don’t exist for their own sake.
To understand what I mean, think about other asset classes and what form of organization they serve:
Corporate equities serve companies
Government bonds serve nations, states, municipalities
Mortgages serve property owners
Crypto assets serve decentralized applications
Decentralized applications are a new form of organization and a new form of software. They’re a new model for creating, financing, and operating software services in a way that is decentralized top-to-bottom. That doesn’t make them better or worse than existing software models or corporate entities. As we’ll see later, there are trade-offs. What we can say for now is simply that they are radically different from the forms of software and organization we are used to.
How different? Imagine the following: you grew up in a rainforest and I brought you a cactus and told you it was a tree. How would you react? You’d probably laugh and say it’s not a tree because there’s no point in a tree being a stumpy water tank covered in armor — after all, water is abundant here in the rainforest! This, roughly, is the reaction of many people working in Silicon Valley to decentralized applications and DAOs. Link
Despite not ever spending a penny on NBA Top Shot moments, I have put down a deposit for Brooklyn Nets 2021-2022 season tickets.
So, you’re welcome, Adam Silver!
As a corollary, though, I am fully immersed in the Sorare marketplace. Link
Soccer is my first love, and the Sorare platform is about to get a lot of my Ether ($ETH.X):
Based in Paris, Sorare provides a soccer team management game with digital NFT cards that fans can collect and trade.
The firm grew exponentially this year with 80 clubs joining the platform, including five European Champions: Bayern Munich, Juventus, Paris Saint-Germain, Porto and Zenit. Sorare also announced licensing partnerships with the U.S. soccer league, MLS, and the South Korean K-League earlier this year, bringing both leagues onto its platform. The firm has partnerships with a total of 105 football clubs worldwide.
According to [Sorare CEO Nicolas] Julia, Sorare currently has 2,000 monthly active users and sold $1.5 million worth of cards in November 2020. A recent tweet thread by Messari analyst Mason Nystrom identified Sorare and NBA Top Shot as among the leading projects bringing NFTs to the masses. Link
What’s rare about soccer is how global the sport is followed and how many club games and international tournaments occur.
There’s almost no vacation if you watch.
I know people who’ve done fantasy (American) football; it’s a small financial and short time commitment.
Nowhere have I seen fantasy soccer (international football) grab my interest or attention before.
Sorare may succeed on many fronts… yes, with crypto:
Crypto has a history of boom and bust cycles, and it’s very possible NFTs will have their own ups and downs.
That said, there are three important reasons why NFTs offer fundamentally better economics for creators. The first, already alluded to above, is by removing rent-seeking intermediaries. The logic of blockchains is once you purchase an NFT it is yours to fully control, just like when you buy books or sneakers in the real world. There are and will continue to be NFT platforms and marketplaces, but they will be constrained in what they can charge because blockchain-based ownership shifts the power back to creators and users — you can shop around and force the marketplace to earn its fees. (Note that lowering the intermediary fees can have a multiplier effect on creator disposable income. For example, if you make $100K in revenue and have $80K in costs, cutting out a 50% take rate increases your revenue to $200K, multiplying your disposable income 6x, from $20K to $120K.)
The second way NFTs change creator economics is by enabling granular price tiering. In ad-based models, revenue is generated more or less uniformly regardless of the fan’s enthusiasm level. As with Substack, NFTs allow the creator to “cream skim” the most passionate users by offering them special items which cost more. But NFTs go farther than non-crypto products in that they are easily sliced and diced into a descending series of pricing tiers. NBA Top Shot cards range from over $100K to a few dollars. Fan of Bitcoin? You can buy as much or little as you want, down to 8 decimal points, depending on your level of enthusiasm. Crypto’s fine-grained granularity lets creators capture a much larger area under the demand curve. Link
See you at an arena or stadium sometime soon!