a16z Podcast - NFT Use Cases, Today and Tomorrow

Episode Date: May 19, 2021

Recently, a16z and the Stanford Center for Blockchain Research hosted the NFT Virtual Summit, which brought together leading thinkers and builders on the topic of NFTs, or non-fungible tokens — these tokens are enabling new creator and ownership economies to emerge. We’ve covered NFTs in other podcasts and articles, including a curated list of reading resources, and you can watch all the videos from the summit. Today we’re sharing one of the discussions from that virtual summit (all of which were also published on our a16z Live feed) — this episode features General Partner Katie Haun chatting with Devin Finzer, cofounder of NFT marketplace OpenSea, on the topic of NFT “Use Cases, Today, and Tomorrow” — they cover the "tokenization of everything."###The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; a16z has not reviewed such advertisements and does not endorse any advertising content contained therein.This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/.Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

Welcome to the A16Z podcast, I'm Zorn. Recently, A16Z and the Stanford Center for Blockchain Research hosted the NFT Virtual Summit, which brought together leading thinkers and builders on the topic of NFTs or non-fungible tokens, which are enabling new creator and ownership economies to emerge. We've covered NFTs in other podcasts and articles, including a curated list of reading resources, available at A16Z.com slash NFTs. Today we're sharing one of the discussions from the virtual summit, all of which were published on our A16 Z live feed. This episode features general partner Katie Hahn, chatting with Devin Finser,

co-founder of NFT Marketplace OpenC, on the topic of NFT use cases today and tomorrow. They cover, quote, the tokenization of everything. And to be clear, none of the following should be taken as investment advice, so please see A16Z.com slash disclosures for more important information. The chat begins with Devin tracing the opportunities for creators and collectors of NFTs. So back when CryptoKD started, really the only application you could interact with, with regards to NFTs was specifically CryptoKitties. Now there's, you know, dozens of different art projects. There's dozens of different wallets,

thousands of different creators who've come on board and started making NFTs. There's virtual worlds where you can bring your NFT inside of the virtual world that's displayed inside of a museum. There's so much stuff that has been built. And, of course, there were a few events that sort of, through fuel on the fire, right? You saw the launch of NBA Topshot. You saw the big art sales from people, but I really don't think that any of this could have happened without the gradual buildup

of the sort of early adopter tech enthusiast community, just really cranking on building high quality new experiences for people to try out with regards to NFTs. Yeah. Great. Well, infrastructure certainly come a long way. And there are a lot of people building in this space now. One thing that you mentioned is, well, you mentioned a lot of use cases, and I want to dive right into those. But before we do, you know, we think about NFTs, when people are first starting to hear about them, really affiliate that with digital art. But of course, NFTs are about much more than digital art. We started hearing about music, collectibles, but even now things like turning tweets into NFTs and blogs into NFTs.

Like, Devin, what characteristics, what can and can't be turned into an NFT, I guess is my question? Like, what characteristics make something good for becoming an NFTs? versus not. Yeah. I think ultimately what we're talking about is the tokenization of everything, right? If you look, if you actually zoom back and you think about kind of the beginning of Bitcoin and all of the kind of crazy wave that we saw in 2017 with financial assets, that was really this trend of tokenizing all of the finance world, right? But now what people are realizing is that there's this whole class of digital and perhaps even physical assets that can be tokenized that really don't have as much to do with, you know, cryptocurrency, but really just have to do with

kind of the regular internet that people are used to. And what's exciting is that there's, I would actually maybe bucket into two categories. One is there's the existing landscape of digital assets. So all of the things you mentioned, right, game items, event tickets, domain names, you know, maybe even your Twitter handle could be an NFT one day. But then there's the, so those are the existing ones. And then there's the new market. that, you know, are sort of haven't even really been dreamed of yet. And digital art, I would say, falls under that category. Digital art just really wasn't a market three years ago. And now it's becoming one, which is really exciting to see. It's super weird and wacky. You know, you have these

really expensive pieces that sell for tens of millions of dollars, but it's establishing itself as a category. And I think maybe one of the sort of challenges for the audience is what are other markets that are sort of like things that we haven't even really thought of yet. But to answer the question directly, I really think that there's very few things that you couldn't sort of leverage this technology to really create a market around. Well, you mentioned kind of physical and the digital and merging those two worlds. Like how do you think about NFTs in that context? Like something I wonder about is, you know, you've talked about ticketing, right? Obviously right now we have physical tickets we can hold in our hands or backstage passes. Talk to me about merging the

physical and the digital worlds with NFTs. And by the way, like, why would I want an NFT as a ticket or backstage pass instead of physical? Yeah. Well, I think there's a couple pieces to it. With an NFT, the exciting thing about it is the moment you turn something in an NFT, it sort of plugs into all of the existing, like, crypto infrastructure. So when you make an NFT, what do you kind of get out of the box? One is you get a marketplace, right? You can go and buy and sell it on OpenC, so you sort of get some degree of, at least as long as there's demand for your NFT, you get some degree of liquidity. You also get, you can plug it into the crypto defy ecosystem. So if it's a high value NFT, you can imagine taking a loan out on that NFT. And again, all of this stuff doesn't require any, you know,

talking to like specific companies or any integration overhead. It's just you basically get this with that primitive. So why tokenize a physical asset? Well, one of the interesting things is, and we're starting to see experiments with this, is people are holding in their own custody physical items, but issuing NFTs for them so that they can be traded around many times before they're actually redeemed for the physical asset. And that's interesting because then they can basically be plugged into that free market crypto ecosystem without sort of having to build your own peer-to-peer marketplace where you'd potentially

have to be transferring that asset many different times from person to person every time it sells. You can instead get all the benefits of tokenization. Now, it's not necessarily gonna work for every single physical asset immediately, but we are already starting to see some interesting experiments with people trying that out. It sounds like the extra piece then that NFT's

provide in the context of physical goods, which is the words that come to mind when you're describing this is more freedom, right? And more choice for people who own the good. They can go sell it, like you said. They could go trade it. They could use it as collateral. So it sounds like that that's what NFTs give over just the physical item. Is that correct? Yeah. And I would say they give access to sort of a brand new economy of, in a very early economy centered around blockchain and crypto, right? And plugging into that economy has some pretty interesting benefits. Well, you've mentioned, and I know you and I've talked several times about the different use cases you see, and I always find that really exciting. Talk about some, you mentioned museums.

Can you talk a little bit about virtual land and some different use cases? Because I always think that's really exciting when you start talking about that. Yeah, I'm a huge fan of kind of what's going on in the virtual world space. And I think one thing to remember with that particular space is it does take time for these things to evolve. So especially when you're dealing with things that are game-related, that have longer development cycles

than your traditional web applications, these things are pretty early, but they're really getting quite interesting. So with regards to virtual land, the idea is that you could have a virtual world with essentially plots of land, where if you buy the land, you can then build on top of the land, like you would with regular real estate, right?

And so, in fact, OpenC as a company, we were looking to set up a headquarters in one of these virtual worlds, and I actually went to sort of the equivalence of a virtual real estate agent to figure out how, you know, how do I get a good deal? Because the land was somewhat pricey.

So now you have the economy around the land. And then what's interesting about that is you can build, you know, build houses on top of this, build museums on top of it, and what you can do is you can bring in NFTs from other projects, right? So, for example, in one of these virtual worlds called Cryptovoxels, a big thing that people are making are museums of Cryptopunks, which Cryptopunks, for those of you aren't familiar, is kind of one of those most famous early NFT projects.

I like to call it kind of the first candidate for a true digital antique. but people are creating these museums of cryptopunks inside of cryptoboxels. And you could even imagine as time goes on, it being possible to bring in NFTs that represent something more sophisticated than just an art piece. So in my background here, I've got a Zed-run racehorse, and there's a game centered around racing these virtual horses, but you can imagine bringing those horses into a virtual world. And again, there's no direct affiliation between this project and those virtual world projects, but they all kind of interoperate really nicely.

So that's why I think virtual worlds are exciting. They're kind of a first glimpse at some sort of metaverse type ecosystem involved. Yeah. When you talk about virtual land, I think about all of the limitations in the physical world, like zoning laws, right, are restrictions and easements. Like, how do you think about that in a virtual context with virtual land? Well, I'm no expert on this, so I'm just sort of speculating, but I actually have heard talks of similar sort of restrictions, right? So you know, you don't want like the casino next to the school

or something like that, right? Like some, you know, similar types of policies that can be implemented. What's interesting is, you know, we have had these sort of virtual economies for quite some time. If you look at Second Life, it was quite a large economy. But the thing about it was, you know, it's a closed economy, right? So it's centrally controlled. That's fine. Like, there's absolutely nothing wrong with the centrally controlled game economy. And they will continue to sort of persist.

But there's a whole design space that you can explore if you decided to create a free market economy. And that's what some of these virtual worlds are experimenting with is allowing people to essentially transact in crypto be a lot more entrepreneurial and then have the assets sort of backed up in a much more robust way than they would. if they were just on a central game server. But I think to answer your question, a lot of the same problems that we have in the physical world

will start to emerge as well. Wow, that's so interesting. In talking about kind of things like projects like the central land and virtual land, what else do you see other than just museums? And then obviously those virtual museums are populated with NFTs. You mentioned that.

Do you think we'll see storefronts kind of crop up or all the things, like, what other kind of use cases would you see in these virtual worlds? Yeah, a couple of cool ones that we've seen are, so storefronts for sure. So now there's, like, wearable clothing inside of DeCentraland. I think there's even some, some, like, fashion going on in DeCentraland. So storefronts for purchasing fashion items and things like that, those are starting to become more of a use case. The other one that I think has been big this last year is virtual event.

So I actually went to a concert inside of DeCentraland. It was funny. Like, everyone was kind of emoting. And, you know, like, it was mainly, like, you know, people chatting. And, like, I think it still, there's still some development to be done there. But it was kind of cool to sort of have this, you know, these virtual events where anyone can pop in and attend. So those are, yeah, those are two things I'm excited about.

And then there are sort of games inside of the virtual worlds as well. So, like, there's a game called Battle Racers that build their entire game on top of the Central Land. So those types of these cases are interesting. Wow. What about for on the creator side, like, what benefits do creators get? You know, I imagine, for example, you talked about you just went to a virtual concert. Imagine the tickets for NFTs. Is that correct?

I think it was free to attend. So that right. But imagine if tickets had been NFTs. to attend a virtual concert or a virtual event, what kind of things then do creators get out of doing tickets or backstage passes with NFTs? Yeah, well, generally speaking, I think what's exciting for creators

is that creators can have a much more direct relationship with the people who want to support them. So if you think about Instagram today, you're creating all of this interesting content, but most of the value is being captured by the platform itself kind of due to how the business models work, right? Advertising-based business models don't typically give a lot of revenue back to the people who are contributing the content.

So, NFTs really changed the math, right? Now you're essentially selling a digital asset and receiving revenue directly from that sale as opposed to this more indirect business model where you're sort of beholden to the platform. And what I think is interesting about that is you can sort of layer on various degrees of utility. So you could have NFTs that are pure collectibles where really you're just buying the asset to kind of support that person. And you're hoping that maybe you're just buying it out of pure support or you're maybe thinking that there'll be some resale value if that person becomes more successful in the future.

Or you can layer on utility around backstage passes or event tickets. or like a free chat with, you know, a dinner with someone, those sorts of things. It's really, the world is your oyster when it comes to what you could attach to the NFT. So I think, yeah, I think it's kind of early days for experimenting, but there's, you know, I think there's already a lot of creators who are starting to realize that this is a huge opportunity. Yeah, I'm all of a sudden thinking no more mailing list, right? Like there's no need for that, no need for spam email because it allows people to interact

these creators senderact directly with their fans or people who want to use these products and services. That's right, yeah. You've talked about also mixing or remixing NFTs. Can you describe what you mean when you talk about that just for those in the audience who aren't familiar with the concept? I think this is super interesting. Sure. So this was actually something that was talked a lot about when NFTs sort of first started, which was this idea that now you have a more and more NFT projects. You have these assets that are owned by users, and you can sort of compose them in interesting ways. So one of the folks who works with us at OpenC today, he actually built maybe one of the first kind of layer two games on top of CryptoKitties back then. So what he did

was he said, oh, you know, it's pretty cool that you own your CryptoKitty. Well, maybe you could accessorize it with a hat, right? And so he built a game called Kitty Hats, which again, had no affiliation, direct affiliation with CryptoKitties, but they launched their own NFTs, and then when you bought these hat NFTs, you could, like, add them to your CryptoCity. Even going a step further, you can imagine, like,

you know, maybe there's some other game out there where, you know, it's like crypto puppies. Again, completely separate game, but you could, then a third-party developer could come and they could say, instead of creating my own NFT project, I'm just going to, you, I'm just going to say, okay, bring your own crypto kitty, bring your own crypto puppy. Then I'll create this game that allows you to battle to two, right?

Versus, you know, starting from scratch. Now, a lot of this stuff I'll admit is a little bit far out. And I wouldn't say that much of it has come to fruition quite yet. But I think, you know, we're still in the infrastructural phase and once this becomes just such a basic primitive that, you know, you can really rely on, you know, people being able to bring their own NFTs to an application, then some of these other more sophisticated things, I think, could be really interesting to experiment with. Yeah, and I think some of these, like you weren't even imagining, right?

Like, I remember you telling a story recently. Maybe you could share this with that, and it's about the designer that you met through the, or maybe you didn't meet her, but who was studying and paid off her for student loans. Can you tell that story just to demonstrate the, breath. That's how we don't even know what's coming in this in this space. Totally. Yeah. So I think you know, there there are now a lot of folks who are, who either have been in the crypto art scene for some time or starting to explore it and are really making a name for themselves in this new niche. So for example, I was giving in talk at the fashion institute of

technology about, you know, kind of educating people on how they could get involved. And I had, I heard from the instructor that one of the students who had gone to the talk last year before everything was so crazy had basically, you know, started becoming a crypto artist and publishing her work and had paid off, you know, had made enough money doing that that she was able to pay off her student loans. And then you also hear about people who are kind of quitting their day jobs and doing this full time. Now, I'm not suggesting that people, necessarily do that. But it is really interesting to see sort of the jobs of the future emerge, right? Where a long, you know, a while ago when folks are still worried about kind of the effect

of automation on jobs, but there was this idea that there would be a new class of jobs that would emerge from kind of these technological trends. And this is, you know, this is sort of one of those examples, right, where people like that virtual real estate agent are now taking on completely new forms of work because there's new asset classes and new demand coming. Right. Well, maybe also, we know a lot of commercial lease space is available in certain cities after, you know, COVID. But it is interesting when you talk about virtual real estate agents. And this is actually a category that we're starting to see. And I think that just demonstrates the breadth of this category. It's not really just about digital art. Even that is a huge category. Thank you so much, Devin, for joining us.

This is really exciting. Thanks for having me.