Bankless - Fractional | AMA with Andy8052

Episode Date: July 29, 2021

NFTs have exploded in 2021, but many coveted pieces are far out of the price range of average DeFi citizens. Enter Fractional, the new protocol for buying, selling, and minting fractions of NFTs. This breaks apart NFTs and allows anyone to unlock NFT liquidity and open the door for community involvement. To detail this step forward in crypto culture, we bring on Fractional lead dev @Andy8052 for a Live AMA. ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙 SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 🏅CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha 🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger 🦄 UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants ------ 📣 SMARTCON | Register for Smart Contract Summit 2021! https://bankless.cc/SmartCon ------ Resources: Andy on Twitter https://twitter.com/andy8052?s=20 Fractional https://fractional.art/ ------ Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures  

Welcome to another Ask Me Anything. Today we have Andy 8052 from Fractional. Fractional is a place. A new project just came out where you can actually fractionalize an NFT or you can buy a fraction of an NFT. This is a really cool NFT money primitive, I suppose, David, because I know you're in the market for a crypto bug, right? You're still in the market for one.

Yeah, I submitted my bid yesterday, but it took me a while to get over the hump of allowing that ether to be. removed from my wallet. As people know, I'm an ether maxi. And so parting with a whole crypto punk's worth of ether was a tough decision. But it hasn't been accepted yet, though. So maybe I use this platform. You can still change your mind. So if you do change your mind, instead of buying an entire crypto punk with fractional, you can actually buy a percentage of a crypto punk. That's the idea. Maybe you want 5%. Maybe you want 10%. You don't need to own the entire thing. So this is super cool, money primitive. Guys, we are going to get into it. As always,

with these Ask Me Anythings. We are live streaming on YouTube. So if you have a question, throw it into the YouTube chat. We will try to get to your question. We have a ton of questions lined up ourselves for Andy. Before we begin, David, we should just mention, because it's coming up next week, the SmartCon Summit. This is the ChainLink Smart Contract Summit.

It is going to be August 5th through the 7th. We're going to be hanging out, at least on the 5th. We've got a panel that day, EIP 1559. We're going to talk about. hopefully it will have just shipped, like either the day before or that morning. We're going to be talking about that. We've got some ETH Bulls on the panel list that I think you guys will recognize. But there's going to be 200 leading projects there across DFI, NFT projects,

three days of keynotes, workshops and panels, talk about automated market makers, layer 2, ZEM, V, everything. This is an awesome way to get educated on DFI. If you haven't yet, best thing, it's free. go sign up for that. We have a link in the show notes. Educate yourself. Guys, we are going to be right back with Andy from Fractional. But before we do, we want to thank the sponsors that made this episode possible. When you shop for plane tickets, you probably use kayak, Expedia, or Google to compare ticket prices. So why would you limit yourself to just one exchange when you trade crypto? When you

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We have Andy 8052 here. Andy is a defy-DGent. he's turned NFT Maximilist, at least recently. He's known as the guy with the Cryptopunk with the Beanie. If you've seen him on Twitter, he just announced his new platform. That's fractional. It's a platform to fractionalize NFTs across many owners. Andy, great to have you, man.

How you doing? How are you doing? I'm doing well. Thanks for having me. It's exciting to be here after watching very many of these online. Dude, it's really exciting that you built this and you shipped it. I know the NFT community is super exciting. excited about it. NFTs are not in a bare market, despite what people may have told to you a month

ago or two months ago. This is boom time, man. We just had Milakunis NFT sell out last night. It reminded me of the old days when CryptoKitties brought down the Ethereum network gas prices were spiking so high. So NFT bull runs is a good time to ship your product. Tell me, Andy, answer this question first, if you would. Why would someone want to fractionalize an NFT? Tell us why. And maybe define what it means to fractionalize an NFT for folks as well. Yeah, for sure. And definitely NFTs are no way in a bare market. It's pretty insane. It's been a pretty fun couple months. But yeah, so as far as wanting to fractionalize an NFT and kind of what that means, fractionalizing NOTC is taking, well, currently an ERC-721 token and putting it into a smart contract and generating an ERC-20 token, which works basically just like the other defy token you would see on Ethereum or anything like that.

At that point, the tokens all just kind of are they're going to sit in your while in Metamask or in your like your Zapper and you can trade them on Uniswap or a super. Shoe Swap or anywhere else you would so desire. And really the one main difference is that, you know, there's a scenario where you could have a buyout where the underlying NFT is purchased and then you would have a chance to redeem those fractions of your NFT for Ethereum to what kind of once the NFT has been pulled back out into the real world. As far as why someone would want to fractionalize something, you know, I think there's a lot of reasons.

one maybe if you're a creator and you exclusively make one-of-one artwork and you want to have you want to try to reach a wider audience maybe you're like you're someone like x copy where any one of your one-of-ones now is going to be hundreds of thousands of dollars but you want to try to have a way to reward all of your early adopters you could fractionalize a piece of work and give everyone 5% of the of the nfti fractions for example if you are maybe a collector and you bought some crypto punks that are now worth an irresponsible amount of your portfolio, but you don't want to sell all of them. You still love your crypto punks.

Maybe you have an ape that's worth $4 million now and you want to fractionalize it and sell 50%. And that way you still kind of own that ape and you're still connected that ape, but you can maybe be a little more responsible with your money. I don't know who would want to do that, but I'm sure there's someone out there who would want to be responsible. And lastly, I think a really like basic example is I have a lot of friends who have bought Cryptopunks together or bought other NFTs together and they're just sitting in one person's wallet or they're sitting in a multi-sig.

And this is just a really easy way to kind of create a trustless scenario where you all can hold something together. Wait, you mean your friends bought something together? They went in on purchasing a Cryptopunk like they pulled their money and bought a crypto punk. Yeah. Yeah. So I've done that as well before. But I also have friends who owned like five different guys who all in one fifth of a Cryptopunk. Really cool. So Andy, is this specifically meant for like one NFT at a time?

Or could you also do like bundles of NFTs and put multiple ERC 721 tokens into the same contract and then fractionalize that? Is that also what you're going after or is that a different product that maybe you're not as focused on? Yeah. So I'd say yes and no. It kind of depends. there are some really great products like NFTX and NFT20 that are focusing on kind of this like, you know, you can pool multiple NFTs that are all like kind and kind of create like this floor index of NFTs. We're not really going after that specific use case, but we do support

fractionalizing multiple NFTs at the same time. And a really cool example of that is there's the ARPOC's curated set on fractional, which is one of each of the the first 31 art blocks curated drops. And so that is a really awesome basket of 31 NFTs that has a meaning and a reason why you would wanna own a piece of all of them as opposed to just one individual one. So yes, but we also like to have kind of a little more meaning behind the baskets as opposed to just a bunch of random stuff

all put together. Andy, would you say, Ryan, you're muted. Andrew, would you say that this is, a financialization application of NFTs or like as in it's less about the NFT world and more about adding finance upon a layer of NFTs or is this also unlocking cool new things specifically in the NFT realm? You know, I think it's it's kind of a bit of both and it really depends on the person who's using the platform in a way that that's pretty pretty cool I think where there are some people who, after we launched yesterday, just said,

I'm really excited that I now own 5% of an X copy or 2% of an X copy. And so for that person, it's not a financialization thing. It's just that they couldn't afford to own a full X copy. And now they feel like they're a collector. And that's special to them. But it does, you know, breaking down a non-fungible token into a fungible asset does obviously unlock a lot of really powerful things that have already been made in battle tested in Defi, which don't totally work with NFTs. And so, for example, I'm very

excited about the idea of being able to use like a lending protocol with a fractionalized NFT. For a lot of really small NFTs that are fractionalized, it might not make sense. It might, you know, we probably are going to need some new products and new primitives to be built as far as how those would work. But if you have an NFT that's, say, like the people first 5,000 days that sold for $69 million, that's a large enough. NFT where if you were to fractionize that, you could make a good case that, you know, either makers should support that or AVE or compound. So there definitely are going to be cool use cases that can be unlocked like that for some of the really high value stuff. And then

there's also, you know, there's so many cool things that are being built in defy. And so this does allow NFTs to be plugged into those relatively seamlessly. Andy, I have a quick question just to clarify when you were talking about how like this is set up to begin with. So, you If let's say somebody owns 51% of a Cryptopunk and I own 49%, who decides whether that crypto punk could be sold? I think you mentioned something to the effect of like, if I am maybe a minority fractional owner of that Cryptopunk, then I, if it is sold, then I get the ETH proceeds from that sale. Is that how it works?

or like who actually decides how this thing could be sold? And if I'm maybe a minority owner, am I just kind of along for the ride? I just get, you know, imbursed. I don't have a choice from whether this thing is sold or not. How does that work? Yeah, good question. So probably this, that whole portion of the platform is probably the most complicated part of what we're doing.

And it just kind of comes by the nature of the beast. It's a hard mechanism design to build around. Just in general, okay, you fractionalize an end. how do you put it back together? And it's pretty important. The way that our, we call it a buyout, the way that our buyout system works is we have a reserve price, which is if you've ever bid on something on like Zora or Foundation,

when an auction hasn't started yet, they have their reserve price that once someone deposits that amount of Ethereum, then an auction will actually start and it'll create like a 24-hour auction. Our system works relatively similar in so much as we always have a live reserve price, where someone can come in and deposit that amount of Ethereum to start a buyout. The buyouts are a little bit longer. They default to seven days and could be anywhere from three to 14 based on what the initial person who fractionalizes the NFT thinks is best.

So with the live reserve price, anyone who holds tokens is able to vote on what they think the reserve price should be. And we take a weighted average of everyone's votes at any given time to decide what the reserve prices. So if you will say in a situation where you owned 49% and someone else owned 51%, the 51% person would have a slightly larger say in the reserve price than you would. But one other important caveat there is we also have a minimum quorum of 50%. So you don't have to set a reserve price. And if you aren't, if less than 50% of the fractional token holders are not setting a reserve price, then it's essentially not for sale.

And you would need 51% to all agree that, basically to come to say, we agree that it should be sold. They don't have to all agree on the exact same reserve price, but they have to agree that the piece is for sale. Okay. So in order for the Cryptopunk to be sold, over 50% of the fractional owners effectively have to, like, agree that the thing should be sold. and then the remaining, you know, call it 49%, if there's 51, he wants to sell this thing, the remaining 49%. They would be along for the ride, but they also get to, like, vote on the price at which they'd sell it, proportional to their fraction of ownership. So they're along for the ride in that, like, it's a forced sell, if you're a minority

owner, I guess, but you do have some influence into the price at which you sell. Is that the case? Yeah, yeah, exactly. And so say, you know, say the 60% of token holders all have agreed, say one guy owns 60%, and he's like, I want to sell this thing for 10 Ethereum. But then you own 20%, and you're like, no, I think that's way too low. I want to sell it for 25 Ethereum. The reserve price then at that point would be, you know, based on the math and your

average, like your token weights somewhere in between those two desired prices. interesting why do some token tell me the logic between behind why some token holders can dictate the prices that others sell their tokens at isn't that kind of like getting in the way of the free market no i think there's a little bit of confusion here so it's not that i am basically so essentially if you do not set a reserve price you essentially have set your reserve price to zero that's what the default is

And so when you have set your reserve price to zero, you are not voting on a live reserve price. You said, I'm actively not participating in this. Everyone who is actively setting a reserve price is creating the current live market for what the Senate can be bought at. As long as 51% of people are actively voting on that reserve price, then it is effectively for sale. And if you come in and say, hey, if you're one of the people who isn't voting and you think people are voting, poorly, you can then actively start to vote as well and have an active vote and say in what the price should be. And so then at that point, say you had 10% of the tokens and 51% were voting at any given

time, then there'd be 61% voting because you've now started to also be a part of the group of people who are token holders and voting. So it's like essentially an opt-in vote of what any NFT should be sold at at any given time. and you have as much agency as you want in that system to participate. And if you don't feel like participating, you don't have to. But assuming majority wants to, that's what's going to win out. So where in the process does this reserve price in voting actually become relevant? So this is not when after, this is some point after where somebody who owns a high value

NFT comes to fractional, put it in the contracts, and then they fractionalize it. those fractionalized tokens go out into the world, into, into all throughout Ethereum. And then once people buy those fractionalized tokens, that's when this voting takes place to dictate the reserve price for future buyers who are now interested in the secondary market of these tokens. Is that correct? Yeah. So essentially, the reserve price is just for anyone who would want to buy the entire NFT. Ah, ah. Okay.

So for example, currently, like taking a very explicit example of like the ARP blocks curated, fractionalized bundle, based on the numbers that I had from like this morning, it might be different now. The live like trading valuation of the ARPLox curated bundle was about 175 Ethereum. The reserve price was 230 Ethereum. So essentially token holders were saying that, you know, even though we're holding, like the tokens are currently trading at one particular valuation, We are not comfortable selling the entire bundle of them unless someone were to start an auction at 230. Okay. And so this is actually how you can give assurances to defy apps like Maker or Ave or compound to use these tokens

as collateral because if they were to ever be sold. And that was one of my questions is that like if you can actually forcibly sell these tokens, that is, that's scary for a defy app because then the token, well, sounds like it'll just get revoked from a collateral in MakerDAO or compound, but because you can give assurances that it's going to be sold for a certain amount of value, you can actually tell AVE compound is like, well, the token is going to get revoked, but instead it's going to be ether there as a replacement and ether's the best collateral in defy. Yeah, and that was actually like a really important part of kind of how we were building this is, so say there is a buyout and all of a sudden,

so you own some tokens for the five eyes. X copy piece and you have them deposited in uniswap and you're providing liquidity. If there's a buyout and now you have some redeemable amount of Ethereum, your tokens don't go anywhere. They basically are now just pegged to some amount of Ethereum. And then at that point, you can, whenever you're ready, pull those out of Uniswap and then go to fractional and redeem those tokens and get your Ethereum. So Andy, you and I are both a part of Pleaser Dow.

You're a much more active member than I am. But Pleaser Dow is famous for owning a bunch of high-value NFTs. And I would imagine that Pleaser Dow would be very, very interested in leveraging this platform in order to get further and further liquidity on their NFTs. So this seems to be like a perfect product for specifically high-value NFTs with a lot of prestige to them to see how liquid can we actually make these things? And I think that's actually going to be the big experiment coming out of fractional is a question of like,

how liquid can we actually make like the Edward Snowden NFT or the People Pleaser NFT? So that's actually kind of a question to you. Like I know this is entirely speculation. Fractional is just a couple days old. But how liquid do you think these things can get? Yeah, you know, who knows? I think one of the fun challenges with this is trying to figure out what the best way for people,

for there to be secondary market trades of these things. And like right now we're super actively not participating in that. If you fractionize something and you want people to be able to trade it, you can go to Uniswap and make a liquidity pool. It's been pretty surprising so far. I guess I've never really had used Uniswop v3 with some of the, like a significantly lower. value asset. So for example, I think the five eyes fully diluted valuation is maybe $450,000 or something like that, which naturally if you wanted to try to trade any like serious amount of value there to buy into that you'd expect really bad slippage,

but people were providing liquidity on unoswapv3 and it really wasn't very bad. I was really impressed. It was I think there was almost like $300,000 of volume in the first day of buying these NFT fractions, which is really cool. Ryan, you're muted. Did you say $300,000 of value? Of volume, yeah. Of volume? Yeah, buying into trading five eyes, yeah.

Hmm. So what's super interesting here is I'm kind of like racking my brain. I mean, like, there's some things that I feel like, you know, are natural to share, right? like I'll, you know, I'll share my bike. I'll, you know, I have a pizza. I'll share a slice of pizza with you, right? And like, there are other things where, like, in life, you kind of want your own, you know, like,

I'm not sharing my underwear with anyone. You know, like, that's my. Right? Like, but, like, art is sort of interesting because you haven't previously in the physical world been able to share it, right? If you think about like a, you know, a, you know, a Banksy piece of,

art. It's not like you can take that piece of art and like chop it into pieces and like give it to you all your friends. Or it's not like you can like get a thousand people and go in on a piece of art and each own some percentage of what you're, you know, where you're trying about it. Because these are like physical things. Like, you know, I don't want just a slice of a painting. I have the whole painting in my house. I can't fractionalize it. But with NFTs, you can fractionalize it. I guess maybe my question is this is like a, it's not just a new primitive for defy. It's a new primitive for ownership in general, if that makes sense. And like, I'm wondering what it's like, because I've never owned a collectible with a group of strangers.

Right. If I had magic, the gathering cards, like, they were mine. Like, they weren't mine plus my friends. We didn't, like, pull things together. They were just mine. What is it like to own a collectible with a group of friends or even a group of of strangers that you have to share. Is some of the magic lost when you do that of like owning a specific thing? You know, I think sometimes probably, and it depends kind of what your goals are,

what your endgame is. But I think there's also something really awesome about it because like one of the things that's been very evident in crypto and Ethereum primarily and NFTs especially is like community is so important with all this stuff. And there's something to be said for, having a random group of people all who came together in a decentralized protocol online who now all have a vested interest in this thing. And maybe they want to display it in crypto voxels. And they say, in order for you to see it, you have to own 1% of the NFT fractions. Or if you want to like have your name on the plaque to own it. And you can create these like really, really cool communities and stuff. And that's something I'm really excited to like continue

to build. We haven't had a ton of time to really start getting into that yet. Because we've been trying to build much more of an MVP. But I think that, you know, with the right, with the right technology and the right tools in place, it can actually be like very empowering to the group people who are all owning this thing together. But there definitely is always a time in place where people want to say like, look at this badass thing that I own myself. And it's just kind of is two different scenarios. Andy, we were talking earlier about the blasphemous nature of putting a crypto punk as your avatar if you don't actually own it. But when it comes down to the world of fractionalizing it, like, where do you think that line is?

And I know this is kind of only going to be determined by social consensus, but I want to get your opinion. So like, say somebody fractionalizes an alien crypto punk that they own and they only fractionalize 49% of it. So they still own 51%. Are they still allowed to have that alien punk as their avatar? That's a really good question. It's a really funny.

You would be shocked. Maybe not. I hear the question all the time. But the funniest part is I have people who ask me, they're like, am I allowed to use this? I am not the Twitter police. I don't really care what you make your profile picture. But so there was people were talking about this on Twitter spaces on Monday. And it seems like a lot of people were basically saying, yeah, if you own a percentage of this thing, even a small amount, like you own it, but do what you want with it.

I'm sure some people will give someone a hard time or be like, oh, you don't actually own the full thing. But I think in general, if you can signal that you are in some way, like, attached to this thing, people will probably get over it and be okay with it. But it'll be very interesting to see how that all plays out. I don't really know. It'd be awesome to be able to have some type of representation of your ownership in the profile picture and what that looks like. like, and it's something we're pretty actively thinking about, is how do you maybe issue a special NFT to someone who owns 10% of an of an NFT or something like that? Maybe you could use that instead. As you're talking, Andy, it's just crazy how all of this is like, it's all socially enforced,

isn't it? It's all layer zero enforced, right? Like, you know, are you allowed to have a crypto punk in your Twitter avatar if you only own 1%? Well, it's not really up to you. I mean, there's, there's nothing legally. You're not going to be thrown in jail if you do that, right? There's no, there's no Ethereum police or Twitter jail. Right. But like, you know, there could be some social stigma attached to doing that. Like, you could be a larper, you could be a poser. You could like not be achieving the signal that you're trying to receive with, with, with crypto punks. It's so fascinating. But I do wonder, just to follow up on David's question, if this could potentially cause actually an unintended side effect, which is like a dilution of the very important.

of some of these things. So if it comes to pass that social consensus says, hey, if you own over 10% of a crypto punk, you're allowed to use it as your avatar or you're allowed to like, you know, flash it around in social media. Does that dilute the value of owning an entire crypto punk? And could that decrease the value of crypto punks over time? What are your thoughts on that thought exercise? Yeah, it's an interesting question. I would say, say no, primarily because even if you, if social consensus was 10% of a crypto punk means used as your profile picture, that's still at most 100,000 people in the entire world who could use a crypto punk as a profile picture. And now if you're making the barrier to entry even lower

for getting to that point, you probably actually have more people who'd be interested. I think if you told people that you could own a crypto punk for $5,000 right now and there were 100 million of them, you probably would have a lot of demand to do that. I think in general, like, society is always going to appreciate owning single things, especially like the Uber wealthy. Like, realistically, someone who can afford to buy an alien crypto punk is probably not very interested in owning a fraction of, like, a zombie crypto punk. That's not, it doesn't really do anything for them.

outside of maybe, you know, they want to be a part of a particular community that springs up around one or something. And so people like to emulate really wealthy people in life in a lot of ways. And so I do think that there is always going to be demand to own individual ones, regardless of whether or not you can vote for actions. I think I'll, I think I buy that, Andy. I think that could very well be the case. Now I'm going to flip this and give maybe the bull case for NF. with something like fractional it's out there, which is like you are providing,

this protocol is providing NFTs, something in the finance world, they would call a liquidity premium, right? So like NFTs are not super liquid. Like ERC20s are much more liquid. But NFTs, you kind of have to sell all or nothing, essentially. But you are taking an illiquid asset, and essentially creating a protocol to unlock the liquidity of underlying all of these assets.

And I wonder if that's actually could contribute to NFTs as a whole being more valuable. Because, hey, I'm not locked into owning my, you know, 50 million dollar people piece forever if I buy it, right? I can always sell 90% of it and still keep 10% at any point in time. So I get some additional value from that purchase because I'm not locked in because there is this liquidity liquidity premium that now fractional has kind of added to all NFTs. So I do think this could be a boon for the space. And this protocol could actually increase the value of all of the NFTs that are

in existence, particularly the more expensive NFTs. What's your take on that? Yeah, I tend to agree. It was actually that was kind of how I started thinking about doing fractional in the first place, funny enough. So I was very early in NBA Top Shot and I was like one of the largest spenders on the platform for a long time. I was basically just yield farming during the five summer and buying basketball moments. And as I was buying more expensive stuff, I was having, you know, there was a ton of people like the floor level moments. on the site were just like flying like crazy. But it was harder to sell something that was $50,000 or $100,000.

And so I was like, okay, I want to buy this thing. And I think it's actually worth a million dollars or will be, but who is the market of people who want to do that? But there's a lot of demand for these cheaper things. And I think in general, if you have something like Cryptopunks is the easy example, but I think that Cryptopunks aren't going anywhere. very easy to make the case of why someone wants to own a floor crypto punk. I think it's very easy to make the case of why you would want to own an alien crypto punk right now, assuming you could afford it.

But there's kind of this thought of like, okay, if I'm going to spend $10 million on an alien crypto punk, and I think that it's like 100x undervalued, and this thing is going to be worth a billion dollars one day. Who is the billionaire who wants to buy a $1 billion alien crypto punk? That's like the hard conversation to have. But I bet. there are, you know, a hundred thousand people who want to buy a piece of a billion dollar alien crypto funk just to say that this is so cool. I own the rarest of the rarest NFTs. And I think it unlocks something there that's really, really powerful. And it helps people feel more confident making really high-end purchases where they don't want to be the greater fool. But it's not

even like necessarily a greater fool. It's just like there's no one richer than me to buy this Andy, I see this project falling in line with two very big themes that we've seen in DFI over there. Well, DFI really over the last three years, but really we've identified it lately. It's capital efficiency. All DFI app's are evolutions on capital efficiency. And what fractional seems to me is capital efficiency for NFTs. Like that was what Ryan's question was. And that was what we were talking about right now.

It's like, how can we make NFTs, which are inherently a financial asset, right? anything that's a token on Ethereum is inherently part of defy by the very nature of it being a token. And now we are getting into the world of capital efficiency for NFTs. So my question to you is like, is this just the start? Like what do you think? And especially as someone who is paying attention to the quote unquote NFT bear market, which actually wasn't a bear market apparently, what do you see the trend coming from all these applications that are being built in the quote unquote NFT bear market? Yeah, I mean, I think that kind of what we're doing right now with NFTs is really, really just like the most low-hanging fruit available. And so like it's the correlation or just like moving from real world collectibles to digital collectibles.

It just makes so much sense. It's very easy. It's the easiest pitch in the book. It gets more complicated when you say what if you have like all of the non-fungible assets in the world are now non-fungible assets on the blockchain and all these different types of. things. And so I'm really, really excited about what it looks like when, you know, we're fractionalizing charged particles or we're fractionalizing Uniswap fee three liquidity positions, although those don't like totally make sense. I've had a long conversation with some of the guys from Uniswof about it. And we came to the conclusion, maybe it's not the best thing.

But just in general, the idea I'm very excited about as Defi finds itself in places where there are these non-fungible assets that represent different positions and different things that are happening in protocols, that's going to be like a massive, massive place to fractionalize things. And, you know, maybe you have an NFT that represents vesting tokens that vest over the next two and a half years. And you can fractionalize that and kind of sell at a discount because you want to get out of your position earlier or you have like all these different weird things that could be happening or insurance positions or there's a lot of different fun stuff that can happen there.

Guys, we are going to be back with Andy in just a minute. We've got so much more to cover, including some questions that are coming in. Want to find out what exposure to Frasional NFT gives you versus something like NFTX. Talk about how Andy launched this. Talk about some of the wilder use cases you can imagine in the future. But before we do, we want to thank the sponsors that made this episode possible. Living a bankless life requires taking control of your own private keys, not your keys, not your That's why so many in the Bankless Nation already have their Ledger hardware wallets, which makes proper private key management a breeze.

But the Ledger ecosystem is more than just a secure hardware wallet. Ledger is the combination of the Ledger hardware wallet and the Ledger Live app. And if you're used to seeing all of your crypto services and favorite D-Apps all in one place, Ledger is where you want to be. Not only does Ledger let you buy crypto assets straight from the app, but it also hooks into decentralized exchange aggregators like Paraswap, which make sure that you are getting the best prices on your trades without your assets ever leaving your control. Defi never stops growing and the Ledger Live app grows alongside with it. So click the link in the show notes to see all the Defy apps that Ledger Live has and stay tuned as more and more apps come online.

And if you don't have a Ledger hardware wallet, what are you even waiting for? Go to Ledger.com, grab your ledger, download Ledger Live and get all of your DApps all in one place. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries,

just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswop ecosystem is the Uniswap Grants program is now accepting applications for grants. We have been saying this for a while and we'll say it again. Dow's have money and they are in need of labor. If you think that you have something to contribute to the Uniswop Dow, apply for a grant to Uniswap. Just look at the size of the Uniswap treasury. It's almost $3 billion.

This mountain of capital is looking for labor. Do you have something of value to contribute to the Uniswap Dow? no matter how big or small your idea is, you can apply for a UniGrant at Unigrantz.org and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswap to be a sponsor for Bankless, and you can do the same for your project. Thank you, Uniswap, for sponsoring bankless. All right, guys, we are back with Andy. We're talking all about fractional NFTs and the new protocol called fractional, which allows you to turn your NFTs into fractions. Really exciting protocol. I've been pumped while Andy's been talking about this. It's really unlocking some new use

cases. You know, I want to ask about kind of the NFT speculators. Like after certain, you know, fashion, NFTs are the purest form of speculation. Like, I respect that. You know, remember that the ICOs of 2017. You thought you were actually buying like something valuable, like some sort of money maybe, some utility token, whatever that was. Like NFTs are just flat out like it's worth whatever the market says it's worth, you know? And like, I appreciate that and respect that. So people want to speculate on these NFTs. And I think there are a lot of folks that don't have the time maybe that we have in crypto, maybe that you've spent on this, Andy, being an NFT maximalist and like figuring out the next hot NFT project before it happens, like getting into NBA

top shots when it was just like a new thing, for example. And they want exposure to this asset class. there is a platform called NFTX that I think you mentioned earlier, which we've talked about before on bankless. And I think what this allows you to do basically is get exposure to sort of crypto punks as a class or, you know, mask NFTs as a class, an entire asset class, and allows you to sort of speculate on that. It seems to me fractional is doing something different, where it's giving you exposure not to like an entire class. of assets, like all the cryptopunks or all of the mask NFTs, it's giving you exposure to a specific piece, like a specific NFT in itself, fractional exposure to that. I think that's the way of looking at it,

but how would you kind of compare and contrast NFTX versus fractional and the use cases for somebody who just wants to speculate in this space and bet on the next big NFT? Yeah, I actually think you did a really good job kind of explaining it. But yeah, NFTX typically is going to track with the floor price of any given collection. So it tracks pretty closely to the floor of Cryptopunks with like their punk's vault. And that is like great for what it is. It works really nicely. I'm a big fan of NFTX.

I've used it before and it like unlocks some very cool things you can do. But as you were saying, I think it struggles, it has struggled to find a way to handle significantly more expensive things. Like the zombie punk vault that they're like index that they have. It doesn't see very much volume. I'm surprised by that because I think people would like to have exposure to zombie punks given the choice to. And I think it just kind of comes with the nature of how valuable the assets inside of them are. That it just gets really hard. You can't totally scale it unless you had just an.

insane amount of liquidity coming into it. It's very hard to get one full punk zombie share from NFTX to ever redeem one. And so, yeah, I think that's where fractional can step in and play a really nice role where it would never make sense to put an alien crypto punk in an FtX in its current form, but it works very nicely in fractional where if some people might just want to have exposure to the best of the best and kind of really focus on like super high end. and NFTs or really, really rare one of ones or stuff like that. And that's kind of the major difference.

But as I said, you take the job explaining it. Is there a case where something like NFTX could actually tap into the power of fractional and kind of improve exactly what your concerns are with like not really being able to offer exposure to all of the full spectrum of punks? But now that you can fractionalize more punts and more varieties of punks, could NFTX kind of solve some of the concern you just talked about? Yeah, I actually had an interesting conversation with Alex from NFTX about this. And I think there could be some really interesting solutions for primarily something like a zombie punk,

where say we basically would make a special way to signal that this is a fractionalized, like zombie cryptopunk. And then you could deposit those fractions into NFTX or NFTX could just do that in the back end when you deposit zombie cryptobunks. And so then you could basically NFTX would act as an index of all the different fractionalized zombie cryptopunks. And you could withdraw a piece of that, which would just be, you know, some percentage of one of the particular zombie cryptopunks as opposed to having to withdraw an entire one. And it would almost act as like a set protocoly style wrapping system around fractional, which would help unlock some really interesting liquidity. and more like just taking price action on the on the asset class. So Andy,

I'm curious how Fractional would handle situations where you have an NFT that has some like utility in say a game. Like let's say I have a gods unchain card, for example. It's a very rare card, very expensive card. But like that needs to be used in the gameplay of God's Unchained inside of my deck. Right?

How would that work? Or is fractional really not set up to do that? Maybe it's the case that fractional is just kind of set up to give you sort of upside exposure into the value of that. But when it comes to utility, you have to kind of reform the thing together in order to get utility in a gaming platform like gods and change or axes. Can you talk about that?

Yeah. So for our current version, basically one of the things we wanted to make sure that we could do was allow a lot of security for the users who are buying, buying these NFT fractions to not have to worry that there's going to be a governance vote that rug pulls them and moves the NFT out or something like that. And so you can't interact or like use any of the, starts to get significantly more burdensome for all these NFT fraction holders to have to be watching for governance votes and all the

things that go along with that. But what we've been actively thinking about, and I think this will probably be some part of some later versions, is very specific fractionalization for different assets that have utility where say maybe for an AXI, we partner with Yield Guild Guild and the one thing that your AXE can do when it's fractionalized is like be given to Yield Guild Guild Guild to be lent out to a scholar. And so it has very, very specific function calls that would allow for very specific and like safeguarded actions. So that way you don't have to worry that, you know, you're going to wake up in someone 50% of the token holder is voted to just transfer to a random wallet or something

like that. So right now, we will not support it, but in the long term, I think we can make ways for people to feel safe, but also be able to support these cool and interesting utilities. Andy, a question I have is regarding the metaverse. And everyone kind of has their own definition for the metaverse. And so I actually kind of want to ask you to define the metaverse from your own words. And then how does fractional impact tokens in the metaverse? The metaverse is very, very tied with NFTs and digital assets. So question to you, what is the metaverse in your words and how does fractional as a platform fit into that? Yeah, you know, I think, I don't think anyone really totally knows what the metaverse is yet. I think that's kind of, that's part of the beauty of it. But to me,

it's really just any online world where people are doing things together and interacting. And, like, the metaverse is just going to continue to grow in how expansive and interesting it is. But it, like, kind of already exists. It just is basically the internet. But what I'm excited about with fractional in particular and just like NFT fractionalization in the metaverse is it actually is just like can be way more powerful than what fractionalization unlocks in the real world because it's all programmatic. And so for example, like there's an app called or just like a web app called Picasso, I think, where you can fractionally own or a real home with your friends, and it's all through legal documents, and you like set up time. It's basically

like a timeshare, honestly. What's significantly cooler, in my opinion, is you could fractionally own land in crypto boxes with your friends, and it is programmatic. Who gets access to this land and when they get access to it, and you can like, you don't have to require, you don't need some middleman to set this all up for you. It all just can be done on chain. Or say you have fractional ownership of a piece of artwork and you're able to only allow certain people to view it or you're able to like vote to display it in a museum in a metaverse or something. It like, it unlocks a lot of really interesting use cases where having fractional ownership can mean so much more than just like just what it would mean in the real world where you just say,

yeah, I own a fraction of this. Instead it can unlock a lot of really exciting things for people. based on not even just utility in so much as like a Zed run horse or something, but utility in displaying it and showing it off to your friends or or using property in a metaverse or something like that. It's interesting these terms like property in the metaverse that you used. You know, I was reading some stuff from Mark Zuckerberg last week, and he talked about Facebook as being a metaverse company, right? That's how he sees Facebook in the future,

which is sort of interesting to me, but also like also kind of dystopian to me if you know Facebook ends up owning all of the property on the metaverse right which is why I hope bankless listeners are I kind of you know getting this vibe from we're talking about property we're talking about ownership right blockchain platform public blockchain platforms like ethereum are the only things that we have on the internet that allow you to own digital things they're like property rights systems for the internet and they're public and they're neutral so that Mark Zuckerberg and Google and like Apple or any of the big techs don't end up owning all of our digital property online. That's how that's why this

stuff is so important. I just wanted to fit that in there somehow, Andy. I'm wondering if you have any any reflections on that like the importance of owning our own property on the Metaverse. Why is that important to you? Yeah. I think what's cool about it too with Metaverse is it's a unlimited. And so it's not like, what is it, Blackstone is apparently buying all the property in the US. It's not the same thing. They can't just buy up all the property. Then we'll just, we'll, we'll make more. Right. Doesn't matter. Yeah. And so I think that's what's really cool about it. And that's something where, you know, again, like NFTs in general and fractional ownership of them, and just like creating all these interesting primitives for people to have more control over what they own

and how they own it and what they do with it is just like really, really important. and very exciting to be building. Andy, can you dream up your wildest use case for fractional? Like if somebody really wanted to leverage fractional to the nth degree, like what's something crazy that they could really do with it? Man, you know, I've seen some really, really interesting stuff around like some stuff that's, it's not that crazy, but I think it would be awesome, like a meme marketplace where you have like every time, like the origin of every meme is a fractionalized NFT.

able to create these marketplaces of what makes it, what memes are popular, what memes are being used and all these different types of things. I think in general, like, the idea of, of marketplaces around different fractionalized things that are like the source of truth of this is that thing, and now people are able to trade it up or down based on its value to whatever they decide the value is, is really fun as kind of like a slightly more realistic thing. Outside of that, I'm really into the ideas of like fractionally owning property, like real life property and everything that comes along with that. And like, you know, it's a very long ways away, but like real world assets and everything

that comes along with that. And I'm very excited to kind of see makers start to onboard more real world collateral and all that kind of stuff. I think that's going to be really huge in the, in the NFT space and infractional. And I don't know what it's going to totally entail. And there's going to be like an incredible amount of legwork. that needs to happen before. It really is anything tangible, but I'm very excited for that whole space to continue to grow. One of my favorite subredits, I don't know if you're familiar with it,

but it's called our meme economy. And this was a popular subreddit before Ethereum, really, before NFTs. And it's a subreddit joking about how different meme formats are propagating across the internet. And so, like, and it has nothing to do with crypto, right? So there's no actual money involved. It's not like Wall Street Betts. It's just kind of a joke. And some popular, some new meme format will come out and they will identify this like, oh, this meme format is hot, like, buy, buy, buy. And then and then the meme format will like propagate throughout the internet. And then you'll start to see like Walmart start to use that meme format as like advertisements on Reddit or Twitter. And then they're like, Walmart's not using the meme format. Sell, time to sell, time to

sell. And so like this energy is on Reddit. And like there's some sort of energy to like figure out how to monetize and make like prediction markets on memes. And so maybe, maybe that is actually what fractional enables in long term. Yeah, it's like one of those weird things where I have no idea how it would actually work or why someone would want to use it. But I've had multiple people say,

hey, I kind of want to use fractional to do this. And like, well, if multiple smart people all think this is like an interesting idea, I'm sure some things that have come out of it at some point. But it'd be a fun one. Andy,

what's on the roadmap for fractional? Oh, man. a lot of things. So kind of we have a lot of stuff UI, UX based around, just like making it really, I feel like Fractual can be a great gateway to buying NFTs and getting involved in the crypto space in general. And also a great way to teach people about defy and stuff. I've had to, I've been teaching a lot of people how to provide liquidity on Uniswap and all these different things who are coming from the NFT space, maybe haven't done that. And so there's just a ton of legwork to be done there to keep making

that better and better and also make it feel really exciting to collect things. You know, what is how do you get excited to own 1% of a of a crypto punk? For some people, it's easy for some people maybe that like seeing the ERC 20 token in their in their account balance isn't that exciting because they own a million different ERC 20 tokens. So that's one thing. Alongside that, you know, trying to stay up to date with layer two scaling and everything that comes along with that. And fortunately, we really only have to go. where the most valuable NFTs are right now. We don't have to make any hard decisions of what's next,

but we're keeping very actively, we're very actively watching optimism and arbitrum and ZK roll-ups and Polygon and everything to go along with that to make sure that we're able to support whatever, wherever those really valuable NFTs, basically, and give people a good experience. And then lastly, kind of like I was talking about, having these specific fractionalized NFTs

that are able to use their utility and really unlock some cool stuff and some fun composability between different applications and stuff like that. So kind of a lot of things. Andy, this is really exciting. And thanks for telling us all about the fractional. It's a really cool project. Glad you built it. In closing, I think we have just a couple of questions because we don't often have an NFT Maxplist on the bank list podcast. So we want to make sure we use that expertise here. I'm super curious as to, like, you've dabbled these markets for a while. How do you personally go about finding the next hot NFT project? Like, what attributes do you look for for the magic? Because to the amateur, this all feels very like, oh my God, it's meme economy. You're just kind of like shot in the dark. I don't know if this is going to be successful or hot or not. I don't know why cryptopunks are worth what they are. How do you find the next hot thing in NFT?

Yeah, to be honest, I'm not that good at it. But one of the nice things around it is like you don't really have to, so where NFTs, I've noticed as someone who's been in Defi for a long time and kind of doing all the DFI stuff as well, NFTs have this layer of emotion attached to them that a, you know, a valueless governance token can't really have. You can get emotionally attached to one just because you've participated and been active. But there's something about collecting art and something about, you know, just buying something and having it be yours. And it's one of one and it's yours and that's special. That is very hard to replicate in normal markets. And so you don't always, you don't need something to be the next big thing for it to do well. You need like a few really rabid, like, rabid fans who are like, this thing is amazing.

I want as much of it as I can get. So an example is there was an art block drop recently called the Eternal Pump, which is also an amazing name. And there was this one guy who's this anonymous NFT whale who just showed up recently named Vincent Van Doe. And he has bought like almost a million dollars worth of this NFT over the last week. And like in order for you to do well buying that, you didn't need the entire market to go, oh, this is the best NFT ever. I want to buy it. You need one whale to say these are really cool. I want to own a bunch of them.

And so it's a totally different market dynamic from like trading D5 tokens or trading Ethereum or Bitcoin. And so I think it's just finding stuff that you think is legitimately good where if that doesn't happen, that sucks, but you have artwork that you like. And then also trying to try to identify like what makes why did Vincent Van Do want to buy a million dollars of this NFT? And it's really cool. It's a very cool generative piece. But I don't really know what made it so special to him that he wanted to do that and trying to find whether it's a community that's. really excited about it. And even if the price is down, maybe there's still a lot of people who are building interesting things or just talking about it a lot. And that was, you know, like art blocks.

A lot of the art block stuff is like that. And it's been so crazy. And the same thing happened with Cryptopunks where they were just really, really fans who loved Cryptopunks. And eventually that like kind of spreads. It seems like what you're saying is like stay in the community and just buy what you like. Yeah. I think that's really the way to think it. Yeah. And it's very much so a space where even more so than defy where one one hit is worth so many misses. For example, like board apes. If you minted a bunch of board apes because you thought they looked cool, you could have minted every other profile picture project that has come out since then,

and you definitely are still doing all right for yourself. Andy, last time we talked, you talked about how you think, like, you believe in what I've heard of the Cryptopunk Bat Protocol thesis, as in like ultimately all value flows back to crypto punks. Now, unfortunately, I'm asking you this question before I get my hands on my Cryptopunk, not after, but I'm going to ask it to you all the same. Why do you think that's true? Yeah, so it's a hard question.

And I think that Cryptopunks are like this really, really special project that, so one, there's ever going to be any more of them. And so that makes it very easy, like the, you know, the Bitcoin fixed supply meme. It's right in with Cryptopunks, except it's better. It's a better, it's a better meme than Bitcoin's fixed supply. Um, because, you know, you don't have to actually secure crypto puns. There's other stuff for that. We don't have to get into that conversation. Um, and then alongside that, uh, they look cool. So a lot of people say they don't. I think they look cool, but I don't really think that matters very much. People buy very ugly clothing that costs thousands of dollars

because other people say it's cool. And so that doesn't really matter. And then basically it has created the narrative that it is the first NFT project. Some people will argue it isn't. There's some other stuff called like Ethereum that was really old. I don't really know. It doesn't matter anymore. The narrative is it's the first NFD project. And it's like it's kind of crossed this chasm into like

it's really, really cool to own a crypto bomb. And I don't, for me at this point for that to change, I think Ethereum has to like fail as a project. And I'm also, you know, basically betting my entire life that's not going to happen. And so at that point, like what else needs to happen for them? And I get a lot of in-down to people saying, hey, I'm trying to trade this NFT for a crypto punk. I'm trying to trade my five board apes for this

crypto-punk. I'm trying to trade this and this for a crypto-punk. I don't get very many people who say, hey, I have a crypto-punk. I'd love to get some of your insert other NFT here. That just like doesn't happen. That's not a conversation. And I think there's a reason for that. And it's because it's kind of the end game. It's like the ultimate NFT to own. And I will say that if you would ask me five months ago, would there be other profile picture projects that people cared about a ton? I probably would have said not for a very long time, if ever.

I have changed my opinion on that a little bit just because it's very clear that 10,000 Cryptopunks isn't enough. And so there's more than 10,000 people who want to have a profile picture. And that's where board apes have been really, really interesting and cool cats and all the other millions of ones, which ones end up winning out of that? Who knows? But I think we're going to kind of my latest theory on all this is we're going to have these like seasons of punks and so, or seasons of profile picture projects. And so punks is the first one. So they're like the ultimate grail profile picture NFT. And then this new wave of NFTs, they have

Ford apes and Kool cats and wicked craniums and all those other stuff. And those will all, you know, some will be worth something, some will. And then you'll have a new wave of of stuff that comes in a couple of years whenever there's like the next NFT wave of things and that they'll have their own projects and buy buy sell sell sell yeah exactly but at the end of the day there can only ever be one first

NFT project and one first profile picture project and so like no matter what narrative happens no matter what changes like that narrative is like set in stone it can't go anywhere I think that was a fantastic answer and so my last question to you Andy is And we sort of the show with this as well as there's been this, you know, meme going around in the last couple months is that NFTs are going through a bear market. But people who have been paying attention to the NFT industry don't agree with that statement.

So maybe you could give us, update our mental models as to what's been going on in the NFT industry for the past two to three years. Why do people think that it was a bear market and what's actually true? Yeah. So, you know, I think basically what happened was there was an insane amount of hype around like the Christie's auction for Cryptopunks and Cryptopunks like went really, really crazy before them. They got to like a 23 Ethereum floor or something, which is higher than they are now, even. Only by one. The floor is at 22 right now. I know. It's crazy. It's insane. But so I think like, that's how I know. Oh, I know. It was kind of like this, this event that was a little bit outside of the normal hype cycle of NFTs, where,

where like it was very much so an event that was affirming to people's like theseies and their beliefs, but it was so exciting that it kind of like ramped things up too quickly. And so then after that, naturally there was going to be this little bit of a lull. But very soon after that, Bored Ape started to really pick up. And that was where we started to see these other profile pictures pop up while punks were kind of not moving. And so I think there was a subset of people who basically said like, no one really seems to care about people as much as they used to. and crypto punks are going down

so it's an NFT bear market but at that same time like all these other NFT projects were exploding and ARPlocks was really starting to pick up steam and now like I mean ARPlocks is doing a couple million dollars of trading volume a day board apes are doing a couple million dollars punks are doing millions of dollars

I mean Axi is doing like 20 million dollars a day in trading it's it's crazy I think that you have to just like kind of remap that as I was the same before there's so many new pockets of communities that are building up around all these different projects. And so you can't just look at what's the Cryptopunks volume, what's the Cryptopunks floor, and who's buying stuff on Nifty Gateway. I think a lot of those people have moved and now they own board apes and they're aping into stuff on open sea drops and art blocks.

And it's just kind of evolving. It's not really slowing down. Fantastic. Fascinating, Andy. Yeah. Thanks for that insight too and for updating our mental models on that. it feels like the NFTs as a collectible asset class are still continuing to go up. But there are these waves of collectibles that become popular and then kind of change in and out, right?

So baseball cards to beanie babies to something else, right? It would be the old world analogy. Now, of course, we are in the NFT world and you are fractionalizing them. Thank you so much, Andy, for spending some time with us today on bank lists. Would this ask me anything? Yeah, thank you for having me. Guys, of course, none of this has been financial advice. Crypto is risky, defy is risky, NFTs are risky. You could lose what you put in, but we are

headed west. This is the frontier. It's not for everyone, but we're glad you're with us in the bankless journey. Thanks a lot.